Beruflich Dokumente
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How to use the BAR STAR NOTES. The sovereign exercised through the legislature to impose
BAR STAR NOTES in the form of questions and burdens upon subjects and objects within its jurisdiction
answers as well as textual discussion were specially for the purpose of raising revenues to carry out the
prepared by Prof. Domondon for the exclusive use legitimate objects of government.
of Bar Reviewees who attended his 2010 Lectures on
TAXATION held at the University of the Philippines. 2. What is the nature of the States
Included in the presentation are doctrines contained in power to tax ? Explain briefly.
Supreme Court decisions up to April 2010. SUGGESTED ANSWER: The nature of the states
power to tax is two-fold. It is both an inherent power and
The purpose of the BAR STAR NOTES is to
provide the Bar Reviewee with a handy review material a legislative power. It is inherent in nature
which serves as memory-joggers for the September being an attribute of sovereignty. This is so, because
12, 2010 Bar Examinations in Taxation. The author tries without the taxes, the states existence would be
to second guess what would be included in the Bar imperiled. There is thus, no need for a constitutional
Exams using statistical analysis. The actual Bar grant for the state to exercise this power.
questions may not be formulated in the same manner as
the BAR STAR NOTES. However, the doctrines tested
in the Bar would in all probability be included in these It is a legislative power because it involves the
Notes. promulgation of rules. Taxation is a set of rules, how
much is the tax to be paid, who pays the tax, to whom it
If pressed for time, the author suggests that the should be paid, and when the tax should be paid.
reader should focus his attention on the following:
Nice to know 3. What is the underlying theory of
Should know taxation ? Explain briefly.
Must know and master SUGGESTED ANSWER: Taxes are the lifeblood
It is further suggested that the reader should of the nation. Without revenue raised from
merely browse those without stars. taxation, the government will not survive, resulting in
detriment to society. Without taxes, the government
WARNING: would be paralyzed for lack of motive power to activate
and operate it. (Commissioner of Internal Revenue v. Algue,
These materials are copyrighted and/or based on Inc. et al., 158 SCRA 8, 16-17)
the writers books on Taxation and future revisions. It is 4. Marshall said that, the power to tax
prohibited to reproduce any part of these Notes in any
form or any means, electronic or mechanical, including
involves the power to destroy. On the other
photocopying without the written permission of the hand, Holmes stated that the power to tax is
author. Unauthorized users shall not be prosecuted but not the power to destroy while the court
SHALL BE SUBJECT TO THE LAW OF KARMA SUCH sits.
THAT THEY WILL NEVER PASS THE BAR OR Reconcile the statements.
WOULD BE UNHAPPY IN LIFE for stealing the In the alternative, what
intellectual property of the author. are the implications that flow from the above
statements ?
THE BEST OF LUCK AND SUGGESTED ANSWERS: Marshalls view refers
to a valid tax while the Holmes view refers to an invalid
ADVANCE tax.
a
a. The imposition of
valid tax could not be judicially restrained merely
CONGRATULATIONS because it would prejudice taxpayers property.
b. An illegal tax could be judicially
declared invalid and should not work to prejudice a
TAXATION
taxpayers property.
5. Discuss briefly the basis/bases, or
rationale of taxation.
GENERAL PRINCIPLES OF TAXATION SUGGESTED ANSWER: a.
Reciprocal duties of protection and support
TAXATION, IN GENERAL between the state and its citizens and residents.
Also called symbiotic relation between the state
and its citizens.
1. State briefly and concisely the nature
of taxation. Alternatively, define taxation.
2
b. Jurisdiction by the state over the social justice provisions of the constitution
persons and property within its territory. through the progressive system of taxation, which
6. Discuss briefly but would result to equal distribution of wealth, etc.
comprehensively the objectives or Progressive income taxes alleviate the
purposes of taxation. margin between rich and poor. (Southern Cross
Cement Corporation v. Cement Manufacturers
SUGGESTED ANSWER: The purposes or
Association of the Philippines, et al., G. R. No. 158540,
objectives of taxation are the following: August 3, 2005)
In recent years, the increasing social
a. The primary purpose: challenges of the times expanded the scope of the
1) state activity, and taxation has become a tool to
Revenue purpose. realize social justice and the equitable distribution
of wealth, economic progress and the protection
b. The secondary of local industries as well as public welfare and
purposes similar objectives. (Batangas Power Corporation
1) Sumptuary or regulatory v. Batangas City, et al., G. R. No. 152675, and
companion case, April 28, 2004 citing National Power
purpose. 2)
Corporation v. City of Cabanatuan, G. R. No. 149110,
Compensatory purpose. April 9, 2003)
3) To implement the
power of eminent domain. 9. Explain the sumptuary purpose
of taxation.
SUGGESTED ANSWER: The sumptuary
7. Distinguish a tax from a license purpose of taxation is to promote the general
fee. SUGGESTED ANSWER: The welfare and to protect the health, safety or morals
of the inhabitants. It is in the joint exercise of the
following are the distinctions: a.
power of taxation and police power where
Purpose: Tax imposed for revenue while regulatory taxes are collected.
license fee for regulation. Tax for general public Taxation may be made the implement of the
purposes while license fee for regulatory purposes states police power. The motivation behind many
only. taxation measures is the implementation of police
power goals. [Southern Cross Cement Corporation v.
b. Basis: Tax imposed under
Cement Manufacturers Association of the Philippines, et
power of taxation while license fee under police al., G. R. No. 158540, August 3, 2005) The reader
power. should note that the August 3, 2005 Southern
c. Amount: In taxation, Cross case is the decision on the motion for
no limit as to amount while license fee limited to reconsideration of the July 8, 2004 Southern Cross
decision.
cost of the license and the expenses of police The so-called sin taxes on alcohol and
surveillance and regulation. tobacco manufacturers help dissuade the
consumers from excessive intake of these
d. Time of payment: Taxes normally potentially harmful products. (Southern Cross
paid after commencement of business while Cement Corporation v. Cement Manufacturers
Association of the Philippines, et al., G. R. No. 158540,
license fee before. e. August 3, 2005)
Effect of payment: Failure to pay a tax
does not make the business illegal while failure to 10. Taxation distinguished from
pay license fee makes business illegal. f. police power. Taxation is distinguishable from
Surrender: Taxes, being the lifeblood of police power as to the means employed to
implement these public goals. Those doctrines that
the state, cannot be surrendered except for lawful
are unique to taxation arose from peculiar
consideration while a license fee may be considerations such as those especially punitive
surrendered with or without consideration. (Cooley effects (Southern Cross Cement Corporation v.
on Taxation, pp. 1137-1138; Pacific Commercial Cement Manufacturers Association of the
Company v. Romualdez, et al., 49 Phil. 924) Philippines, et al., G. R. No. 158540, August 3,
2005) as the power to tax involves the power to
8. How may the power to tax be destroy and the belief that taxes are lifeblood of the
utilized to carry out the social justice state. (Ibid.) taxes being the lifeblood of the
program of our government ? government, their prompt and certain availability is
SUGGESTED ANSWER: The of the essence.
compensatory purpose of taxation is to implement
3
These considerations necessitated the 14. State the requisites of a valid tax.
evolution of taxation as a distinct legal concept SUGGESTED ANSWER:
from police power. (Ibid.) a. A
valid tax should be within the jurisdiction of the
11. How the power of taxation may taxing authority.
be used to implement power of eminent b. That the assessment and collection
domain. Tax measures are but enforced of certain kinds (The same as the inherent
contributions exacted on pain of penal sanctions limitations of the power of taxation) should be for
and clearly imposed for public purpose. In most a public purpose.
recent years, the power to tax has indeed become c. The rule of taxation should be
a most effective tool to realize social justice, public uniform.
welfare, and the equitable distribution of wealth. d. That either the person or
(Commissioner of Internal Revenue v. Central Luzon property of taxes guarantees against injustice to
Drug Corporation, G.R. No. 159647, April 16, 2005) individuals, especially by way or notice and
Establishments granting the 20% senior opportunity for hearing be provided.
citizens discount may claim the discounts granted e. The tax must not impinge on the
to senior citizens as tax deduction based on the inherent and Constitutional limitations on the
net cost of the goods sold or services rendered:
power of taxation.
Provided, That the cost of the discount shall be
allowed as deduction from gross income for the
same taxable year that the discount is granted. 15.
Provided, further, That the total amount of the What are the classes or kinds of taxes
claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales according to the subject matter or
receipts for tax purposes and shall be subject to object ?
proper documentation and to the provisions of the SUGGESTED ANSWER:
National Internal Revenue Code, as amended. a. Personal,
[M.E. Holding Corporation v. Court of Appeals, et al.,
G.R. No. 160193, March 3, 2008 citing Expanded Senior poll or capitalization imposed on all residents,
Citizens Act of 2003, Sec. 4 (a)] whether citizen or not. Example Community
Tax.
12. What are the three basic
principles of a sound tax system? b. Property - Imposed on property.
Explain each briefly. Example Real property tax.
SUGGESTED ANSWER: The canons of a
sound tax system, also known as the c. Excise imposed upon the
characteristics or, principles of a sound tax performance of an act, the enjoyment of a
system, are used as a criteria in order to privilege or the engaging in an occupation.
determine whether a tax system is able to meet
Example income tax, estate tax.
the purposes or objectives of taxation. They are:
a. Fiscal adequacy. 16. What are the kinds of taxes
b. Administrative feasibility.
c. Theoretical justice.
classified as to who bears the burden ?
Explain each briefly.
SUGGESTED ANSWER: Based on the
13. What are the elements or possibility of shifting the incidence of taxation, or
characteristics of a tax ? SUGGESTED as to who shall bear the burden of taxation, taxes
ANSWER: may be classified into:
a. Enforced contribution. a. Direct taxes. Those that are
b. Generally payable in money. extracted from the very person who, it is intended
c. Proportionate in character. or desired, should pay them (Commissioner of
d. Levied on persons, property or Internal Revenue v. Philippine Long Distance
Telephone Company, G. R. No. 140230, December 15,
exercise of a right or privilege.
2005); they are impositions for which a taxpayer is
e. Levied by the state having
directly liable on the transaction or business he is
jurisdiction.
engaged in, (Commissioner of Internal Revenue v.
f. Levied by the legislature. Philippine Long Distance Telephone Company, supra)
g. Levied for a public purpose. which liability cannot be shifted or transferred to
h. Paid at regular periods or intervals. another. Example income tax, estate tax,
donors tax, etc.
4
b. Indirect taxes are those that are invokes Maceda v. Macaraig, Jr., G.R. No.
demanded in the first instance, from, or are paid 88291, May 31, 1991, 197 SCRA 771.which
by, one person in the expectation and intention upheld the claim for tax credit or refund by
that he can shift the burden to (Commissioner of the National Power Corporation (NPC) on
Internal Revenue v. Philippine Long Distance
Telephone Company, supra) to someone else not as
the ground that the NPC is exempt even
a tax but as part of the purchase price. from the payment of indirect taxes.
(Commissioner, of Internal Revenue v. American Is Silkair entitled to the tax refund or
Express International, Inc. (Philippine Branch), G. credit it seeks ? Reason out your answer.
R. No. 152609, June 29, 2005 citing various SUGGESTED ANSWER: Silkair is not
cases and authorities) Example value added tax entitled to tax refund or credit for the following
(VAT), documentary stamp tax, excise tax, reasons:
percentage tax, etc. a. The excise tax on aviation fuel is an
indirect tax. The proper party to question, or seek a
17. Silkair (Singapore) PTE, refund of, an indirect tax is the statutory taxpayer,
Ltd., an international carrier, purchased the person on whom the tax is imposed by law and
who paid the same even if he shifts the burden
aviation gas from Petron Corporation,
thereof to another. (Philippine Geothermal, Inc. v.
which it uses for its operations. It now Commissioner of Internal Revenue, G.R. No. 154028,
claims for refund or tax credit for the July 29, 2005, 465 SCRA 308, 317-318) The NIRC
excise taxes it paid claiming that it is provides that the excise tax should be paid by the
exempt from the payment of excise taxes manufacturer or producer before removal of
under the provisions of Sec. 135 of the domestic products from place of production. Thus,
NIRC of 1997 which provides that Petron Corporation, not Silkair, is the statutory
petroleum products are exempt from taxpayer which is entitled to claim a refund based
excise taxes when sold to Exempt entities or on Section 135 of the NIRC of 1997 and Article
agencies covered by tax treaties, conventions, and 4(2) of the Air Transport Agreement between RP
other international agreements for their use and and Singapore.
consumption: Provided, however, That the country of Even if Petron Corporation passed on to
said foreign international carrier or exempt entities or Silkair the burden of the tax, the additional amount
agencies exempts from similar taxes petroleum billed to Silkair for jet fuel is not a tax but part of
products sold to Philippine carriers, entities or the price which Silkair had to pay as a purchaser.
agencies [Philippine Acetylene Co., Inc. v. Commissioner of
Silkair further anchors its claim on Internal Revenue, 127 Phil. 461, 470 (1967)]
Article 4(2) of the Air Transport Agreement b. Silkair could not seek refuge under
between the Government of the Republic Maceda v. Macaraig, Jr., G.R. No. 88291, May 31,
of the Philippines and the Government of 1991, 197 SCRA 771.which upheld the claim for
the Republic of Singapore (Air Transport tax credit or refund by the National Power
Corporation (NPC) on the ground that the NPC is
Agreement between RP and Singapore)
exempt even from the payment of indirect taxes.
which reads: Fuel, lubricants, spare parts, regular In Commissioner of Internal Revenue v.
equipment and aircraft stores introduced into, or taken
Philippine Long Distance Telephone Company,
on board aircraft in the territory of one Contracting party
by, or on behalf of, a designated airline of the other G.R. No. 140230, December 15, 2005, 478 SCRA
Contracting Party and intended solely for use in the 61 the Supreme Court clarified the ruling in
operation of the agreed services shall, with the Maceda v. Macaraig, Jr., viz: It may be so that in
exception of charges corresponding to the service Maceda vs. Macaraig, Jr., the Court held that an
performed, be exempt from the same customs duties, exemption from all taxes granted to the National
inspection fees and other duties or taxes imposed in the Power Corporation (NPC) under its charter
territories of the first Contracting Party , even when includes both direct and indirect taxes.
these supplies are to be used on the parts of the journey An exemption from all taxes excludes
performed over the territory of the Contracting Party in
indirect taxes, unless the exempting statute, like
which they are introduced into or taken on board. The
materials referred to above may be required to be kept NPCs charter, is so couched as to include indirect
under customs supervision and control. tax from the exemption. The amendment under
Silkair likewise argues that it is Republic Act No. 6395 enumerated the details
exempt from indirect taxes because the Air covered by NPCs exemption. Subsequently, P.D.
380, made even more specific the details of the
Transport Agreement between RP and
exemption of NPC to cover, among others, both
Singapore grants exemption from the direct and indirect taxes on all petroleum products
same customs duties, inspection fees and used in its operation. Presidential Decree No. 938
other duties or taxes imposed in the [NPCs amended charter] amended the tax
territory of the first Contracting Party. It exemption by simplifying the same law in general
5
terms. It succinctly exempts NPC from all forms or through a law which does not violate any
of taxes, duties, fees The use of the phrase all provision of the constitution.
forms of taxes demonstrates the intention of the c. Territoriality. The taxing power should
law to give NPC all the tax exemptions it has been be exercised only within territorial boundaries of the
enjoying before. taxing authority.
The exemption granted under Section 135 d. Recognition of government
(b) of the NIRC of 1997 and Article 4(2) of the Air exemptions; and
Transport Agreement between RP and Singapore e. Observance of the principle of comity.
cannot, without a clear showing of legislative Comity is the respect accorded by nations to each
intent, be construed as including indirect taxes. other because they are equals. On the other hand
Statutes granting tax exemptions must be taxation is an act of sovereign. Thus, the power
construed in strictissimi juris against the taxpayer should be imposed upon equals out of respect.
and liberally in favor of the taxing authority, and if Some authorities include no double taxation.
an exemption is found to exist, it must not be
enlarged by construction. (Silkair (Singapore) PTE, 2. What are the principles to
Ltd., v. Commissioner of Internal Revenue, G.R. No. consider in the determination of whether
173594, February 6, 2008)
tax revenues are devoted for a public
18. purpose ?
SUGGESTED ANSWER:
What are the different kinds of taxes a. The tax revenues are for a public
classified as to purpose ? purpose if utilized for the benefit of the community
SUGGESTED in general. An alternative meaning is that tax
ANSWER: proceeds should be utilized only to attain the
a. General, fiscal or revenue imposed objectives of government.
for the purpose of raising public funds for the b. Inequalities resulting from the
service of the government. singling out of one particular class for taxation or
b. Special or regulatory imposed exemption infringe no constitutional limitation.
primarily for the regulation of useful or non-useful REASON: It is inherent in the power to tax
occupation or enterprises and secondarily only for that the legislature is free to select the subjects of
the raising of public funds. taxation.
BASIS: The lifeblood theory.
LIMITATIONS OR RESTRICTIONS ON c. An individual taxpayer need not
THE POWER derive direct benefits from the tax.
REASON: The paramount consideration is
1. Purpose for the limitations on the welfare of the greater portion of the
the power of taxation. population.
The inherent and constitutional limitations to the d. A tax may be imposed, not so much
power of taxation are safeguards which would for revenue purposes, but under police power for
prevent abuse in the exercise of this otherwise the general welfare of the community. This would
unlimited and plenary power. still be for a public purpose.
The limitations also serve as a standard to e. Public purpose continually
measure the validity of a tax law or the act of a expanding. Areas formerly left to private initiative
taxing authority. A violation of the limitations serves now lose their boundaries and may be undertaken
to invalidate a tax law or act in the exercise of the by the government if it is to meet the increasing
power to tax. social challenges of the times.
f. Tax revenue must not be used for
purely private purposes or for the exclusive
INHERENT LIMITATIONS
benefit of private persons.
g. Private persons may be benefited
1. What are the inherent but such benefit should be merely incidental as its
limitations on the power of taxation ? main object is the benefit of the community in
SUGGESTED ANSWERS: general.
a. Public purpose. The revenues h. Determined at the time of enactment
collected from taxation should be devoted to a of tax law and not at the time of implementation.
public purpose. i. There is a presumption of public
b. No improper delegation of legislative purpose even if the tax law does not specifically
authority to tax. Only the legislature can exercise provide for its purpose. (Santos & Co., v.
the power of taxes unless the same is delegated to Municipality of Meycauayan, et al., 94 Phil. 1047)
some other governmental body by the constitution j. Public use is no longer confined to the
traditional notion of use by the public but held
6
synonymous with public interest, public benefit, unconstitutional law. (Abaya v. Ebdane, G.
public welfare, and public convenience . R. No. 167919, February 14, 2007; Garcia
(Commissioner of Internal Revenue v. Central Luzon v. Enriquez, Jr. G.R. No. 112655 December
Drug Corporation, G.R. No. 159647, April 16, 2005) 9, 1993, Minute Resolution)
A taxpayers suit is properly brought
3. A law was enacted imposing a only when there is an exercise of the
tax on manufacturers of coconut oil, the spending or taxing power of Congress.
proceeds of which are to be used (Automotive Industry Workers Alliance
(AIWA),etc., et al., v. Romulo, etc. ,et al.,
exclusively for the protection and G. R. No. 157509, January 18, 2005 citing
promotion of the coconut industry, Gonzales v. Narvasa, G. R. No. 140835,
namely, to improve the working conditions August 14, 2000, 337 SCRA 733, 741)
in coconut mills and to conduct research c. For voters, there must be a showing
on the use of coconut oil for motor fuel. of obvious interest in the validity of the election
Some of the manufacturers of coconut oil law in question.
challenge the validity of the law, d. For concerned citizens, there must
be a showing that the issues raised are of
contending that the tax is to be used for a
transcendental importance which must be settled
private purpose, and therefore, the law early.
violates the rule that public revenues shall e. For legislators, there must be a claim
not be appropriated for anything but a that the official action complained of infringes
public purpose. Decide with reason. upon their prerogatives as legislators. (David, et
SUGGESTED ANSWER: The levy is for a al., v. President Gloria Macapagal-Arroyo, etc., et
public purpose. It cannot be denied that the al., G. R. No. 171396, May 3, 2006)
coconut industry is one of the major industries
supporting the national economy. It is, therefore, 5. Only those directly affected
the states concern to make it a strong and secure have locus standi to impugn the alleged
source not only of the livelihood of the significant encroachment by the executive
segment of the population, but also of export
department into the legislative domain of
earnings, the sustained growth of which is one of
the imperatives of economic growth. (Philippine Congress.
Coconut Producers Federation, Inc. (Cocofed v. a. Only those who shall be directly
Presidential Commission on Good Government, 178 affected by such executive encroachment, such
SCRA 236, 252) as for example employees who would find
themselves subject to disciplinary powers that
4. Requisites for taxpayers, may be imposed under the questioned Executive
Order as they have a direct and specific interest in
concerned citizens, voters or legislators raising the substantive issue therein (Automotive
to have locus standi to sue. Industry Workers Alliance (AIWA),etc., et al., v.
a.In general, the case should involve Romulo, etc. ,et al., G. R. No. 157509, January
constitutional issues. (David, et al., v. President 18, 2005) or employees who are going to be
Gloria Macapagal-Arroyo, etc., et al., G. R. No. 171396,
demoted, transferred or otherwise affected by any
May 3, 2006)
personnel action subject o the rule on exhaustion
b. For taxpayers, there must be a
of administrative remedies.
showing:
b. Moreover, and if at all, only Congress,
1) That tax money is being
can claim any injury from the alleged executive
extracted and spent in violation of specific
encroachment of the legislative function to amend,
constitutional protections against abuses of
modify and/or repeal laws. (Automotive Industry
legislative power. (Flast v. Cohen, 392
U.S. 83) Workers Alliance (AIWA),etc., et al., supra, citing
2) That public money is being Gonzales v. Narvasa, G. R. No. 140835, August
deflected to any improper purpose (Pascual 14,2000, 337 SCRA 733, 741)
v. Secretary of Public Works, 110 Phil. 33) or a
claim of illegal disbursement of public 6. Locus standi being merely a
funds or that the tax measure is matter of procedure, have been waived in
unconstitutional. (David, supra) certain instances where a party who is not
3) A taxpayer is allowed to sue personally injured may be allowed to bring
where there is a claim that public funds are suit. The following are examples of instances
illegally disbursed, or that public money is being where suits have been brought by parties who
deflected to any improper purpose, or that have not have been personally injured by the
there is a wastage of public funds operation of a law or any other government act but
through the enforcement of an invalid or
7
by concerned citizens, taxpayers or voters who c. The delegation to the President of the
actually sue in the public interest: Philippines to enter into executive agreements,
a. Taxpayers suits to question contracts and to ratify treaties which may contain tax
entered into by the national government or exemption provisions subject to the concurrence
government-owned or controlled corporations by the Senate in the ratification made by the
allegedly in contravention of the law. President.
b. A taxpayer is allowed to sue where d. Delegation to the people at large.
there is a claim that public funds are illegally e. Delegation to administrative bodies
disbursed, or that public money is being deflected [Abakada Guro Party List (Formerly AASJS), etc.,
to any improper purpose, or that there is a wastage v, Ermita, et al., G. R. No.168056, September 1,
of public funds through the enforcement of an 2005], which is referred to as subordinate
invalid or unconstitutional law. (Abaya v. Ebdane, legislation.
G. R. No. 167919, February 14, 2007) In this instance, there is a requirement that
the law is complete in all aspects so what is
7. The VAT law provides that, the delegated is merely the implementation of the law
President, upon the recommendation of or there exists sufficiently determinate standards
the Secretary of Finance, shall, effective to guide the delegate and prevent a total
transference of the taxing power.
January 1, 2006, raise the rate of value-
added tax to twelve percent (12%) after any
9. Paradigm shift from exclusive
of the following conditions have been Congressional power to direct grant of
satisfied. (i) value-added tax collection as
taxing power to local legislative bodies.
a percentage of Gross Domestic Product The power to tax is no longer vested exclusively on
(GDP) of the previous year exceeds two Congress; local legislative bodies are now given
and four-fifth percent (2 4/5%) or (ii) direct authority to levy taxes, fees and other
national government deficit as a charges pursuant to Article X, section 5 of the 1987
percentage of GDP of the previous year Constitution. (Batangas Power Corporation v.
exceeds one and one-half percent (1 %). Batangas City, et al. G. R. No. 152675, and companion
Was there an invalid delegation of case, April 28, 2004 citing National Power Corporation v.
City of Cabanatuan, G. R. No. 149110, April 9, 2003)
legislative power ? Local government legislation, is not
SUGGESTED ANSWER: No. There is no regarded as a transfer of general legislative
undue delegation of legislative power but only of power, but rather as the grant of authority to
prescribe local regulations, according to
the discretion as to the execution of the law. This is
immemorial practice, subject, of course, to the
constitutionally permissible. interposition of the superior in cases of necessity.
Congress does not abdicate its functions or (People v. Vera, 65 Phil. 56)
unduly delegate power when it describes what job
must be done, who must do it, and what is the 10. Taxing power of the local
scope of his authority. In the above case the government is limited. The taxing power of
Secretary of Finance becomes merely the agent of local governments is limited in the sense that
the legislative department, to determine and Congress can enact legislation granting tax
declare the even upon which its expressed will exemptions.
takes place. The President cannot set aside the While the system of local government
findings of the Secretary of Finance, who is not taxation has changed with the onset of the 1987
under the conditions acting as the execute alter Constitution, the power of local government units
ego or subordinate. . [Abakada Guro Party List to tax is still limited.
(etc.) v. Ermita, etc., et al., G. R. No. 168056, While the power to tax by local
September 1, 2005 and companion cases citing governments may be exercised by local legislative
various cases]] bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct
8. Instances of proper delegation: authority conferred by Section 5, Article X of the
When taxing power could be delegated: Constitution, the basic doctrine on local taxation
Exceptions to the rule on non-delegation: remains essentially the same, the power to tax is
a. Delegation of tariff powers by Congress [still] primarily vested in the Congress. (Quezon
to the President under the flexible tariff clause, City, et al., v. ABS-CBN Broadcasting Corporation, G.
R. No. 166408, October 6, 2008 citing City Government
Section 28 (2), Article VI of the Constitution.
of Quezon City, et al. v. Bayan Telecommunications,
b. Delegation of emergency powers to the Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169
President under Section 23 (2) of Article VI of the in turn referring to Mactan Cebu International Airport
Constitution.
8
Authority, v. Marcos, G.R. No. 120082, September 11, constitutional grant to local governments simply
1996, 261 SCRA 667, 680) means that in interpreting statutory provisions on
municipal taxing powers, doubts must be resolved
11. Further amplification by in favor of municipal corporations. [Ibid., referring
Bernas of the local governments power to to Philippine Long Distance Telephone Company, Inc.
tax. What is the effect of Section 5 on the fiscal (PLDT) vs. City of Davao]
position of municipal corporations? Section 5
does not change the doctrine that municipal 13. General principles of
corporations do not possess inherent powers of income taxation in the Philippines or the
taxation. What it does is to confer municipal source rule of income taxation as
corporations a general power to levy taxes and provided in the NIRC of 1997.
otherwise create sources of revenue. They no a. A citizen of the Philippines residing
longer have to wait for a statutory grant of these therein is taxable on all income derived from
powers. The power of the legislative authority sources within and without the Philippines;
relative to the fiscal powers of local governments b. A nonresident citizen is taxable
has been reduced to the authority to impose only on income derived from sources within the
limitations on municipal powers. Moreover, these Philippines;
limitations must be consistent with the basic c. An individual citizen of the
policy of local autonomy. The important legal Philippines who is working and deriving income
effect of Section 5 is thus to reverse the principle abroad as an overseas contract worker is
that doubts are resolved against municipal taxable only on income from sources within the
corporations. Henceforth, in interpreting statutory Philippines: Provided, That a seaman who is a
provisions on municipal fiscal powers, doubts will citizen of the Philippines and who receives
be resolved in favor of municipal corporations. It compensation for services rendered abroad as a
is understood, however, that taxes imposed by member of the complement of a vessel engaged
local government must be for a public purpose, exclusively in international trade shall be treated
uniform within a locality, must not be confiscatory, as an overseas contract worker;
and must be within the jurisdiction of the local unit d. An alien individual, whether a
to pass. (Quezon City, et al., v. ABS-CBN resident or not of the Philippines, is taxable only
Broadcasting Corporation, G. R. No. 166408, October on income derived from sources within the
6, 2008 citing City Government of Quezon City, et al. v. Philippines;
Bayan Telecommunications, Inc., G.R. No. 162015,
March 6, 2006, 484 SCRA 169)
e. A domestic corporation is taxable on all
income derived from sources within and without
the Philippines; and
12. Reconciliation of the local f. A foreign corporation, whether engaged
governments authority to tax and the or not in trade or business in the Philippines, is
Congressional general taxing power. taxable only on income derived from sources
Congress has the inherent power to tax, which within the Philippines. (Sec. 23, NIRC of 1997,
includes the power to grant tax exemptions. On emphasis supplied)
the other hand, the power of local governments,
such as provinces and cities for example Quezon 14. Juliane a non-resident
City, to tax is prescribed by Section 151 in alien appointed as a commission agent by
relation to Section 137 of the LGC which
a domestic corporation with a sales
expressly provides that notwithstanding any
exemption granted by any law or other special commission of 10% all sales actually
law, the City or a province may impose a franchise concluded and collected through her
tax. It must be noted that Section 137 of the LGC efforts. The local company withheld the
does not prohibit grant of future exemptions. amount of P107,000 from her sales
The Supreme Court in a series of cases commission and remitted the same to the
has sustained the power of Congress to grant tax BIR.
exemptions over and above the power of the local She filed a claim for refund alleging
governments delegated power to tax. (Quezon that her sales commission is not taxable
City, et al., v. ABS-CBN Broadcasting Corporation, G.
R. No. 166408, October 6, 2008 citing City Government
because the same was a compensation for
of Quezon City, et al. v. Bayan Telecommunications, her services rendered in Germany and
Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 16) therefore considered as income from
Indeed, the grant of taxing powers to local sources outside the Philippines.
government units under the Constitution and the Is her contention correct ?
LGC does not affect the power of Congress to SUGGESTED ANSWER: Yes. The
grant exemptions to certain persons, pursuant to a important factor which determines the source of
declared national policy. The legal effect of the
9
income of personal services is not the residence of licensed Philippine branch engage in
the payor, or the place where the contract for trading activities in the Philippines.
service is entered into, or the place of payment, but
the place where the services were actually Ensite, Ltd.. also invested directly in 40%
performed. of the shares of stock of Philippine
Since the activity of securing the sales were Stamping Plant, Inc.., a Philippine
in Germany, then the income did not originate from
sources from within the Philippines. (Commissioner corporation. These shares are booked in
of Internal Revenue v. Baier-Nickel, G. R. No. 153793, the Head Office of Ensite, Ltd.. and are not
August 29, 2006)
reflected as assets of the Philippine
15. Ensite, Ltd.. is a Canadian branch. In 2009, Philippine Stamping
corporation not doing business in the Plant, Inc.. declared dividends to its
Philippines. It holds 40% of the shares of stockholders. Before remitting the
Philippine Stamping Plant, Inc.,., a dividends to Ensite Ltd.,., Philippine
Philippine company while the 60% is Stamping Plant, Inc. Co. seeks your
owned by Fred Corporation, a Filipino- advice as to whether it will subject the
owned Philippine corporation. Ensite Co. remittance to withholding tax. There is no
also owns 100% of the shares of Susanto need to discuss WT rates, if applicable.
Co., an Indonesian company which has a Focus your discussion on what is the
duly licensed Philippine branch. Due to issue.
SUGGESTED ANSWER: Philippine
worldwide restructuring of the Ensite
Stamping Plant, Inc.. should subject the
Ltd.,. group, Ensite Ltd.,. decided to sell
remittance to withholding tax.. Since Philippine
all its shares in Philippine Stamping Plant,
Stamping Plant. is a Philippine corporation, its
Inc. and Susanto Co. The negotiations for shares of stock have obtained a business situs in
the buy-out and the signing of the the Philippines, hence the dividends are
Agreement of Sale were all done in the considered as income from within. Ensite. Ltd.,
Philippines. The Agreement provides that being a foreign corporation, should be subject to
the purchase price will be paid to Ensite tax on its income from within.
Ltds bank account in the U.S. and that 17. Philippine Stamping
title to the Philippine Stamping Plant, Inc.
Plant, Inc., a Philippine corporation, has
and Susanto Co. shall be transferred to
an executive Larry who is a Filipino
General Co., in Toronto Canada where
citizen. Philippine Stamping Plant, Inc,.
stock certificates will be delivered.
has a subsidiary in Malaysia (Kuala
General Co. seeks your advice as to
Lumpur Manufacturing, Inc.) and will
whether or not it will subject the payments
assign Larry for an indefinite period to
of the purchase price to withholding tax.
work full time for Kuala Lumpur
Explain your advice. SUGGESTED
Manufacturing, Inc.. Larry will bring his
ANSWER: The payments of the purchase price
family to reside in Malaysia and will lease
will be subject to withholding tax. Considering that
out his residence in the Philippines. The
all the activities (sales) occurred within the
Philippines, the income is considered as income salary of Larry will be shouldered 50% by
from within, subject to Philippine income taxation. Philippine Stamping Plant, Inc.. while the
Ensite, Ltd. being a foreign corporation is to be other 50% plus housing, cost of living and
taxed on its income derived from sources within educational allowances of Larrys
the Philippines. dependents will be shouldered by Kuala
Lumpur Manufacturing, Inc.. Philippine
Stamping Plant, Inc.. will credit the 50% of
16. Ensite, Ltd. is a
Larrys salary to his Philippine bank
Canadian corporation, which has a duly
10
account. Larry will sign the contract of b. Supposing that Obama, Inc.,
employment in the Philippines. He will sells tickets outside of the Philippines for
also be receiving rental income for the passengers it carry from Gold City, South
Africa to the Philippines but returns to
lease of his Philippine residence. South Africa without any cargo or
passengers. Would it then be subject to
Are these salaries, allowances any Philippine tax on such sales ?
and rentals subject to Philippine income SUGGESTED ANSWER: It would not be
tax? Explain briefly. subject to any tax. It is not subject to any income
tax because the activity which generated the
SUGGESTED ANSWER: The salaries and
income (the sale of the tickets) was performed
allowances of Larry, being derived from labor or outside of the Philippines.
personal services rendered outside of the It is not subject to the carriers tax based
Philippines is considered as income from without. on gross Philippine billings because there were no
Since Larry is an OCW, then he is to be taxed lifts that originated from the Philippines. Gross
Philippine Billings refers to the amount of gross
only on his income derived from within the
revenue derived from carriage of persons, excess
Philippines such as the rentals on his Philippine baggage, cargo and mail originating from the
residence, and not on his income from without. Philippines in a continuous and uninterrupted
flight, irrespective of the place of sale or issue and
18. Obama Airlines, Inc., a the place of payment of the ticket or passage
foreign airline company which does not document. [NIRC of 1997, Sec. 28(A)(3)(a)]
maintain any flight to and from the c. Would your answer be the same
Philippines sold air tickets in the if Obama, Inc. sold tickets outside of the
Philippines, through a general sales agent, Philippines for travelers who are going to
relating to the carriage of passengers and picked up by Obama, Inc., planes from the
cargo between two points, both outside the Diosdado Macapagal Intl. Airport at Clark,
Philippines. Angeles, Pampanga, bound for Nairobi,
a. Is Obama, Inc., subject to Kenya ? Reason out your answer.
income taxes on the sale of the tickets ? SUGGESTED ANSWER: No more. This
SUGGESTED ANSWER: Yes. The source time Obama, Inc., would be subject to the carriers
of income which is taxable is that activity which tax based on Gross Philippine Billings. (GPB).
produced the income. The sale of tickets in the Gross Philippine Billings refers to the
Philippines is the activity that determines whether amount of gross revenue derived from carriage of
such income is taxable in the Philippines. persons, excess baggage, cargo and mail
The tickets exchanged hands here and originating from the Philippines in a continuous
payments for fares were also made here in and uninterrupted flight, irrespective of the place
Philippine currency. The situs of the source of of sale or issue and the place of payment of the
payments is the Philippines. the flow of wealth ticket or passage document. [NIRC of 1997, Sec.
proceeded from and occurred, within the Philippine 28(A)(3)(a)]
territory, enjoying the protection accorded by the The place of sale is irrelevant; as long as
Philippine Government. In consideration of such the uplifts of passengers and cargo occur from the
protection, the flow of wealth should share the Philippines, income is included in GPB. (South
burden of supporting the government. African Airways v. Commissioner of Internal Revenue,
[Commissioner of Internal Revenue v. British G.R. No. 180356, February 16, 2010)
Overseas Airways Corporation (BOAC), 149 SCRA
395] 19. No improper delegation of
Off-line air carriers having general sales legislative authority to tax. The power to tax
agents in the Philippines are engaged in or doing is inherent in the State, such power being
business in the Philippines and their income from inherently legislative, based on the principle that
sales of passage documents here is income from taxes are a grant of the people who are taxed,
within the Philippines. Thus, the off-line air carrier and the grant must be made by the immediate
liable for the 32% (now 30%) tax on its taxable representatives of the people; and where the
income. [South African Airways v. Commissioner of people have laid the power, there it must remain
Internal Revenue, G.R. No. 180356, February 16, 2010 and be exercised. (Commissioner of Internal
citing Commissioner of Internal Revenue v. British Revenue v. Fortune Tobacco Corporation, G. R. Nos.
Overseas Airways Corporation (British Overseas 167274-75, July 21, 2008)
Airways), No. L-65773-74, April 30, 1987, 149 SCRA
395]
CONSTITUTIONAL LIMITATIONS
11
h. No tax exemption without the
1. Constitutional limitations on the concurrence of majority vote of all members of
power of taxation . The general or indirect Congress;
constitutional limitations as well as the specific or i. No use of public money or property
direct constitutional limitations. for religious purposes except if priest is assigned to
the armed forces, penal institutions, government
2. The general or indirect orphanage or leprosarium;
constitutional limitations on the power of j. Money collected on tax levied for a
special purpose to be used only for such purpose,
taxation are:
balance if any, to general funds;
a. Due process clause;
k. The Supreme Court's power to review
b. Equal protection clause;
judgments or orders of lower courts in all cases
c. Freedom of the press;
involving the legality of any tax, impose,
d. Religious freedom;
assessment or toll or the legality of any penalty
e. No taking of private property without
imposed in relation to the above;
just compensation;
l. Authority of local government units to
f. Non-impairment clause;
create their own sources of revenue, to levy taxes,
g. Law-making process:
fees and other charges subject to guidelines and
1) Bill should embrace only one
limitations imposed by Congress consistent with
subject expressed in the title thereof;
the basic policy of local autonomy;
2) Three (3) readings on three
m. Automatic release of local
separate days;
government's just share in national taxes;
3) Printed copies in final form
n. Tax exemption of all revenues and
distributed three (3) days before passage.
assets of non-stock, non-profit educational
h. Presidential power to grant reprieves,
institutions used actually, directly and exclusively
commutations and pardons and remittal of fines
for educational purposes;
and forfeiture after conviction by final judgment.
o. Tax exemption of all revenues and assets
of proprietary or cooperative educational
3. The specific or direct institutions subject to limitations provided by law
constitutional limitation. including restrictions on dividends and provisions
a. No imprisonment for non-payment of for reinvestment of profits;
a poll tax; p. Tax exemption of grants,
b. Taxation shall be uniform and endowments, donations or contributions used
equitable; actually, directly and exclusively for educational
c. Congress shall evolve a progressive purposes subject to conditions prescribed by law.
system of taxation;
d. All appropriation, revenue or tariff bills 5. Equal protection of the law
shall originate exclusively in the House of
clause is subject to reasonable
Representatives, but the Senate may propose and
concur with amendments; classification. If the groupings are
e. The President shall have the power to characterized by substantial distinctions that make
veto any particular item or items in an real differences, one class may be treated and
appropriation, revenue, or tariff bill, but the veto regulated differently from another. The
shall not affect the item or items to which he does classification must also be germane to the purpose
not object; of the law and must apply to all those belonging to
f. Delegated power of the President to the same class. (Tiu, et al., v. Court of Appeals, et al.,
G.R. No. 127410, January 20, 1999)
impose tariff rates, import and export quotas,
tonnage and wharfage dues:
1) Delegation by Congress 6. Requisites for valid
2) through a law classification. All that is required of a valid
3) subject to Congressional limits classification is that it be reasonable, which
and restrictions means that a. the classification should be
4) within the framework of based on substantial distinctions which make for
national development program. real differences,
g. Tax exemption of charitable b. that it must be germane to the
institutions, churches, parsonages and convents purpose of the law;
appurtenant thereto, mosques, and all lands, c. that it must not be limited to existing
buildings and improvements of all kinds actually, conditions only; and
directly and exclusively used for religious, d. that it must apply equally to each
charitable or educational purposes; member of the class.
12
The standard is satisfied if the classification Thus, it was held that denial of free public
or distinction is based on a reasonable foundation education to the children of illegal aliens imposes
or rational basis and is not palpably arbitrary. an enormous and lasting burden based on a
[ABAKADA Guro Party List, etc., v. Purisima, etc., et al., status over which the children have no control is
G. R. No. 166715, August 14, 2008] violative of equal protection because there is no
showing that such denial furthers a substantial
7. Equal protection does not state goal. (Plyler v. Doe, 457 U.S. 202)
demand absolute equality. It merely requires
that all persons shall be treated alike, under like 11. The intermediate level of
circumstances and conditions, both as to the scrutiny (or quasi-suspect class) test
privileges conferred and liabilities enforced.
(Santos v. People, et al, G. R. No. 173176, August 26,
used in order to determine the validity of
2008) he classification. Classification based on
It is imperative to duly establish that the gender or legitimacy are not suspect, but neither
one invoking equal protection and the person to are they judged by the traditional or rational basis
which she is being compared were indeed test.
similarly situated, i.e., that they committed Intentional discriminations against
identical acts for which they were charged with the members of a quasi-suspect class violate equal
violation of the same provisions of the NIRC; and protection unless they are substantially related to
that they presented similar arguments and important government objectives. (Craig v.
evidence in their defense - yet, they were treated Boren, 429 U.S. 190)
differently. (Santos, supra) Thus, a state law granting a property tax
exemption to widows, but not widowers, has been
8. Tests to determine validity of held valid for it furthers the state policy of
classification. The United States Supreme cushioning the financial impact of spousal loss
Court has established different tests to determine upon the sex for whom that loss usually imposes
the validity of a classification and compliance with a heavier burden. (Kahn v. Shevin, 416 U.S. 351)
the equal protection clause. The recognized tests
are: 12. Equality and uniformity of
a. The traditional (or rational basis) test. taxation may mean the same as equal
b. The strict scrutiny (or compelling protection. In such a case, the terms would
interest) test. mean that all subjects and objects of taxation which
c. The intermediate level of scrutiny (or are similarly situated shall be subject to the same
quasi-suspect class) test. burdens and granted the same privileges without
9. The traditional (or rational any discrimination whatsoever.
basis) test used in order to determine the 13. It is inherent in the power to tax
validity of classification. The classification is that the State be free to select the subjects
valid if it is rationally related to a constitutionally of taxation, and it has been repeatedly held that,
permissible state interest. "inequalities which result from a singling out of one
The complainant must prove that the particular class of taxation, or exemption, infringe
classification is invidous, wholly arbitrary, or no constitutional limitation." (Commissioner of
capricious, otherwise the classification is Internal Revenue, et al., v. Santos, et al., 277
presumed to be valid. (Lindsley v. Natural Carboinic SCRA 617)
Gas Co., 220 U.S. 61; McGowan v. Maryland, 366 U.S.
420; United States Railroad Retirement Board v. Fritz, 9. Benjie is a law-abiding
449 U.S. 166)
citizen who pays his real estate taxes
promptly. Due to a series of typhoons and
10. The strict scrutiny (or
adverse economic conditions, an
compelling interest) test used in order to
ordinance is passed by Soliman City
determine the validity of the classification.
Government regulation that intentionally granting a 50% discount for payment of
discriminates against a suspect class such as unpaid real estate taxes for the preceding
racial or ethnic minorities, is subject to strict year and the condonation of all penalties
scrutiny and considered to violate the equal on fines resulting from the late payment.
protection clause unless found necessary to Arguing that the ordinance rewards
promote a compelling state interest. delinquent tax payers and discriminates
A classification is necessary when it is against prompt ones, Benjie demands that
narrowly drawn so that no alternative, less he be refunded an amount equivalent to
burdensome means is available to accomplish the one-half of the real property taxes he paid.
state interest.
The municipal attorney rendered an
13
opinion that Benjie cannot be reimbursed appear on the face of the action taken with
because the ordinance did not provide for respect to a particular class or person, or it may
such reimbursement. Benjie files suit to only be shown by extrinsic evidence showing a
declare the ordinance void on the ground discriminatory design over another not to be
inferred from the action itself.
that it is a class legislation. Will his suit (Santos v. People, et al, G. R. No. 173176, August 26,
prosper ? Explain your answer briefly. 2008)
SUGGESTED ANSWER: No. There is no
class legislation because there is no violation of 12. Equal protection should not be
the equal protection suit. There is a valid used to protect commission of crime .
classification between those who already paid While all persons accused of crime are to be
their taxes and those who have not. Furthermore, treated on a basis of equality before the law, it
the taxing authority has the prerogative to select does not follow that they are to be protected in the
the subjects and objects of taxation, including commission of crime. It would be unconscionable,
granting a 50% discount in the payment of unpaid for instance, to excuse a defendant guilty of
real estate taxes, and the condonation of all murder because others have murdered with
penalties on fines resulting from late payment. impunity.
Likewise, if the failure of prosecutors to
10. The rewards law to tax enforce the criminal laws as to some persons
collectors does not violate equal should be converted into a defense for others
protection. The equal protection clause charged with crime, the result would be that the
recognizes a valid classification, that is, a trial of the district attorney for nonfeasance would
classification that has a reasonable foundation or become an issue in the trial of many persons
rational basis and not arbitrary. With respect to RA charged with heinous crimes and the enforcement
9335, its expressed public policy is the of law would suffer a complete breakdown.
optimization of the revenue-generation capability (Santos v. People, et al, G. R. No. 173176, August 26,
and collection of the BIR and the BOC. Since the 2008)
subject of the law is the revenue- generation
capability and collection of the BIR and the BOC, 13. Illustration of double
the incentives and/or sanctions provided in the taxation in local taxation. there is indeed
law should logically pertain to the said agencies. double taxation if Coca-Cola is subjected to the
Moreover, the law concerns only the BIR and the taxes under both Sections 14 and 21 of Tax
BOC because they have the common distinct Ordinance No. 7794, since these are being
primary function of generating revenues for the imposed: (1) on the same subject matter the
national government through the collection of privilege of doing business in the City of Manila;
taxes, customs duties, fees and charges. (2) for the same purpose to make persons
Indubitably, such substantial distinction is conducting business within the City of Manila
germane and intimately related to the purpose of contribute to city revenues; (3) by the same taxing
the law. Hence, the classification and treatment authority City of Manila; (4) within the same
accorded to the BIR and the BOC under RA 9335 taxing jurisdiction within the territorial jurisdiction
fully satisfy the demands of equal protection. of the City of Manila; (5) for the same taxing
(ABAKADA Guro Party List, etc., v. Purisima, etc., et al., periods per calendar year; and (6) of the same
G. R. No. 166715, August 14, 2008)
kind or character a local business tax imposed
on gross sales or receipts of the business. (The
11. The prosecution of one guilty City of Manila, et al., v. Coca-Cola Bottlers Philippines,
person while others equally guilty are not Inc., G. R. No. 181845, August 4, 2009)
prosecuted, however, is not, by itself, a
denial of the equal protection of the laws . 14. A lawful tax on a new subject,
Where the official action purports to be in or an increased tax on an old one, does not
conformity to the statutory classification, an interfere with a contract or impairs its
erroneous or mistaken performance of the obligation, within the meaning of the
statutory duty, although a violation of the statute, constitution. (Tolentino v. Secretary of Finance, et
is not without more a denial of the equal al., and companion cases, 235 SCRA 630)
protection of the laws.
The unlawful administration by officers of a 15. The withdrawal of a tax
statute fair on its face, resulting in its unequal
exemption should not be construed as
application to those who are entitled to be treated
alike, is not a denial of equal protection unless prohibiting future grants of exemption
there is shown to be present in it an element of from all taxes. (Philippine Long Distance Telephone
intentional or purposeful discrimination. This may Company, Inc., v. City of Davao, et al., etc., G. R. No.
143867, August 22, 2001)
14
subject to the payment of franchises taxes
16. Tax exemptions in franchises imposed by the Province of Isabela
are always subject to withdrawal. A because all of its shares are owned by the
legislative franchise is granted with the express Republic of the Philippines. It is thus, an
condition that it is subject to amendment, instrumentality of the National Government
alteration, or repeal. (1987 Constitution, Art. XII, Sec. which is exempt from local taxation. As
11)
It is enough to say that the parties to a such it is not a private corporation
contract cannot, through the exercise of prophetic engaged in business enjoying franchise
discernment, fetter the exercise of the taxing Is such contention meritorious ?
power of the State. For not only are existing laws SUGGESTED ANSWER: No. Philippine
read into contracts in order to fix obligations as Long Distance Telephone Company, Inc., v. City of
between parties, but the reservation of essential Davao, et al., etc., G. R. No. 143867, August 22,
attributes of sovereign power is also read into 2001, upheld the authority of the City of Davao, a
contracts as a basic postulate of the legal order. local government unit, to impose and collect a local
The policy of protecting contracts against franchise tax because the Local Government Code
impairment presupposes the maintenance of a has withdrawn all tax exemptions previously
government which retains adequate authority to enjoyed by all persons and authorized local
secure the peace and good order of society. government units to impose a tax on business
(Smart Communications, Inc. v. The City of Davao, etc., enjoying a franchise tax notwithstanding the grant
et al., G. R. No. 155491, September 16, 2008) of tax exemption to them.
NOTES AND COMMENTS: Philippine Long
Distance Telephone Company, Inc., v. City of Davao, et 20. In lieu of all taxes in the
al., etc., G. R. No. 143867, August 22, 2001 made the franchise of ABS-CBN does not exempt it
observation that since Smarts franchise was granted
after the effectivity of the Local Government Code that its from local franchise taxes. It does not
tax exemption privilege was reinstated. However, Smart expressly provide what kind of taxes ABS-CBN is
Communications, Inc. v. The City of Davao, etc., et al., exempted from. It is not clear whether the
G. R. No. 155491, September 16, 2008 is explicit in its exemption would include both local, whether
holding that Smart is not entitled to a tax exemption. municipal, city or provincial, and national tax.
Whether the in lieu of all taxes provision would
17. When withdrawal of a tax include exemption from local tax is not
exemption impairs the obligation of unequivocal.
contracts. The Contract Clause has never been The right to exemption from local franchise
thought as a limitation on the exercise of the tax must be clearly established and cannot be
States power of taxation save only where a tax made out of inference or implications but must be
exemption has been granted for a valid laid beyond reasonable doubt. Verily, the
consideration. (Smart Communications, Inc. v. The uncertainty in the in lieu of all taxes provision
City of Davao, etc., et al., G. R. No. 155491, September should be construed against ABS-CBN. ABS-
16, 2008) citing Tolentino v. Secretary of Finance, G. R. CBN has the burden to prove that it is in fact
No. 115455, August 25, 1994, 235 SCRA 630, 685) covered by the exemption so claimed but has
The author opines that since practically all failed to do so. (Quezon City, et al., v. ABS-CBN
franchises granted to telecommunications Broadcasting Corporation, G. R. No. 166408, October
companies are similarly worded that the above 6, 2008)
doctrine finds application to the others) NOTES AND COMMENTS: This is
practically the same holding in an earlier case involving
another telecommunications company Smart
18. The primary reason for the Communications, Inc. v. The City of Davao, etc., et al.,
withdrawal of tax exemption privileges G. R. No. 155491, September 16, 2008. The author
granted to government owned and opines that since practically all franchises granted to
controlled corporations and all other units of telecommunications companies are similarly worded
government was that such privilege resulted to that the above doctrine finds application to the others.)
serious tax base erosion and distortions in the tax
treatment of similarly situated enterprises, hence 21. In lieu of all taxes refers
resulting in the need for these entities to share in to national internal revenue taxes and not
the requirements of development, fiscal or to local taxes. The in lieu of all taxes clause
otherwise, by paying the taxes and other charges applies only to national internal revenue taxes and
due them. (Philippine Ports Authority v. City of Iloilo, G. not to local taxes. As appropriately pointed out in
R. No. 109791, July 14, 2003) the separate opinion of Justice Antonio T. Carpio
in a similar case involving a demand for
19. National Power Corporation exemption from local franchise taxes:
(NPC) is of the insistence that it is not
15
[T]he "in lieu of all taxes" clause in Smart's broadcasting companies with yearly gross
franchise refers only to taxes, other than income receipts exceeding ten million pesos has been
tax, imposed under the National Internal Revenue abolished, the in lieu of all taxes clause has now
Code. The "in lieu of all taxes" clause does not become functus officio, rendered inoperative.
apply to local taxes. The proviso in the first (Quezon City, et al., v. ABS-CBN Broadcasting
paragraph of Section 9 of Smart's franchise states Corporation, G. R. No. 166408, October 6, 2008)
that the grantee shall "continue to be liable for NOTES AND COMMENTS: This is
income taxes payable under Title II of the National practically the same holding in an earlier case involving
Internal Revenue Code." Also, the second another telecommunications company. Smart
Communications, Inc. v. The City of Davao, etc., et al.,
paragraph of Section 9 speaks of tax returns filed G. R. No. 155491, September 16, 2008. The author
and taxes paid to the "Commissioner of Internal opines that since practically all franchises granted to
Revenue or his duly authorized representative in telecommunications companies are similarly worded
accordance with the National Internal Revenue that the above doctrine finds application to the others.)
Code." Moreover, the same paragraph declares
that the tax returns "shall be subject to audit by 23. Double taxation in its
the Bureau of Internal Revenue." Nothing is generic sense, this means taxing the same
mentioned in Section 9 about local taxes. The subject or object twice during the same
clear intent is for the "in lieu of all taxes" clause to taxable period. In its particular sense, it may
apply only to taxes under the National Internal mean direct duplicate taxation, which is prohibited
Revenue Code and not to local taxes. Even with under the constitution because it violates the
respect to national internal revenue taxes, the "in concept of equal protection, uniformity and
lieu of all taxes" clause does not apply to income equitableness of taxation. Indirect duplicate
tax. taxation is not anathematized by the above
If Congress intended the "in lieu of all constitutional limitations.
taxes" clause in Smart's franchise to also apply to
local taxes, Congress would have expressly
mentioned the exemption from municipal and 24. Elements of direct
provincial taxes. Congress could have used the duplicate taxation:
language in Section 9(b) of Clavecilla's old a. Same
franchise, as follows: 1) Subject or object is taxed twice
x x x in lieu of any and all taxes of any kind, 2) by the same taxing authority
nature or description levied, established or 3) for the same taxing purpose
collected by any authority whatsoever, municipal, 4) during the same taxable period
provincial or national, from which the grantee is b. Taxing all of the subjects or objects
hereby expressly exempted, x x x. (Emphasis for the first time without taxing all of them for the
supplied). second time.
However, Congress did not expressly If any of the elements are absent then
exempt Smart from local taxes. Congress used there is indirect duplicate taxation which is not
the "in lieu of all taxes" clause only in reference to prohibited by the constitution.
national internal revenue taxes. The only NOTES AND COMMENTS:
interpretation, under the rule on strict construction a. Presence of the 2nd element violates
of tax exemptions, is that the "in lieu of all taxes" the equal protection clause. If only the 1 st element is
present, taxing the same subject or object twice, by the
clause in Smart's franchise refers only to national
same taxing authority, etc., there is no violation of the
and not to local taxes. [Smart Communications, equal protection clause because all subjects and objects
Inc. v. The City of Davao, etc., et al., G. R. No. 155491, that are similarly situated are subject to the same
September 16, 2008 citing Philippine Long Distance burdens and granted the same privileges without any
Telephone Company, Inc. v. City of Davao, 447 Phil. discrimination whatsoever,
571, 594 (2003)] The presence of the 2nd element, taxing all of the
NOTES AND COMMENTS: The author subjects and objects for the first time, without taxing all
opines that the above finds application to all for the second time, results to discrimination among
telecommunications companies. subjects and objects that are similarly situated, hence
violative of the equal protection clause.
22. The in lieu of all taxes clause 25. Double taxation a valid defense
in the franchise of ABS-CBN has become against the legality of a tax measure if the
functus officio with the abolition of the double taxation is direct duplicate taxation,
franchise tax on broadcasting companies because it would violate the equal protection
with yearly gross receipts exceeding Ten clause of the constitution.
Million Pesos. The clause in lieu of all taxes
does not pertain to VAT or any other tax. It cannot 26. When an item of income is
apply when what is paid is a tax other than a taxed in the Philippines and the same
franchise tax. Since the franchise tax on the
16
income is taxed in another country, this to the value-added tax. Thus, there was a
would be known as international juridical violation of the constitutional mandate that
double taxation which is the imposition of revenue bills shall originate exclusively
comparable taxes in two or more states on the from the House of Representatives.
same taxpayer in respect of the same subject Are the contentions of such weight
matter and for identical grounds. (Commissioner of as to constitute grave abuse of discretion
Internal Revenue v. S.C. Johnson and Son, Inc., et al.,
G.R. No. 127105, June 25, 1999)
which may invalidate the law ? Explain
briefly.
SUGGESTED ANSWER: No. There was
27. Methods for avoiding double no grave abuse of discretion because all the
taxation (indirect duplicate taxation). changes and modifications made by the Bicameral
a. Tax treaties which exempts foreign Conference Committee were germane to subjects
nationals from local taxation and local nationals of the provisions referred to it for reconciliation.
from foreign taxation under the principle of The Bicameral Conference Committee
reciprocity. merely exercised the judicially recognized long-
b. Tax credits where foreign taxes are standing legislative practice of giving said
allowed as deductions from local taxes that are due conference committee ample latitude for
to be paid. compromising differences between the Senate and
c. Allowing foreign taxes as a deduction the House. [Abakada Guro Party List (etc.) v. Ermita,
from gross income. etc., et al., G. R. No. 168056, September 1, 2005 and
companion cases]
28. Tax credit generally refers to an
amount that is subtracted directly from ones total 31. The VAT while regressive is NOT
tax liability, an allowance against the tax itself, or a violative of the mandate to evolve a
deduction from what is owned. progressive system of taxation. Do you
A tax credit reduces the tax due, including agree ? The mandate to Congress is not to
whenever applicable the income tax that is prescribe but to evolve a progressive system of
determined after applying the corresponding tax taxation. Otherwise, sales taxes which perhaps
rates to taxable income. (Commissioner of Internal are the oldest form of indirect taxes, would have
Revenue v. Central Luzon Drug Corporation, G. R. No. been prohibited with the proclamation of the
159647, April 15, 2005)
constitutional provision. Sales taxes are also
regressive. . [Abakada Guro Party List (etc.) v. Ermita,
29. A tax deduction is defined as a etc., et al., G. R. No. 168056, September 1, 2005 and
subtraction fro income for tax purposes, or an companion cases citing Tolentino v. Secretary of
amount that is allowed by law to reduce income Finance, et al., G. R. No. 115455, August 25, 1994, 235
prior to the application of the tax rate to compute SCRA 630]
the amount of tax which is due.
A tax deduction reduces the income that is 32. All revenues and assets of non-
subject to tax in order to arrive at taxable income. stock, non-profit educational institutions
(Commissioner of Internal Revenue v. Central Luzon that are actually, directly and exclusively
Drug Corporation, G. R. No. 159647, April 15, 2005)
used for educational purposes shall be
exempt from taxation.
30. Thepetitioners allege that the
R-VAT law is constitutional because the 33. Revenues and assets of
Bicameral Conference Committed has proprietary educational institutions,
exceeded its authority in including including those which are cooperatively
provisions which were never included in owned, may be entitled to exemptions
the versions of both the House and Senate subject to limitations provided by law
such as inserting the stand-by authority to including restrictions on dividends and
the President to increase the VAT from 10% provisions for reinvestments. There is no
to 12%; deleting entirely the no pass-on law at the present which grants exemptions, other
provisions found in both the House and the exemptions granted to cooperatives.
Senate Bills; inserting the provision
imposing a 70% limit on the amount of OTHER CONCEPTS
input tax to be credited against the output
tax; and including the amendments 1. Distinguish tax from debt.
introduced only by Senate Bill No. 1950
regarding other kinds of taxes in addition TAX DEBT
17
Basis based on law deficiency
based on contract or is unavailing under Art. 1279 of the Civil
judgment Code. (South African Airways v. Commissioner of
Internal Revenue, G.R. No. 180356, February 16, 2010
Failure to Pay may result in no imprisonment
reiterating Caltex Philippines, Inc. v. Commission
imprisonment on Audit, which applied Francia v. Intermediate
Appellate Court)
Mode of generally payable in payable in money,
Payment money property or service
4. Exceptions: When set-off or
Assignability not assignable assignable
compensation allowed for local taxes.
Payment unless it becomes a may be a subject a.
debt is not subject to Where both claims already become
compensation or set- overdue and demandable as well as fully
off liquidated. Compensation takes place by
Interest does not draw draws interest operation
if of law under Art. 1200 in relation to Arts.
interest unless 1279 and 1290 all of the Civil Code. (Domingo v.
stipulated or delayed
delinquent Garlitos, 8 SCRA 443)
b. Compensation takes place by
Authority imposed by public can be imposed by
operation of law, where the government and the
authority private individuals
taxpayer are in their own right reciprocally debtors
Prescription Prescriptive periods debt under theand
Civilcreditors of each other, and that the debts are
for tax under NIRC Code both due and demandable. This is in
consequence of Article 1278 and 1279 of the Civil
WARNING: Do not use the above Code. (Domingo v. Garlitos, 8 SCRA 443)
arrangement in answering Bar questions. c. ,The
Supreme Court upheld the validity of a set-off
2. Compensation takes place by
operation of law, where the local government and between the taxpayer and the government. In
the taxpayer are in their own right reciprocally both cases, the claims of the taxpayers therein
debtors and creditors of each other, and that the were certain and liquidated. The claims were
debts are both due and demandable, in certain since there were no doubts or disputes as
consequence of Articles 1278 and 1279 of the Civil
to their refundability. In fact, the government
Code. (Domingo v. Garlitos, 8 SCRA 443)
admitted the fact of over-payment.
(Commissioner of Internal Revenue v. Esso
3. May there be compensation
Standard Eastern, Inc., 172 SCRA 364)
or set-off between a national tax and a
debt ? Reason out your answer. d. In case of a tax overpayment, the
SUGGESTED ANSWER: As a BIRs obligation to refund or off-set arises from the
general rule, there could be no compensation or moment the tax was paid. REASON: Solutio
set-off between a tax and a debt for the following indebeti. (Commissioner of Internal Revenue v. Esso
reasons: Standard Eastern, Inc 172 SCRA 364)
a. Lifeblood
theory.
e. While judgment should be
b. Taxes are not contractual
obligations but arise out of a duty to, and are the rendered in favor of Republic for unpaid taxes,
positive acts of government, to the making and judgment ought at the same time to issue for
enforcing of which the personal consent of the Sampaguita Pictures commanding payment to the
individual taxpayer is not required. (Republic v. latter by the Republic of the value of the backpay
Mambulao Lumber Co., 4 SCRA 622)
c. Taxes cannot be the certificates which the Republic received. (Republic
subject of compensation because the government v. Ericta, 172 SCRA 623)
and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not
5. Gilbert obtained a
such a debt, demand, contract or judgment as is judgment for a sum of money against the
allowed to be set-off. municipality of Camiling. The judgment
Thus, it is correct to say that the offsetting has become final although execution has
of a taxpayers tax refund with its alleged tax not issued. Upon receiving an
18
assessment for municipal sales taxes people pay for civilized society. They are the
from the Municipal Treasurer, Gilbert lifeblood of the nation. Thus, statutes granting tax
executed a partial assignment of his exemptions are construed stricissimi juris against
judgment sufficient to cover the the taxpayer and liberally in favor of the taxing
authority. A claim of tax exemption must be
assessment in favor of the Municipality.
clearly shown and based on language in law too
May the Municipal Treasurer validly plain to be mistaken. Otherwise stated, taxation is
accept the assignment? Why? the rule, exemption is the exception. (Quezon City,
SUGGESTED ANSWER: Yes. The parties et al., v. ABS-CBN Broadcasting Corporation, G. R. No.
in this case are mutually debtors and creditors of 166408, October 6, 2008 citing Mactan Cebu
each other, and since both of the claims became International Airport Authority v. Marcos, G.R. No.
120082, September 11, 1996, 261 SCRA 667, 680)
overdue, demandable and fully liquidated, The burden of proof rests upon the party claiming
compensation takes place by operation of law. the exemption to prove that it is in fact covered by
Such was the holding in Domingo v. Garlitos, 8 the exemption so claimed. (Quezon City, supra citing
SCRA 443, a case decided by the Supreme Court Agpalo, R.E., Statutory Construction, 2003 ed., p. 301)
SUGGESTED ANSWER:
Who could apply for a tax refund or
credit ?
65
10. Who could apply for a refund In exercising its option, the corporation
or credit ? must signify in its annual corporate adjustment
SUGGESTED ANSWER: The person who return (by marking the option box provided in the
paid the tax may apply for a refund or credit. BIR form) its intention either to carry over the
A withholding tax agent may also apply for excess credit or to claim a refund. To facilitate tax
a refund. In a sense, he is also a taxpayer collection, these remedies are in the alternative
because the tax may be collected from him if he and the choice of one precludes the other. [Systra
Philippines, Inc., v. Commissioner of Internal Revenue,
does not withhold.
G. R. No. 176290, September 21, 2007 citing Philippine
Bank of Communications v. Commissioner of Internal
11. What is the nature of the Revenue, 361 Phil. 916 (1999)]
taxpayers remedy of either to ask for a This is known as the irrevocability rule
refund of excess tax payments or to apply and is embodied in the last sentence of Section
the same in payment of succeeding taxable 76 of the Tax Code. The phrase such option shall
periods taxes ? be considered irrevocable for that taxable period
SUGGESTED ANSWER: Sec. 69 of the means that the option to carry over the excess tax
1977 NIRC (now Sec. 76 of the NIRC of 1997) credits of a particular taxable year can no longer
provides that any excess of the total quarterly be revoked.
payments over the actual income tax computed in The rule prevents a taxpayer from claiming
the adjustment or final corporate income tax return, twice the excess quarterly taxes paid: (1) as
shall either (a) be refunded to the corporation, or automatic credit against taxes for the taxable
(b) may be credited against the estimated quarterly quarters of the succeeding years for which no tax
income tax liabilities for the quarters of the credit certificate has been issued and (2) as a tax
succeeding taxable year. To ease the credit either for which a tax credit certificate will be
administration of tax collection, these remedies are issued or which will be claimed for cash refund.
in the alternative and the choice of one precludes (Systra Philippines, Inc., supra citing De Leon, Hector,
THE NATIONAL INTERNAL REVENUE CODE,
the other. Since the Bank has chosen the tax
Seventh Edition, 2000, p. 430)
credit approach it cannot anymore avail of the tax
refund. (Philippine Bank of Communications v.
Commissioner of Internal Revenue, et al., G.R. No. 13. In the year 2000 Systra derived
112024, January 28, 1999) excess tax credits and exercised the
NOTES AND COMMENTS: option to carry them over as tax credits
a. The choice, is given to the for the next taxable year. However, the tax
taxpayer, whether to claim for refund under due for the next taxable year is lower than
Sec. 76 or have its excess taxes applied as tax excess tax credits. It now applies for a
credit for the succeeding taxable year, such refund of the unapplied tax credits. May
election is not final. Prior verification and approval its refund be granted ? If the refund is
by the Commissioner of Internal Revenue is denied, does Systra lose the unapplied
required. The availment of the remedy of tax credit
tax credits ? Explain briefly your answer.
is not absolute and mandatory. It does not confer
SUGGESTED ANSWER: Systras claim
an absolute right on the part of the taxpayer to avail
for refund should be denied. Once the carry over
of the tax credit scheme if it so chooses. Neither
option was made, actually or constructively, it
does it impose a duty on the part of the
became forever irrevocable regardless of whether
government to sit back and allow an important
the excess tax credits were actually or fully
facet of tax collection to be at the sole control and
utilized Under Section 76 of the Tax Code, a claim
discretion of the taxpayer. (Paseo Realty &
for refund of such excess credits can no longer be
Development Corporation v. Court of Appeals, et
made. The excess credits will only be applied
al., G. R. No. 119286, October 13, 2004)
against income tax due for the taxable quarters of
the succeeding taxable years.
12. What is the irrevocability Despite the denial of its claim for refund,
rule in claims for refund and what is the Systra does not lose the unapplied tax credits.
rationale behind this ? The amount will not be forfeited in favor of the
SUGGESTED ANSWER: A corporation government but will remain in the taxpayers
entitled to a tax credit or refund of the excess account. Petitioner may claim and carry it over in
estimated quarterly income taxes paid has two the succeeding taxable years, creditable against
options: (1) to carry over the excess credit or (2) future income tax liabilities until fully utilized.
to apply for the issuance of a tax credit certificate (Systra Philippines, Inc., v. Commissioner of Internal
or to claim a cash refund. If the option to carry Revenue, G. R. No. 176290, September 21, 2007 citing
over the excess credit is exercised, the same shall Philam Asset Management, Inc. v. Commissioner of
be irrevocable for that taxable period. Internal Revenue, G.R. Nos. 156637/162004, 14
December 2005, 477 SCRA 761)
66
Supposing in the above problem that determine whether the proper taxes have been
Systra permanent ceased operations, what assessed and paid. After all, it is axiomatic that a
happens to the unapplied credits ? claimant has the burden of proof to establish the
SUGGESTED ANSWER: Where, the factual basis of his or her claim for tax credit or
corporation permanently ceases its operations refund. Tax refunds, like tax exemptions, are
before full utilization of the tax credits it opted to construed strictly against the taxpayer. (Paseo
carry over, it may then be allowed to claim the Realty & Development Corporation v. Court of Appeals,
refund of the remaining tax credits. In such a et al., G. R. No. 119286, October 13, 2004)
case, the remaining tax credits can no longer be However, in BPI-Family Savings Bank v.
carried over and the irrevocability rule ceases to Court of Appeals, 386 Phil. 719; 326 SCRA 641
apply. Cessante ratione legis, cessat ipse lex. (2000), refund was granted, despite the failure to
(Footnote no. 23, Systra Philippines, Inc., v. present the tax return, because other evidence was
Commissioner of Internal Revenue, G. R. No. presented to prove that the overpaid taxes were
176290, September 21, 2007) not applied. (Ibid.)
NOTES AND COMMENTS: The holding in
State Land Investment Corporation v. 16. Discuss the difference
Commissioner of Internal Revenue, G. R. No. between tax refund and tax credit..
171956, January 18, 2008 that the taxpayer is SUGGESTED ANSWER: There are
entitled to a refund because during the unmistakable formal and practical differences
succeeding year there was no tax due against between the two modes. Formally, a tax refund
which the excess tax credits may be applied is not requires a physical return of the sum erroneously
doctrinal. This is so because it interpreted the paid by the taxpayer, while a tax credit involves the
provisions of then Sec. 69 of the NIRC, which did application of the reimbursable amount against any
not provide for the irrevocability rule now sum that may be due and collectible from the
contained in Sec. 76 of the NIRC of 1997. taxpayer.
On the practical side, the taxpayer to whom
14. A simultaneous filing of the the tax is refunded would have the option, among
application with the BIR for refund/credit others, to invest for profit the returned sum, an
and the institution of the court suit with the option not proximately available if the taxpayer
CTA is allowed. There is no need to wait for a chooses instead to receive a tax credit.
BIR denial. REASONS: (Commissioner of Customs v. Philippine Phosphate
Fertilizer Corporation, G. R. No. 144440, September 1,
a. The positive requirement of Section 230
2004)
NIRC (now Sec. 229, NIRC of 1997); NOTES AND COMMENTS: It may be that
b. The doctrine that delay of the there is no essential difference between a tax
Commissioner in rendering decision does not refund and a tax credit since both are moves of
extend the peremptory period fixed by the statute; recovering taxes erroneously or illegally paid to the
c. The law fixed the same period two government. (Commissioner of Customs v. Philippine
years for filing a claim for refund with the Phosphate Fertilizer Corporation, G. R. No. 144440,
Commissioner under Sec. 204, par. 3, NIRC (now September 1, 2004)
Sec. 204 [C], NIRC of 1997), and for filing suit in
court under Sec. 230, NIRC (now Sec. 229, NIRC 17. A bank-trustee of employee
of 1997), unlike in protests of assessments under trusts filed an application for the refund of
Sec. 229 (now Sec. 228, NIRC of 1997), which
taxes withheld on the interest incomes of
fixed the period (thirty days from receipt of
decision) for appealing to the court, thus clearly the investments made of the funds of the
implying that the prior decision of the employees trusts. Instead of presenting
Commissioner is necessary to take cognizance of separate accounts for interest incomes
the case. (Commissioner of Internal Revenue v. Bank made of these investments, the bank-
of Philippine Islands, etc. et al., CA-G.R. SP No. 34102, trustee instead presented witness to
September 9, 1994; Gibbs v. Collector of Internal establish that it would next to impossible
Revenue, et al., 107 Phil, 232; Johnston Lumber Co. v.
CTA, 101 Phil. 151)
to single out the specific transactions
involving the employees trust funds from
15. The grant of a refund is the totality of all interest income from its
founded on the assumption that the tax total investments. On the above basis will
return is valid, i.e. that the facts stated therein the application for refund prosper ?
are true and correct. (Commissioner of Internal SUGGESTED ANSWER: No. The
Revenue v. Court of Tax Appeals, G. R. No. application for refund will not prosper.
106611, July 21, 1994, 234 SCRA 348) Without the The bank-trustee needs to establish not
tax return it would be virtually impossible to only that the refund is justified under the law
67
(which is so because incomes of employees the authenticity of the particular documents
trusts are tax exempt), but also the correct presented is raised during the hearing of the
amount that should be refunded. case. (Emphasis supplied)
Tax refunds partake of the nature of tax
exemptions and are thus construed strictissimi 19. Manila Electric Company a
juris against the person or entity claiming the grantee of a legislative franchise under
exemption. The burden in proving the amount to Act No. 484, as amended by Republic Act
be refunded necessarily falls on the bank-trustee, No. 4159 and Presidential Decree No. 551,1
and there is an apparent failure to do so. [3]
had been paying a 2% franchise tax
A necessary consequence of the special
exemption enjoyed alone by employees trusts based on its gross receipts, in lieu of all
would be a necessary segregation in the other taxes and assessments of whatever
accounting of such income, interest or otherwise, nature. Upon the effectivity of Executive
earned from those trusts from that earned by the Order No. 72 on February 10, 1987,
other clients of the bank-trustee. (Far East Bank however, respondent became subject to
and Trust Company, etc., v. Commissioner, etc., the payment of regular corporate income
et al., G.R. No. 138919, May 2, 2006) The tax.
amounts that are the exempt earnings of the For the last quarter ending December 31,
employees trust has not been shown as they 1987, respondent filed on April 15, 1988 its
have been commingled with the interest income of
tentative income tax reflecting a
the other clients of the bank-trustee.
refundable amount of P101,897,741, but
18. CTA Circular No. 1-95 clearly only P77,931,812 was applied as tax credit
requires that photocopies of the receipts for the succeeding taxable year 1988.
or invoices must be pre-marked and Acting on a yearly routinary Letter
submitted to the CTA to verify the of Authority No. 0018064 NA dated June
correctness of the summary listing and 27, 1988 issued by petitioner, directing the
the CPA certification. CTA Circular No. 1-95, investigation of tax liabilities of
issued on 25 January 1995, reads: respondent for taxable year 1987, an
1. The party who desires to introduce investigation was conducted by Revenue
as evidence such voluminous documents must Officer Frederick Capitan which showed
present: (a) Summary containing the total that respondent was liable for 1.
amount/s of the tax account or tax paid for the deficiency income tax in the amount of
period involved and a chronological or numerical P2,340,902.52; and 2. deficiency franchise
list of the numbers, dates and amounts covered tax in the amount of P2,838,335.84.
by the invoices or receipts; and (b) a Certification On April 17, 1989, respondent filed
of an independent Certified Public Accountant
an amended final corporate Income Tax
attesting to the correctness of the contents of the
summary after making an examination and Return ending December 31, 1988
evaluation of the voluminous receipts and reflecting a refundable amount of
invoices. Such summary and certification must P107,649,729.
properly be identified by a competent witness from Respondent thus filed on March 30,
the accounting firm. 1990 a letter-claim for refund or credit in
2. The method of individual presentation of the amount of P107,649,729 representing
each and every receipt or invoice or other overpaid income taxes for the years 1987
documents for marking, identification and and 1988.
comparison with the originals thereof need not be Petitioner not having acted on its
done before the Court or the Commissioner
request, respondent filed on April 6, 1990
anymore after the introduction of the summary
and CPA certification. It is enough that the a judicial claim for refund or credit with
receipts, invoices and other documents the Court of Tax Appeals.
covering the said accounts or payments must It is gathered that respondent paid
be pre-marked by the party concerned and the deficiency franchise tax in the amount
submitted to the Court in order to be made of P2,838,335.84. It protested the payment
accessible to the adverse party whenever of the alleged deficiency income tax and
he/she desires to check and verify the claimed as an alternative remedy the
correctness of the summary and CPA deduction thereof from its claim for refund
certification. However, the originals of the said or credit.
receipts, invoices or documents should be ready
for verification and comparison in case doubt on 1
68
The Court of Tax Appeals granted In case the articles are free of duties, taxes
the P107,649,729 claim for refund, or in and other charges, until they have legally left the
the alternative for the BIR to issue a tax jurisdiction of the customs. (Sec. 1202, TCCP)
credit. Is the Court of Tax Appeals correct The Bureau of Customs loses jurisdiction to
enforce the TCCP and to make seizures and
?
forfeitures after importation is deemed terminated.
SUGGESTED ANSWER: Yes. Section 69
of the National Internal Revenue Code of 1986,
now Sec. 76 provides, if the sum of the quarterly 3. The flexible tariff clause is a
tax payments made during a taxable year is not provision in the Tariff and Customs Code,
equal to the total tax due on the entire taxable which implements the constitutionally delegated
income of that year as shown in its final power to the Congress to further delegate to the
adjustment return, the corporation has the option President of the Philippines, in the interest of
to either: (a) pay the excess tax still due, or (b) be national economy, general welfare and/or national
refunded the excess amount paid. The returns security upon recommendation of the NEDA (a) to
submitted are merely pre-audited which consist increase, reduce or remove existing protective
mainly of checking mathematical accuracy of the rates of import duty, provided that, the increase
figures in the return. After such checking, the should not be higher than 100% ad valorem; (b) to
purpose of which being to insure prompt action establish import quota or to ban imports of any
on corporate annual income tax returns showing commodity, and (c) to impose additional duty on all
refundable amounts arising from overpaid imports not exceeding 10% ad valorem, among
quarterly income taxes, (Revenue Memorandum others.
Order No. 32-76 dated June 11, 1976) the refund
or tax credit is granted. (Commissioner of Internal 4. Customs duties defined.
Revenue v. Manila Electric Company, G. R. No. Customs duties is the name given to taxes on the
121666, October 10, 2007) importation and exportation of commodities, the
tariff or tax assessed upon merchandise imported
from, or exported to, a foreign country. (Nestle
TARIFF AND CUSTOMS LAWS Phils. v. Court of Appeals, et al., G.R. No. 134114,
July 6, 2001)
ORGANIZATION AND FUNCTIONS OF
THE BUREAU OF INTERNAL REVENUE 5. Special customs duties are
additional import duties imposed on
TARIFF AND CUSTOMS CODE specific kinds of imported articles under
certain conditions. The special customs duties
1. When does importation begin, under the Tariff and Customs Code (TCCP) are the
and why is it important to know whether anti-dumping duty, the countervailing duty, the
discriminatory duty, and the marking duty, and
importation has already begun or not ?
under the Safeguard Measures Act (SMA)
SUGGESTED ANSWER: Importation
additional tariffs as safeguard measures.
begins when the conveying vessel or aircraft enters
the jurisdiction of the Philippines with intention to
unlade therein. (Sec. 1202, TCCP) 6. The special customs duties are
The jurisdiction of the Bureau of Customs to imposed for the protection of consumers
enforce the provisions of the TCCP including and manufacturers, as well as Philippine
seizure and forfeiture also begins from the products.
beginning of importation. Thus, the Bureau of
Customs obtains jurisdiction over imported articles 7. Dumping duty is an additional
only after importation has begun. special duty amounting to the difference
between the export price and the normal
2. When is importation value of such product, commodity or
deemed terminated and why is it important article (Sec. 301 (s) (1), TCC, as amended by Rep.
to know whether importation has already Act No. 8752, Anti-Dumping Act of 1999.) imposed on
ended? the importation of a product, commodity or article of
SUGGESTED ANSWER: Importation is commerce into the Philippines at less than its
deemed terminated upon payment of the duties, normal value when destined for domestic
taxes and other charges due upon the agencies, or consumption in the exporting country which is
secured to be paid, at the port of entry and the causing or is threatening to cause material injury to
legal permit for withdrawal shall have been a domestic industry, or materially retarding the
granted. establishment of a domestic industry producing the
69
like product. [Sec. 301 (s) (5), TCC, as amended by 13. The amount of anti-dumping duty
Rep. Act No. 8752, Anti-Dumping Act of 1999] that may be imposed is the difference
between the export price and the normal
8. When is the anti-dumping duty value of such product, commodity or
imposed ? article. (Sec. 301 (s) (1), TCC, as amended by Rep.
SUGGESTED ANSWER: The anti-dumping Act No. 8752, Anti-Dumping Act of 1999)
duty is imposed The anti-dumping duty shall be equal to the
a. Where a product, commodity or article of margin of dumping on such product, commodity or
commerce is exported into the Philippines at a article thereafter imported to the Philippines under
price less than its normal value when destined for similar circumstances, in addition to ordinary
domestic consumption in the exporting country, duties, taxes and charges imposed by law on the
b. and such exportation is causing or is imported product, commodity or article.
threatening to cause material injury to a domestic
industry, or materially retards the establishment of 14. What are countervailing duties
a domestic industry producing the like product.
[Sec. 301 (a), TCC, as amended by Rep. Act No. 8752,
and when are they imposed ?
Anti-Dumping Act of 1999] SUGGESTED ANSWER: Countervailing
duties are additional customs duties imposed on
9. Normal value for purposes of any product, commodity or article of commerce
which is granted directly or indirectly by the
imposing the anti-dumping duty is the
government in the country of origin or exportation,
comparable price at the date of sale of like product,
any kind or form of specific subsidy upon the
commodity, or article in the ordinary course of trade
production, manufacture or exportation of such
when destined for consumption in the country of
product commodity or article, and the importation of
export. [Sec. 301 (s) (3 ), TCC, as amended by
such subsidized product, commodity, or article has
Rep. Act No. 8752, Anti-Dumping Act of 1999]
caused or threatens to cause material injury to a
domestic industry or has materially retarded the
10. The imposing authority for the growth or prevents the establishment of a domestic
anti-dumping duty is the Secretary of Trade industry. (Sec. 302, TCCP as amended by Section
and Industry in the case of non-agricultural 1, R.A. No. 8751)
product, commodity, or article or the
Secretary of Agriculture, in the case of 15. The imposing authority for the
agricultural product, commodity or article, countervailing duties is the Secretary of
after formal investigation and affirmative finding of Trade and Industry in the case of non-
the Tariff Commission. [Sec. 301 (a), TCC, as agricultural product, commodity, or article
amended by Rep. Act No. 8752, Anti-Dumping Act of
1999]
or the Secretary of Agriculture, in the case
of agricultural product, commodity or
11. Even when all the requirements article, after formal investigation and affirmative
for the imposition have been fulfilled, the finding of the Tariff Commission.
Even when all the requirements for the
decision on whether or not to impose a
imposition have been fulfilled, the decision on
definitive anti-dumping duty remains the whether or not to impose a definitive anti-dumping
prerogative of the Tariff Commission. [Sec. duty remains the prerogative of the Tariff
301 (a), TCC, as amended by Rep. Act No. 8752, Anti- Commission. (Sec. 301 (a), TCC, as amended by Rep.
Dumping Act of 1999] Thus, the cabinet secretaries Act No. 8752, Anti-Dumping Act of 1999)
could not contravene the recommendation of the
Tariff Commission. They could not impose the anti- 16. The countervailing duty is
dumping duty or any special customs duty without
equivalent to the value of the specific
the favorable recommendation of the Tariff
Commission. subsidy.
12. In the determination of whether 17. Marking duties are the additional
to impose the anti-dumping duty, the Tariff customs duties imposed on foreign articles (or its
containers if the article itself cannot be marked),
Commission, may consider among others,
not marked in any official language in the
the effect of imposing an anti-dumping Philippines, in a conspicuous place as legibly,
duty on the welfare of the consumers indelibly and permanently in such manner as to
and/or the general public, and other related indicate to an ultimate purchaser in the Philippines
local industries. (Sec. 301 (a), TCC, as amended the name of the country of origin.
by Rep. Act No. 8752, Anti-Dumping Act of 1999)
70
18. The Commissioner of Customs 24. Safeguards measures that may
imposes the marking duty. be imposed. Additional tariffs, import quotas or
banning of imports.
19. The marking duty is equivalent to
five percent (5%) ad valorem. 25. The basis of dutiable value of
merchandise that is subject to ad valorem
20. A discriminatory duty is a new customs duties is the transaction value,
and additional customs duty imposed upon articles which shall be the price actually paid or payable for
wholly or in part the growth or product of, or the goods when sold for export to the Philippines,
imported in a vessel, of any foreign country which adjusted by adding certain cost elements to the
imposes, directly or indirectly, upon the disposition extent that they are incurred by the buyer but are
or transportation in transit through or re-exportation not included in the price actually paid or payable for
from such country of any article wholly or in part the imported goods, and may include the following:
the growth or product of the Philippines, any a. Cost of containers and packing,
unreasonable charge, exaction, regulation or b. Insurance, and
limitation which is not equally enforced upon like c. Freight. (Sec. 201, TCC as amended
articles of every foreign country, or discriminates by Sec. 1, Rep. Act No. 9135)
against the commerce of the Philippines, directly or
indirectly, by law or administrative regulation or 26. The above transaction value
practice, by or in respect to any customs, tonnage,
is the primary method of determining
or port duty, fee, charge, exaction, classification,
regulation, condition, restriction or prohibition, in dutiable value. If the transaction value of
such manner as to place the commerce of the the imported article could not be
Philippines at a disadvantage compared with the determined using the above, the following
commerce of any foreign country. alternative methods should be used one
after the other:
21. The President of the Philippines a. Transaction value of identical goods
imposes the discriminatory duties. b. Transaction value of similar goods
c. Deductive method
22. Safeguard measures are d. Computed method
e. Fallback method
emergency measures, including tariffs, to protect
domestic industries and producers from increased 27. How and to whom should
imports which inflict or could inflict serious injury on claims for refund of customs duties be
them. made ?
The CTA is vested with jurisdiction to review SUGGESTED ANSWER: All claims for
decisions of the Secretary of Trade and Industry refund of duties shall be made in writing and
forwarded to the Collector of Customs to whom
imposing safeguard measures as provided under
such duties are paid, who upon receipt of such
Rep. Act No. 8800 the Safeguard Measures Act claim, shall verify the same by the records of his
(SMA). (Southern Cross Cement Corporation v. The Office, and if found to be correct and in accordance
Philippine Cement Manufacturers Corp., et al., G. R. No. with law, shall certify the same to the
158540, July 8, 2004) Commissioner of Customs with his
The DTI Secretary cannot impose the recommendation together with all necessary
safeguard measures if the Tariff Commission does papers and documents. Upon receipt by the
not favorably recommend its imposition. Commissioner of such certified claim he shall
cause the same to be paid if found correct. (Sec.
1708, TCC)
23. Imposing authority for
safeguard measures. The imposing
28. What is mean by the term
authority for the countervailing duties is
entry in Customs Law ?
the Secretary of Trade and Industry in the SUGGESTED ANSWER: It has a triple
case of non-agricultural product, meaning.
commodity, or article or the Secretary of a. the documents filed at the Customs
Agriculture, in the case of agricultural house;
product, commodity or article, after formal b. the submission and acceptance of
investigation and affirmative finding of the Tariff the documents; and
Commission. c. Customs declaration forms or
customs entry forms required to be accomplished
71
by passengers of incoming vessels or passenger shall be deemed sufficient evidence to authorize
planes as envisaged under Sec. 2505 of the conviction, unless the defendant shall explain the
TCCP (Failure to declare baggage). (Jardeleza v. possession to the satisfaction of the court:
People, G.R. No. 165265, February 6, 2006) Provided, however, That payment of the tax due
after apprehension shall not constitute a valid
29. A flight stewardess arrived from defense in any prosecution under this section.
Singapore. Upon her arrival she was (last par., Sec. 3601, TCC)
asked whether she has anything to
declare. She answered none, and she 31. How is smuggling committed ?
submitted her Customs Baggage SUGGESTED ANSWER: Smuggling is
committed by any person who:
Declaration Form which she
a. fraudulently imports or brings into the
accomplished and signed with nothing or country any article contrary to law;
written on the space for items to be b. assists in so doing any article
declared. When her hanger bag was contrary to law; or
examined some pieces of jewelry were c. receives, conceals, buys, sells or in
found concealed within the lining of said any manner facilitates the transportation,
bag. concealment or sale of such goods after
She was then convicted of violating importation, knowing the same to have been
of Sec. 3601 of the Tariff and Customs imported contrary to law. (Jardeleza v. People,
Code for unlawful importation which G.R. No. 165265, February 6, 2006 citing
Rodriguez v. Court of Appeals, G. R. No. 115218,
penalizes any person who shall
September 18, 1995, 248 SCRA 288, 296)
fraudulently import or bring into the NOTES AND COMMENTS:
Philippines any article contrary to law. a. Importation consists of bringing an
She now appeals claiming that lower article into the country from the outside.
court erred n convicting her under Sec. Importation begins when the conveying vessel or
3601 when the facts alleged both in the aircraft enters the jurisdiction of the Philippines
information and those shown by the with intention to unload therein.
prosecution constitute the offense under b. When unlawful importation is
Sec. 2505 Failure to Declare Baggage, of complete. In the absence of a bona fide intent to
which she was acquitted. Is she correct ? make entry and pay duties when the prohibited
SUGGESTED ANSWER: No. Sec. 3601 article enters the Philippine territory. Importation
does not define a crime. It merely provides, inter is complete when the taxable, dutiable commodity
alia, the administrative remedies which can be is brought within the limits of the port of entry.
resorted to by the Bureau of Customs when seizing Entry through a custom house is not the essence
dutiable articles found the baggage of any person of the act. (Jardeleza v. People, G.R. No.
arriving in the Philippines which is not included in 165265, February 6, 2006)
the accomplished baggage declaration submitted
to the customs authorities, and the administrative 32. The Collector of Customs
penalties that such person must pay for the release sitting in seizure and forfeiture
of such goods if not imported contrary to law. proceedings has exclusive jurisdiction to
Such administrative penalties are hear and determine all questions touching
independent of the criminal liability for smuggling on the seizure and forfeiture of dutiable
that may be imposed under Sec. 3601, and other goods. RTCs are precluded from
provisions of the TCC which can only be assuming cognizance over such matters
determined after the appropriate criminal
even through petitions of certiorari,
proceedings, prescinding from the outcome in any
administrative case that may have been filed and prohibition or mandamus. (The Bureau of
disposed of by the customs authorities. Customs, et al., v. Ogario, et al., G.R. No. 138081,
Indeed the second paragraph of Sec. 2505 March 20, 2000)
provides that nothing shall prevent the bringing of a What is the rationale for this
criminal action against the offender for smuggling doctrine ?
under Section 3601. (Jardeleza v. People, G. R. SUGGESTED ANSWER:
No. 165265, February 6, 2006) a. Regional Trial Courts have no
jurisdiction to replevin a property which is subject to
30. Payment is not a defense in seizure and forfeiture proceedings for violation of
smuggling. When upon trial for violation of this the Tariff and Customs Code otherwise, actions for
section, the defendant is shown to have forfeiture of property for violation of the Customs
possession of the article in question, possession laws could easily be undermined by the simple
72
device of replevin. (De la Fuente v. De Veyra, et 34. The customs authorities do not
al., 120 SCRA 455) have to prove to the satisfaction of the
b. The doctrine of exclusive customs court that the articles on board a vessel
jurisdiction over customs cases to the exclusion of were imported from abroad or are intended
the RTCs is anchored upon the policy of placing no
to be shipped abroad before they may
unnecessary hindrance on the governments drive,
not only to prevent smuggling and other frauds exercise the power to effect customs
upon Customs, searches, seizures, or arrests provided by
c. but more importantly, to render law and continue with the administrative
effective and efficient the collection of import and hearings. (The Bureau of Customs, et al., v.
export duties due the State, which enables the Ogario, et al., G.R. No. 138081, March 20, 2000)
government to carry out the functions it has been
instituted to perform. (Jao, et al., v. Court of 35. The Tariff and Customs Code allows
Appeals, et al., and companion case, 249 SCRA the Bureau of Customs to resort to the
35, 43) administrative remedy of seizure, such as
d. The issuance by regular courts of by enforcing the tax lien on the imported
writs of preliminary injunction in seizure and article when the imported articles could be
forfeiture proceedings before the Bureau of
found and be subject to seizure and
Customs may arouse suspicion that the issuance
or grant was for consideration other than the strict forfeiture.
merits of the case. (Zuno v. Cabredo, 402 SCRA
75 [2003]) 36. The Tariff and Customs Code allows
e. Under the doctrine of primary jurisdiction, the Bureau of Customs to resort to the
the Bureau of Customs has exclusive judicial remedy of filing an action in court
administrative jurisdiction to conduct searches, when the imported articles could not
seizures and forfeitures of contraband without anymore be found.
interference from the courts. It could conduct
searches and seizures without need of a judicial 37. Section 2301 of the TCCP
warrant except if the search is to be conducted in a states that seized articles may not be
dwelling place.
released under bond if there is prima facie
Where an administrative office has obtained
a technical expertise in a specific subject, even the evidence of fraud in their importation.
courts must defer to this expertise. Commissioner of Customs v. Court of Tax
NOTES AND COMMENTS: The Bureau of Appeals, et al., G. R. No. 171516-17, February
Customs could search and seize articles without 13, 2009
need of a judicial warrant unless the place to be Section 2301. Warrant for Detention of
searched is a dwelling place. In such a case Property-Cash Bond. Upon making any seizure,
customs requires a judicial warrant. the Commissioner shall issue a warrant for the
detention of the property; and if the owner or
importer desires to secure the release of the
33. A claiming to be the owner of
property for legitimate use, the Collector shall,
a vessel which is the subject of customs with the approval of the Commissioner of
warrant of seizure and detention sought Customs, surrender it upon the filing of a cash
the intercession of the RTC to restrain the bond, in an amount fixed by him, conditioned
Bureau of Customs from interfering with upon the payment of the appraised value of the
his property rights over the vessel. Would article and/or any fine, expenses and costs which
the suit prosper? may be adjudged in the case: Provided, That
SUGGESTED ANSWER: No. His remedy such importation shall not be released under
was not with the RTC but with the CTA, as issues any bond when there is prima facie evidence
of ownership of goods in the custody of customs of fraud in the importation of the article:
officials are within the power of the CTA to Provided, further, That articles the importation of
determine. which is prohibited by law shall not be released
The Collector of Customs has exclusive under any circumstances whatsoever: Provided,
jurisdiction over seizure and forfeiture finally, That nothing in this section shall be
proceedings and trial courts are precluded from construed as relieving the owner or importer from
assuming cognizance over such matters even any criminal liability which may arise from any
through petitions for certiorari, prohibition or violation of law committed in connection with the
mandamus. (Commissioner of Customs v. Court importation of the article. (emphasis supplied)
of Appeals, et al., G. R. Nos. 111202-05, January
31, 2006)
73
38. Instances where there is no Code of Commerce under which the vessel may be
right of redemption of seized and forfeited attached and sold.
articles: However, the basic operative fact is the
a. There is fraud; actual or constructive possession of the res by the
b. The importation is absolutely tribunal empowered by law to conduct the
prohibited, or proceedings. This means that to acquire
c. The release of the property would be jurisdiction over the vessel, as a defendant, the trial
contrary to law. (Transglobe International, Inc. v. Court court must have obtained either actual or
of Appeals, et al., G.R. No. 126634, January 25, 1999) constructive possession over it. Neither was
accomplished by the RTC as the vessel was
39. In Aznar v. Court of Tax Appeals, 58 already in the possession of the Bureau of
SCRA 519, reiterated in Farolan, Jr. v. Court of Tax Customs. (Commissioner of Customs v. Court of
appeals, et al., 217 SCRA 298, the Supreme Court Appeals, et al., G. R. Nos. 111202-05, January 31,
2006)
clarified that the fraud contemplated by law
NOTES AND COMMENTS:
must be actual and not constructive. It must a. Forfeiture of seized goods in the
be intentional, consisting of deception, willfully and Bureau of Customs is in the nature of a
deliberately done or resorted to in order to induce proceeding in rem, i.e. directed against the res or
another to give up some right. imported goods and entails a determination of the
legality of their importation. In this proceeding, it is
40. Requisites for forfeiture of in legal contemplation the property itself which
imported goods: commits the violation and is treated as the
a. Wrongful making by the owner, offender, without reference whatsoever to the
importer, exporter or consignee of any declaration character or conduct of the owner.
or affidavit, or the wrongful making or delivery by The issue is limited to whether the imported
the same person of any invoice, letter or paper all goods should be forfeited and disposed of in
touching on the importation or exportation of accordance with law for violation of the Tariff and
merchandise. Customs Code. .(Transglobe International, Inc. v.
b. the falsity of such declaration, Court of Appeals, et al., G.R. No. 126634, January
affidavit, invoice, letter or paper; and 25, 1999)
c. an intention on the part of the Forfeiture of seized goods in the Bureau of
importer/consignee to evade the payment of the Customs is a proceeding against the goods and
duties due. (Republic, etc., v. The Court of not against the owner. (Asian Terminals, Inc. v.
Appeals, et al., G.R. No. 139050, October 2, 2001) Bautista-Ricafort, G .R. No. 166901, October 27,
2006 citing Transglobe)
41. On January 7, 1989, the vessel
M/V Star Ace, coming from Singapore 42. The Collector of Customs upon
laden with cargo, entered the Port of San probable cause that the articles are
Fernando, La Union for needed repairs. imported or exported, or are attempted to
When the Bureau of Customs later became be imported or exported, in violation of the
suspicious that the vessels real purpose tariff and customs laws shall issue a
in docking was to smuggle cargo into the warrant of seizure. (Sec. 6, Title III, CAO No. 9-
country, seizure proceedings were 93)
instituted and subsequently two Warrants If the search and seizure is to be conducted
of Seizure and Detention were issued for in a dwelling place, then a search warrant should
the vessel and its cargo. be issued by the regular courts not the Bureau of
Customs.
Cesar does not own the vessel or any
There may be instances where no warrants
of its cargo but claimed a preferred issued by the Bureau of Customs or the regular
maritime lien. Cesar then brought several courts is required, as in search and seizures of
cases in the RTC to enforce his lien. motor vehicles and vessels.
Would these suits prosper ?
SUGGESTED ANSWER: No. The Bureau 43. Smuggled goods seized by virtue
of Customs having first obtained possession of the of a court warrant should be surrendered
vessel and its goods has obtained jurisdiction to to the court that issued the warrant and not
the exclusion of the trial courts.
to the Bureau of Customs because the goods
When Cesar has impleaded the vessel as a
are in custodia legis.
defendant to enforce his alleged maritime lien, in
the RTC, he brought an action in rem under the
74
44. Decisions of the Customs whose decision is appealable to
Commissioner of Customs in cases the Court of Tax Appeals:
involving liability for customs duties, fees a. the One Stop Shop Inter-Agency Tax
or other money charges that must be Credit and Duty Drawback Center (the Center)
appealed to the Court of Tax Appeals November 3 letter, signed by the Secretary of
Finance, informing it of the cancellation of the Tax
Division within thirty (30) days from
Credit Certificates (TCCs);
receipt specifically refer to his decisions on b. the Commissioner of Customs
administrative tax protest cases, as stated in November 19 letter requiring Shell to replace the
Section 2402 of the Tariff and Customs Code of amount equivalent to the amount of the cancelled
the Philippines (TCCP): TCCs used by Shell; and
c. the Commissioner of Customs
Section 2402. Review by collection letters, issued through Deputy
Court of Tax Appeals. The Commissioner Atty. Valera, formally demanding
party aggrieved by a ruling of the amount covered by the cancelled TCCs.
the Commissioner in any None of these letters, however, can be
matter brought before him considered as a liquidation or an assessment of
upon protest or by his action or Shells import tax liabilities that can be the subject
ruling in any case of seizure may of an administrative tax protest proceeding before
appeal to the Court of Tax the respondent whose decision is appealable to
Appeals, in the manner and the CTA. Shells import tax liabilities had long
within the period prescribed by been computed and ascertained in the original
law and regulations. assessments, and Shell paid these liabilities using
the TCCs transferred to it as payment.
Unless an appeal is made to the Court of It is even an error to consider the letters as
Tax Appeals in the manner and within the a reassessment because they refer to the same
period prescribed by laws and regulations, tax liabilities on the same importations covered by
the action or ruling of the Commissioner shall be the original assessments. The letters merely
final and conclusive. [Emphasis supplied.] reissued the original assessments that were
(Pilipinas Shell Petroleum Corporation v. Commissioner
previously settled by Shell with the use of the
of Customs, G. R. No. 176380, June 18, 2009)
TCCs. However, on account of the cancellation of
the TCCs, the tax liabilities of Shell under the
45. Administrative tax protest original assessments were considered unpaid;
under the Tariff and Customs Code hence, the letters and the actions for collection.
(TCCP). A tax protest case, under the TCCP, When Shell went to the CTA, the issues it
involves a protest of the liquidation of import raised in its petition were all related to the fact and
entries. (Pilipinas Shell Petroleum Corporation v. efficacy of the payments made, specifically the
Commissioner of Customs, G. R. No. 176380, June 18, genuineness of the TCCs; the absence of due
2009) process in the enforcement of the decision to
cancel the TCCs; the facts surrounding the fraud
46. Liquidation, defined. A in originally securing the TCCs; and the
liquidation is the final computation and application of estoppel. These are payment and
ascertainment by the collector of the duties on collection issues, not tax protest issues within the
imported merchandise, based on official reports CTAs jurisdiction to rule upon.
as to the quantity, character, and value thereof, Shell never protested the original
and the collectors own finding as to the assessments of its tax liabilities and in fact settled
applicable rate of duty; it is akin to an assessment them using the TCCs. These original
of internal revenue taxes under the National assessments, therefore, have become final,
Internal Revenue Code where the tax liability of incontestable, and beyond any subsequent
the taxpayer is definitely determined. (Pilipinas protest proceeding, administrative or judicial, to
Shell Petroleum Corporation v. Commissioner of rule upon.
Customs, G. R. No. 176380, June 18, 2009)
To be very precise, Shells petition before
the CTA principally questioned the validity of the
47. The following letters of cancellation of the TCCs a decision that was
demand can not be considered as a made not by the Commissioner of Customs, but
by the Center. As the CTA has no jurisdiction over
liquidation or an assessment of Shells
decisions of the Center, Shells remedy against
import tax liabilities that can be the the cancellation should have been a certiorari
subject of an administrative tax protest petition before the regular courts, not a tax protest
proceeding before the Commissioner of
75
case before the CTA. Records do not show that
Shell ever availed of this remedy. 2. A law which deprives local
Alternatively, as held in Shell v. Republic of government units of their power to tax
the Philippines, G.R. No. 161953, March 6, 2008, would be unconstitutional. The constitution
547 SCRA 701, the appropriate forum for Shell has delegated to local governments the power to
under the circumstances of this case should be at levy taxes, fees and other charges. This
the collection cases before the RTC where Shell constitutional delegation may only be removed by a
can put up the fact of its payment as a defense. constitutional amendment.
(Pilipinas Shell Petroleum Corporation v.
Commissioner of Customs, G. R. No. 176380,
3. Under the now prevailing
June 18, 2009)
Constitution, where there is neither a grant
48. A case becomes ripe for nor prohibition by statute, the taxing power
of local governments must be deemed to
filing with the Regional Trial Court (RTC),
exist although Congress may provide
as a collection matter after the finality of
statutory limitations and guidelines in order
the Commissioner of Customs
to safeguard the viability and self-sufficiency of
assessment. (Pilipinas Shell Petroleum
local government units by directly granting them
Corporation v. Commissioner of Customs, G. R. No.
176380, June 18, 2009 citing Shell v. Republic of the
general and broad tax powers. (City Government
Philippines, G.R. No. 161953, March 6, 2008, 547 of San Pablo, Laguna, et al., v. Reyes, et al., G.R.
SCRA 701) No. 127708, March 25, 1999)
The assessment has long been final, and
this recognition of finality removes all perceived 4. The Local Government Code
hindrances, based on this case, to the explicitly authorizes provinces and cities,
continuation of the collection suits. notwithstanding any exemption granted
by any law or other special law to impose
A suit for the collection of internal revenue a tax on businesses enjoying a franchise.
taxes, where the assessment has already become Indicative of the legislative intent to carry out the
final and executory, the action to collect is akin to constitutional mandate of vesting broad tax powers
an action to enforce the judgment. No inquiry can to local government units, the Local Government
be made therein as to the merits of the Code has withdrawn tax exemptions or incentives
In light of the conclusion that the present theretofore enjoyed by certain entities. (City
case does not involve a decision of the Government of San Pablo, Laguna, et al., v.
Commissioner of Customs on a matter brought to Reyes, et al., G.R. No. 127708, March 25, 1999)
him as a tax protest, Atty. Valeras lack of authority
to issue the collection letters and to institute the 5. Philippine Long Distance
collection suits is irrelevant. For this same
Telephone Company, Inc., v. City of Davao,
reason, the injunction against Atty. Valera cannot
be invoked to enjoin the collection of unpaid taxes et al., etc., G. R. No. 143867, August 22,
due from Shell. (Pilipinas Shell Petroleum 2001, upheld the authority of the City of Davao, a
Corporation v. Commissioner of Customs, supra) local government unit, to impose and collect a local
franchise tax because the Local Government has
withdrawn all tax exemptions previously enjoyed by
LOCAL GOVERNMENT TAXATION all persons and authorized local government units
to impose a tax on business enjoying a franchise
1. The fundamental principles of tax notwithstanding the grant of tax exemption to
local taxation are: them.
a. Uniformity;
b. Taxes, fees, charges and other 6. Explain the concept of the
impositions shall be equitable and based on ability paradigm shift in local government
to pay, for public purposes, not unjust, excessive, taxation.
oppressive or confiscatory, not contrary to law, SUGGESTED ANSWER: Paradigm shift
public policy, national economic policy or in from exclusive Congressional power to direct grant
restraint of trade; of taxing power to local legislative bodies. The
c. The levy and collection shall not be let power to tax is no longer vested exclusively on
to any private person; Congress; local legislative bodies are now given
d. Inures solely to the local government direct authority to levy taxes, fees and other
unit levying the tax; charges pursuant to Article X, section 5 of the 1987
e. The progressivity principle must be Constitution. (Batangas Power Corporation v.
observed. Batangas City, et al. G. R. No. 152675, and
76
companion case, April 28, 2004 citing National limitations on municipal powers. Moreover, these
Power Corporation v. City of Cabanatuan, G. R. limitations must be consistent with the basic
No. 149110, April 9, 2003) policy of local autonomy. The important legal
effect of Section 5 is thus to reverse the principle
7. The fundamental law did not that doubts are resolved against municipal
intend the direct grant to local government corporations. Henceforth, in interpreting statutory
units to be absolute and unconditional, the provisions on municipal fiscal powers, doubts will
constitutional objective obviously is to ensure that, be resolved in favor of municipal corporations. It
while local government units are being is understood, however, that taxes imposed by
strengthened and made more autonomous, the local government must be for a public purpose,
legislature must still see to it that: uniform within a locality, must not be confiscatory,
a. the taxpayer will not be over- and must be within the jurisdiction of the local unit
burdened or saddled with multiple and to pass. (Quezon City, et al., v. ABS-CBN
unreasonable impositions; Broadcasting Corporation, G. R. No. 166408, October
6, 2008 citing City Government of Quezon City, et al. v.
b. each local government unit will have Bayan Telecommunications, Inc., G.R. No. 162015,
its fair share of available resources; March 6, 2006, 484 SCRA 169)
c. the resources of the national
government will be unduly disturbed; and
10. Reconciliation of the local
d. local taxation will be fair, uniform and
just. (Manila Electric Company v. Province of governments authority to tax and the
Laguna, et al., G.R. No. 131359, May 5, 1999) Congressional general taxing power.
Congress has the inherent power to tax, which includes
the power to grant tax exemptions. On the other hand,
8. Taxing power of the local the power of local governments, such as provinces and
government is limited. The taxing power of cities for example Quezon City, to tax is prescribed by
local governments is limited in the sense that Section 151 in relation to Section 137 of the LGC which
Congress can enact legislation granting tax expressly provides that notwithstanding any exemption
exemptions. granted by any law or other special law, the City or a
While the system of local government province may impose a franchise tax. It must be noted
taxation has changed with the onset of the 1987 that Section 137 of the LGC does not prohibit grant of
future exemptions.
Constitution, the power of local government units
The Supreme Court in a series of cases
to tax is still limited.
has sustained the power of Congress to grant tax
While the power to tax by local
exemptions over and above the power of the local
governments may be exercised by local legislative
governments delegated power to tax. (Quezon
bodies, no longer merely be virtue of a valid City, et al., v. ABS-CBN Broadcasting Corporation, G.
delegation as before, but pursuant to direct R. No. 166408, October 6, 2008 citing City Government
authority conferred by Section 5, Article X of the of Quezon City, et al. v. Bayan Telecommunications,
Constitution, the basic doctrine on local taxation Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 16)
remains essentially the same, the power to tax is Indeed, the grant of taxing powers to local
[still] primarily vested in the Congress. (Quezon government units under the Constitution and the
City, et al., v. ABS-CBN Broadcasting Corporation, G. LGC does not affect the power of Congress to
R. No. 166408, October 6, 2008 citing City Government grant exemptions to certain persons, pursuant to a
of Quezon City, et al. v. Bayan Telecommunications, declared national policy. The legal effect of the
Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169
in turn referring to Mactan Cebu International Airport
constitutional grant to local governments simply
Authority, v. Marcos, G.R. No. 120082, September 11, means that in interpreting statutory provisions on
1996, 261 SCRA 667, 680) municipal taxing powers, doubts must be resolved
in favor of municipal corporations. [Ibid., referring
9. Further amplification by to Philippine Long Distance Telephone Company,
Inc. (PLDT) vs. City of Davao]
Bernas of the local governments power to
tax. What is the effect of Section 5 on the fiscal
position of municipal corporations? Section 5 11. Professional tax may be
does not change the doctrine that municipal imposed by a province or city but not by a
corporations do not possess inherent powers of municipality or barangay.
taxation. What it does is to confer municipal
corporations a general power to levy taxes and a. Transaction taxed: Exercise or
otherwise create sources of revenue. They no practice of profession requiring government
longer have to wait for a statutory grant of these licensure examination.
powers. The power of the legislative authority b. Tax rate: In Accordance with a taxing
relative to the fiscal powers of local governments
ordinance which should not exceed P300.00.
has been reduced to the authority to impose
77
c. Tax base: Reasonable classification lawyer who is also a Certified Public Accountant
by the sanggunian. (CPA) must pay the professional tax imposed on
d. Exception: Payment to one province lawyers and that fixed for CPAs, if he is to practice
or city no longer subject to any other national or both professions. [Sec. 238 (f), Rule XXX, Rules
local tax, license or fee for the practice of such and Regulations Implementing the Local
profession in any part of the Philippine Government Code of 1991]
professionals exclusively employed in the
government. 14. X City issued a notice of
e. Date of payment: or on before assessment against ABC Condominium
January 31 or engaging in the profession. Corporation for unpaid business taxes.
f. Place of payment: Province or city The Condominium Corporation is a duly
where the professional practices his profession or constituted condominium corporation in
accordance with the Condominium Act
where he maintains his principal office in case he
which owns and holds title to the common
practices his profession in several places.
and limited common areas of the
condominium. Its membership comprises
12. Requirements: Any the unit owners and is authorized under its
individual or corporation employing a person By-Laws to collect regular assessments
subject to professional tax shall require payment by from its members for operating expenses,
that person of the tax on his profession before capital expenditures on the common areas
employment and annually thereafter. and other special assessments as
Any person subject to the professional tax provided for in the Master Deed with ?
Declaration of Restrictions of the
shall write in deeds, receipts, prescriptions, reports,
Condominium.
books of account, plans and designs, surveys and
ABC Condominium Corporation
maps, as the case may be, the number of the insists that the X City Revenue Code and
official receipt issued to him. the Local Government Code do not contain
Exemption: Professionals exclusively provisions upon which the assessment
employed in the government shall be exempt from could be based. Resolve the controversy.
payment. (Sec. 139, LGC) SUGGESTED ANSWER: ABC is correct.
NOTE: For the purpose of collecting the tax, Condominium corporations are generally exempt
from local business taxation under the Local
the provincial or city treasurer or his duly
Government Code, irrespective of any local
authorized representative shall require from such ordinance that seeks to declare otherwise.
professionals their current annual registration cards X City, is authorized under the Local
issued by competent authority before accepting Government Code, to impose a tax on business,
payment of their professional tax for the current which is defined under the Code as trade or
commercial activity regularly engaged in as a
year. The PRC shall likewise require the
means of livelihood or with a view to profit. By its
professionals presentation of proof of payment very nature a condominium corporation is not
before registration of professionals or renewal of engaged in business, and any profit that it derives
their licenses. (last par., Art. 228, Rules and is merely incidental, hence it may not be subject to
Regulations Implementing the Local Government business taxes. (Yamane , etc. v. BA Lepanto
Condominium Corporation, G. R. No. 154993,
Code of 1991)
October 25, 2005)