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SAINT LOUIS UNIVERSITY

SCHOOL OF LAW
Baguio City

OUTLINE IN TAXATION LAW

GENERAL PRINCIPLES OF TAXATION

A. Taxation : Its general concepts

a. Taxation as a power
1. Nature of the power of taxation
Inherent Power
Supreme, Plenary, Unlimited,
Comprehensive
Power to destroy vis-à-vis Power to Build
a. Sison v. Ancheta, 130 SCRA 654
b. Philippine Health Care Providers, Inc. v.
CIR, 18 September 2009
2. Importance of taxation and the Lifeblood
Doctrine
a. Commissioner v. Algue, 17 February
1988
b. NAPOCOR v. City of Cabanatuan, G.R.
No. 149110, April 9, 2003
3. Justifications for the exercise of the taxing
power
a. Benefits Received Theory
b. Necessity Theory
c. Symbiotic Theory
4. Objectives of taxation
a. Revenue
b. Non-revenue
i. Regulation/ As an implement of
Police Power
1. PAL v. Edu, 15 August 1988
2. Tio v. Videogram, 151 SCRA
208
ii. General Welfare
1. Lutz v. Araneta, 98 Phil 148
iii. Reduction of Social Inequity
iv. Protectionism (re Special Duties
under the Tariff and Customs
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Code; See also RA 8800 re

Safeguard Measures Act)
v. As an implement of the Power of
Eminent Domain
1. CIR v. Central Luzon Drug
Corporation, April 15, 2005
b. Taxation as a process
1. Stages in the tax process
a. Levy/imposition
b. Collection
2. Principles of a sound tax system
a. Fiscal Adequacy
b. Administrative Feasibility
i. Diaz v. Secretary of Finance, GR
No. 193007, 19 July 2011
c. Theoretical Justice
i. Article VI, Section 28, Constitution
B. The concept and characteristics of taxes
a. Enforced
b. Proportionate Contribution
c. Levied by law-making body
d. Having territorial jurisdiction
e. Personal in nature
f. Purpose—raising money and other public needs
C. Limitations on the exercise of the taxing power
a. Inherent Limitations
1. Public Purpose
a. Planters Products Inc. v. Fertiphil
Corporation, GR No. 166006, 14 March
2008
b. Pascual v. Secretary of Public Works,
110 Phil 331
c. Lutz v. Araneta, supra
d. Gomez v. Palomar, 25 SCRA 827
2. Inherently legislative
a. Coverage, Object, Nature, Extent, Situs
i. Pepsi v. Municipality of Tanauan,
69 SCRA 460
ii. Pepsi v. City of Butuan, 24 SCRA
789
b. Exceptions to non-delegation
i. LGUs
ii. Allowed by the Constitution
iii. Purely Administrative Functions
3. Territoriality
4. International Comity
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5. Tax exemption of the government

a. LRTA v. CBAA, 12 October 2000
b. MCIAA v. Marcos, 11 September 1996
c. MIAA v. Paranaque, GR No. 155650, 20
July 2006; MIAA v. Pasay City, GR No.
163072, 02 April 2009
b. Constitutional Limitations
1. Due Process Clause
a. CREBA v. Exec. Sec. Romulo, March 9,
2010
b. City of Manila v. Coca-Cola Bottlers
Philippines, GR No. 181845, 4 August
2009 (Direct Duplicate Taxation)
c. Villegas v. Hiu Chiong Tsai Pao Ho, 10
November 1978
d. City of Baguio v. De Leon, 25 SCRA 938
e. Sison v. Ancheta, supra
f. CIR v. CA and Fortune, GR No. 119761, 29
August 1996
g. CIR v. M.J. Lhuiller Pawnshop, Inc. G.R.
No. 150947, July 15, 2003
2. Equal Protection Clause and the Rule on
Uniformity of Taxation
a. Commissioner of Customs v. Hypermix
Feeds Corporation, GR No. 179579, 01
February 2012
b. ABAKADA Guro Party List v. Purisima,
14 October 2008 (Rational Basis Test)
c. Association of Customs Brokers v.
Manila, 93 Phil 107
d. Shell v. Vano, 94 Phil 387
e. Kapatiran v. Tan, 30 June 1988
f. Tan v. Del Rosario, 3 October 1994
g. Tio v. Videogram, supra
h. Ormoc Sugar Central v. Ormoc
Treasurer, 17 February 1968
i. Philreca v. DILG, 10 June 2003
j. Judy Anne Santos v. People, GR No.
173176, 26 August 2008
3. Freedom of Religion
a. Free Exercise Clause
i. American Bible Society v. City of
Manila, 101 Phil 386
ii. Tolentino v. Secretary of Finance
b. Non-establishment Clause
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4. Uniformity, Equitability and Progressivity of

Taxation
a. Tolentino v. Secretary of Finance, 25
August 1994
b. City of Baguio v. De Leon, 25 SCRA 398
5. Non-imprisonment for non-payment of poll
taxes
6. Non-impairment clause
a. Casanova v. Hord, 8 Phil 125
b. Cagayan Power and Light Co. v. CIR, GR
No. 60126, September 25, 1985
c. MERALCO v. Province of Laguna, G.R. No.
131359, May 5, 1999**
d. RCPI v. Provincial Assessor of South
Cotabato, GR No. 144486, 13 April 2005
e. City Government of Quezon City v.
Bayantel, G.R. No. 162015, March 6,
2006
f. Smart Communications v. City of Davao,
16 September 2008
g. Quezon City v. ABS-CBN Broadcasting, 6
October 2008
7. Tax exemption of traditionally exempted
taxpayers
a. Lladoc v. CIR, 14 Phil 292
b. Abra Valley College v. Aquino, 15 June
1988
c. Herrera v. QC Board of Assessment
Appeals, 30 September 1961
d. Bishop of Nueva Segovia v. Provincial
Board of Ilocos Norte, 51 Phil 352
e. Lung Center of the Philippines v. QC, 29
June 2004
f. CIR vs. St. Luke's Medical Center, Inc.,
G.R. Nos. 195909 and 195960 dated 26
September 2012
8. Tax exemption of non-stock, non-profit
educational institutions
a. Angeles University v. City of Angeles, GR
No. 189999, 27 June 2012
b. RMC 76-2003
c. Department of Finance Order No. 137-87,
dated Dec. 16, 1987
d. CIR v. CA, 14 October 1998 (YMCA)
9. Origin of Revenue, Appropriation and Tariff
Bills
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a. ABAKADA Guro Party List, et al., v. The

Honorable Executive Secretary Eduardo
Ermita, et al., G.R. No. 168056, 1
September 2005
10. Flexible Tariff Clause
a. ABAKADA Guro Party List, et al., v. The
Honorable Executive Secretary Eduardo
Ermita, et al., G.R. No. 168056, 1
September 2005
11. Non-impairment of SC’s Jurisdiction
12. Taxation by LGUs
13. Voting Requirement re: Grant of Tax
Exemptions
c. The Doctrine of Judicial Non-interference
d. Taxpayer’s Suit
D. Forms of Escape from Taxation
a. Resulting to Losses government’s revenue
1. Tax Evasion
2. Tax Avoidance
3. Tax Exemption
b. Not Resulting to Losses
1. Shifting
2. Capitalization
3. Transformation
c. Illustrative Cases:
1. Republic v. Heirs of Cesar Jalandoni, 20 Sept
1965
2. CIR v. Yutivo and Sons (1961)
3. CIR v. Norton and Harrison, 31 August 1964
4. Philippine Acetylene v. CIR, 17 August 1967
(compare with CIR v. Pilipinas Shell
Corporation, GR No. 188497, 19 February
2014)
5. CIR v. American Rubber, 29 November 1966
6. CIR v. John Gotamco and Sons, 27 February
1987
7. Maceda v. Macaraig, 31 May 1991, 8 June
1993
8. CIR v. PLDT, GR 140230, 15 December 2005
9. Silkair Singapore v. CIR, GR No. 173594, 6
February 2008
10. Contex v. CIR, G.R. No. 151135, July 2,
2004
11. CIR v. Seagate Technology (Phils.), GR
No. 153866, 11 February 2005
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12. CIR v. Estate of Benigno Toda Jr., G.R.

No. 147188. September 14, 2004
13. John Hay Peoples Alternative Coalition v.
Lim, et al., G.R. No. 119775, October 24, 2003
E. Rules of Construction of Tax Laws
a. CIR v. CA and Ateneo, 18 April 1997
F. The Concept of Tax Laws
a. Nature
b. Sources
 Constitution
 Statutes
 Issuances by the Secretary of Finance
 Administrative Issuance by the BIR
1. CIR v. CA and Fortune, GR No. 119761, 29
August 1996
2. PB Com v. CIR, 28 January 1999
 Tax Ordinances
 Tax Treaties
1. CIR v. SC Johnson and Son, 26 June 1999
2. Deutsche Bank AG Manila Branch vs. Com
missioner
of Internal Revenue, 19 August 2013
c. Some principles involving taxation
 Prospectivity
1. CIR v. Acosta, GR154068, 3 August 2007
 No Estoppel Against the Government
1. CIR v. Petron Corporation, GR No. 185568, 21
March 2012
 Imprescriptibility
 No Set-Off
1. Philex Mining Corp v. CIR, August 29, 1998
2. Point of Interest: Section 76, NIRC

INCOME TAXATION
BASIC CONCEPTS OF PHILIPPINE INCOME TAXATION

 The Concept of Income

1. Income, defined
a. Conwi v. CIR, 213 SCRA 83
2. Capital, defined
3. Income v. Capital
a. Madrigal v. Rafferty, 38 Phil 414
 Tests Applied in Determining the Existence of Income
1. Severance Test/Realization Test
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2. Tax Benefit Rule and the Economic Benefit Test

3. Claim of Right Doctrine
4. Income from Whatever Source
 Requisites for the Taxability of an Income
1. Existence of a Gain
2. Realization of a Gain
a. Actual
b. Constructive (e.g. Sec 26, 73D)
c. Presumptive (e.g. Sec 24 d)
3. Gain must not be excluded (Section 32B)
 The Philippine Income Tax System
1. Types of Income Tax Systems
a. Schedular System v. Global System
i. Sison v. Ancheta, GR No. L-59431, 25
July 1984
b. Schedular Rates of Taxes v. Schedular
System
2. The Philippine Income Tax System as a Semi-
Global/Mixed System
 Criteria in Imposing Philippine Income Taxes
1. Place Where Income was Earned
2. Residency
3. Citizenship
 The Income Taxpayers and the General Principles of
their Taxability (Tax Situs for Income Tax Purposes)
1. Section 23 of the NIRC
2. Individual Taxpayers (Sections 24-26)
3. Corporations (Sections 27 to 30)
a. Please see RA 9337
4. Estates and Trusts (Sections 60-66)
5. Definition of Terms Under Section 22
 Source of Income (Section 42)
1. Services
a. CIR v. Marubeni Corp., GR No. 137377, 18
December 2001
b. CIR v. Juliane Baier-Nickel, GR No.
153793, 29 August 2006
2. Interest Income
a. NDC v. CIR, 151 SCRA 472
3. Dividends
4. Rent and Royalties
a. Royalty v. Compensation for Services &
Business Profits
i. CIR v. Smart Communications, GR No.
179045-46, 25 August 2010
5. Sale of Property
a. Real Property
b. Personal Property—“passage of title” test
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c. Tax treatment of properties produced within

but sold without or produced without but
sold within
d. Special Rules Re Software: RMC 44-
2005; BIRRuling DA-ITAD 13-08 dated
February 26, 2008.

DETERMINATION OF GROSS INCOME AND THE RULES

ON INCLUSION AND EXCLUSION FROM GROSS INCOME

A. The Concept of Gross Income

a. Gross Income, definition
i. CIR v. Filinvest Development Corporation, GR No.
163653, 19 July 2011
b. Gross Income v. Gross Sales/Receipts
B. The General Rules on Inclusion and Exclusion of Income Items
(Sections 31, 32A and 32B)
C. The Rules as Applied to Compensation Income and Other Benefits
a. Taxability of Compensation Income and the Application of
the Employer’s Convenience Rule
i. Henderson v. Collector, 1 SCRA 649
b. Retirement Payments, Pensions and Gratuities
i. RA 7641, RA 4917, Section 60B
c. Separation Payments
i. PLDT v. CIR, GR No. 157264, 31 January 2008
d. Leave Benefits
e. 13th Month Pay and other bonuses
i. RA No. 10653
ii. RR No. 3-2015
f. SSS/GSIS Benefits
g. SSS/GSIS/PhilHealth/Pag-ibig/Union Dues
i. RMC 27-2011
h. Fringe Benefits (Section 33, Rev. Regs. 3-98 and 10-2000)
1. De Minimis Benefits (RR 2-98, 3-98, 5-2008 and
5-2011)
2. Revenue Regulations No. 1-2015 dated
January 5, 2015
D. The Rules as Applied to Trade/Business or Professional Income
E. The Rules as Applied to Passive Income
a. Royalties, prizes and winnings
b. Interest Income from bank deposits and deposit substitutes
i. On Philippine Currency
ii. On Foreign Currency
iii. Long-term investments
c. Dividends
i. CIR v. CA and ANSCOR, G.R. No. 108576, January 20,
1999
ii. Section 73B
d. Sale of Real Property classified as capital asset
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i.
Forced sales
ii.
Sale of principal residence
iii.
Alternative taxation in case of sale to government
iv.
(Note: If the property sold is an ordinary asset: CIR
v. UCPB, GR No. 179063, 23 October 2009)
v. Issues re foreclosed properties:
1. RMC 55-2011 (CGT on foreclosure sales)
2. Supreme Transliner Inc. v. BPI Family Savings
Bank, G.R. No. 165617, 25 February 2011
vi. RMC 007-12
e. Sale of shares of stocks not listed or traded in the stock
exchange
F. The Rules as Applied to Other Sources of Income
a. Cancellation of Indebtedness
b. Income from Lease and Leasehold Improvements
c. Income from Installment Transactions
i. Banas v. CA, G.R. No. 102967. February 10, 2000
d. Income from Long-Term Construction Projects
G. Exclusions by reason of special laws

DEDUCTIONS FROM GROSS INCOME

A. The Concept of Allowable Deductions

a. Deductions, defined
b. Deductions v. Exclusions
c. Deductions v. Cost
d. Deductions, when allowed
e. Deductions v. Tax Credit
i. CIR v. Central Luzon Drug Corp., GR No. 159647, 15
April 2005
ii. CIR v. Central Luzon Drug Corp., GR No. 148512, 26
June 2006 and Bicolandia Drug Corp. v. CIR, GR No.
142299, 22 June 2006 (See also: CIR v. Central Luzon
Drug Corp., GR No. 159610, June 2008, in relation to
RA9257)
iii. Carlos Superdrug Corporation v. DSWD, GR No. 166494,
29 June 2007
B. Kinds of Allowable Deductions
C. The Optional Standard Deduction (RA9504)
D. Itemized Deductions: Concepts, Kinds, Rules and Requisites
a. General Business Expenses
i. The All-Events Test
1. CIR v. Isabela Cultural Corporation, GR No.
172231, 12 February 2007
ii. Capital Expenditure v. Ordinary Expenditure
iii. Rule re: Proprietary Educational Institutions
iv. Reasonableness Test
1. CIR v. General Foods, Inc., G.R. No. 143672. April
24, 2003
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2. CM Hoskins v. CIR, GR No. L-24059, 28 November

1969
v. Representation Expenses, Rev. Regs. 10-2002
vi. Substantiation Rule and the Cohan Rule
1. Gancayco v. Collector, 1 SCRA 980
b. Bad Debts
i. Philex Mining Corporation v. CIR, GR No. 148187, 16
April 2008
ii. Tax Benefit Rule
c. Interests
i. Requisites for Deductibility
ii. Tax Arbitrage Scheme
1. Rev. Regs. 13-2000
iii. On Capital Expenditure
iv. Rules re: deductibility
v. Interest on tax delinquencies
1. CIR v. Itogon Suyoc Mines, GR No. L-25399, 29
July 1969
d. Taxes
i. Requisites for Deductibility
ii. Deductible Taxes
iii. Non-deductible taxes
e. Depreciation
i. Properties subject to depreciation
ii. Allowable modes of depreciation
f. Depletion
g. Losses
i. Ordinary Losses
ii. Capital Losses
iii. Special Losses
iv. Other Kinds of Losses
v. NOLCO
1. Rev. Regs. 14-2001
2. PICOP v. CIR, GR No. L-106949, 1 December 1995
3. 75% interest retention rule
vi. Casualty Losses
1. RMO 31-2009, 16 October 2009
vii. Requisites for Deductibility of each kind of loss
h. Charitable Contributions
i. With Limitation
ii. Deductible in Full
i. Pension Trusts
j. Research and Development Costs
E. Other Forms of Deductions

SPECIAL INCOME TAX TREATMENT OF GAINS AND LOSSES

FROM DEALINGS IN PROPERTY

A. Background of the Special Rules

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B. Ordinary Assets v. Capital Assets

a. China Banking Corporation v. Court of Appeals, G.R. No.
125508. July 19, 2000
C. Rules on Ordinary Gains and Losses
D. Special Rules on Capital Transactions (Capital Gains and Losses)
a. Rules on Real Property classified as capital asset
b. Rules on gains/losses from sale of shares of stocks not listed or
traded in the stock exchange by non-dealers in securities
c. Rules regarding other capital assets
i. Loss Limitation Rule
ii. Holding Period Rule
iii. Net Capital Loss Carry-Over (NCLCO) Rule
E. Special Capital Transactions
F. Wash Sales
a. Revenue Regulations 6-2008, April 22, 2008
G. Installment Sales v. Deferred Sales
a. Banas v. CA, G.R. No. 102967. February 10, 2000
H. Instances when gains are taxable but losses are non-deductible
I. Instances when gains and losses are not recognized for tax purposes
a. Section 40, NIRC
b. CIR v. Filinvest Development Corporation, G.R. No. 163653, 19
July 2011

TAXATION OF INCOME OF INDIVIDUAL TAXPAYERS

A. Classification of Individual Income Taxpayers and the Factors

Affecting Their Taxability
B. Rules Applicable to Returnable Income
C. Rules Applicable to Passive Income
D. Personal Exemptions (Please see RA 9504)
a. Basic Personal Exemptions
b. Additional Exemptions
c. Change of Status
i. Pansacola v. CIR, GR No. 159991, 16 November 2006
E. Taxation of Married Individuals
F. Taxation of Minors
G. Tax Returns and Other Administrative Requirements

TAXATION OF INCOME OF CORPORATE TAXPAYERS

A. Definition of a Corporation
B. Tests in Determining the Existence of a Corporate Taxpayer
C. The Tests Applied to Partnerships, Co-ownerships and Estates
a. Ona v. CIR, 45 SCRA 74
b. Pascual and Dragon v. CIR, 166 SCRA 560
c. Obillos v. CIR, 139 SCRA 436
d. Afisco Insurance Corp. v. CIR, 1999
e. Evangelista v. CIR, 102 Phil 140
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D. Kinds of Corporations
H. Rules Applicable to Returnable Income
a. Please See R.A. 9337
I. Rules Applicable to Passive Income
a. Tax Sparing Rule
i. CIR v. Proctor and Gamble, 204 SCRA 378
E. Taxes Peculiar to Corporations
a. Minimum Corporate Income Tax
i. CREBA v. Exec. Sec. Romulo, supra
ii. Manila Banking Corporation v. CIR, GR No. 168118, 28
August 2006
iii. CIR v. PAL, GR No. 180066, 7 July 2009
b. Optional Corporate Income Tax
c. Improperly Accumulated Earnings Tax
i. Cyanamid Phils. v. CA, G.R. No. 108067, January 20,
2000 (Immediacy Test)
F. Special Corporations
a. Exempt Organizations and Corporations
i. R.A. 10026 (Re: Tax Exemption of Local Water Districts)
ii. RMC 51-2014
iii. Philippine Amusement and Gaming Corporation vs.
Bureau of Internal Revenue Supreme Court (En
Banc), G.R. No. 215427 promulgated December 10,
2014
b. Corporations enjoying preferential tax rates
i. Domestic
ii. Foreign
1. Branch Profit Remittance Tax
2. Gross Philippine Billings
a. British Overseas Airways Corp. v. CIR, 149
SCRA 395 vis-à-vis Section 23 A (3) (b) and
Rev. Regs. 15-2002
b. South African Airways v. CIR, GR No.
180356, February 16, 2010
c. RA No. 10378, or the Act Recognizing
the Principle of Reciprocity as Basis for
the Grant of Income Tax Exemptions to
International Carriers, an international
carrier doing business in the
Philippines may avail itself of exemption
from tax on GPB from carriage of
persons and their excess baggage,
provided its home country also grants
income tax exemption to Philippine
carriers. Considering that Qatar grants
a reciprocal tax exemption to Philippine
air carriers under its Income Tax Law, A
Co. is exempt from income tax on its
GPB from the carriage of persons and
their excess baggage. The exemption
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does not apply to transport of cargo and

mail.
G. Tax Returns and Other Administrative Requirements
a. Paseo Realty and Development Corp. v. CA, G.R. No. 119286,
October 13, 2004
b. CIR v. Mirant (Philippines) Operations Corporation, G.R. No.
171742, 15 June 2011
c. CIR v. PL Management International Philippines, Inc., G.R No.
G.R. No. 160949, April 4, 2011.

TAXATION OF ESTATES AND TRUSTS

A. Taxation of Income of Estates

B. Taxation of Income of Trusts
a. Miguel J. Ossorio Pension Foundation, Inc. v. CA and CIR, GR
No. 162175, 28 June 2010
C. Tax Returns and Other Administrative Requirements