CHAPTER 2

DOCTRINES IN TAXATION

I. Doctrine of Prospectivity of Tax Laws

1. What is the “Doctrine of Prospectivity of Tax Laws”?

As a general rule, tax laws are prospective in operation, 1

unless the legislative intent that statute should operate
retrospectively is distinctly expressed or necessarily implied. 2

Where a statute amending a tax law is silent as to whether

it operates retroactively, the amendment will not be given a
retroactive effect so as to subject to tax past transactions not
subject to tax under the original act. Every case of doubt must
be resolved against its retroactive effect.3

II. Doctrine of Imprescriptibility

2. What is the “Doctrine of Imprescriptibility”?

Considering that taxes are the lifeblood of the government,

it may be stated that the assessment and collection of taxes are
imprescriptible unless otherwise provided by the tax law itself. 4
Thus, if the tax law itself is silent on prescription, the right of the
government to assess and collect taxes will not prescribe.

In criminal cases involving tax offenses punishable under

the Tax Code, it would indeed seem that tax cases are practically
imprescriptible for as long as the period from the discovery and
institution of judicial proceedings for its investigation and
punishment, up to the filing of the information in court does not
exceed five (5) years.

As the provision5 of the law stands in the statute book (and

to this day it has remained unchanged), prescription is a matter
of defense and the information does not need to anticipate and
meet it. The defendant could, at most, object to the introduction
of evidence to defeat his claim of prescription. Anyway, the law
says that prescription begins to run from ... "the institution of
judicial proceedings for its ... punishment."

1
Because taxes are burdens and should not be imposed without due process of law. Belle Corp. v. CIR, G.R.181298, Jan. 10, 2011
2
Lorenzo v. Posadas, 64 Phil. 353; CIR. v. Filipinas Cia. de Seguros, 107 Phil. 1055
3
CIR v. Marubeni Corporation, 372 SCRA 576 (2001)
4
CIR v. Ayala Securities Corp., 101 SCRA 231
5
Sec. 281, NIRC
 Unless amended by the legislature, this provision stays in
the Tax Code as it was written during the days of the
Commonwealth. And as it is, must be applied regardless of its
apparent one-sidedness in favor of the Government. In criminal
cases, statutes of limitations are acts of grace, a surrendering by
the sovereign of its right to prosecute. They receive a strict
construction in favor of the Government and limitations in such
cases will not be presumed in the absence of clear legislation. 6

III. Double Taxation

3. What is the meaning of double taxation? BQ2015, 2014,

2013, 2012

“Double taxation” means taxing the same property /

person / activity twice when it should be taxed only once; that is,
taxing the same property/person/activity twice by the same
jurisdiction, during the same taxing period for the same purpose
and for the same kind of tax by the same taxing authority when it
should only be taxed but once.7

4. What are the kinds of double taxation? BQ2015, 2014,

2012

(a) In the Strict Sense - Double taxation in the strict or

prohibited sense is called “direct double taxation” which is
objectionable because it is a violation of the substantive due
process under the Constitution since the same property or
subject matter is taxed twice when it should be taxed once; it is
tantamount to taxing the same person twice by the same
jurisdiction for the same thing.
Otherwise described as “direct duplicate taxation,” the
following are the elements of direct double taxation:
The two taxes must be imposed:
(1) on the same person, property or subject matter,
(2) for the same purpose,
(3) by the same taxing authority,
(4) within the same territory or taxing jurisdiction,
(5) during the same taxing period; and
(6) the taxes must be of the same kind or character. 8
(b) In the Broad Sense - Double taxation in the broad
sense is called “indirect double taxation” or “indirect
duplicate taxation” which extends to all cases in which there
are two or more pecuniary impositions, but the ABSENCE OF
ONE OR MORE of the above-mentioned elements makes
6
Emilio E. Lim, Sr., v. CA, GR Nos. L-48134-37, Oct. 18, 1990
7
Nursery Care Corp v. City of Manila, GR 180651, July 30, 2014
8
Swedish Match Phils. Inc. v. The Treasurer of the City of Manila, G.R. 181277, July 3, 2013 (700 SCRA 428)
Ibid; Nursery Care Corp. v. Anthony Acevedo & the City of Manila, GR 180651, July 30, 2014.
the double taxation indirect. The Constitution does NOT
prohibit the imposition of double taxation in the broad sense
because it does not violate the substantive due process since no
actual double taxation occurred.

5. What are the kinds of indirect duplicate taxation?

BQ2013

There are two kinds of indirect duplicate taxation, namely:

(1 ) Domestic double taxation. - This arises when the

same taxes are imposed by the local or national government
within the same State.

Double taxation may not be invoked where one tax is

imposed by the national government and the other by a
local government, being widely recognized that there is
nothing inherently obnoxious in the requirement that licenses or
taxes be exacted with respect to the same occupation, calling or
activity by both the state and its political subdivision. 9 Thus,
double taxation does not exist when a corporation is assessed
with local business tax as a manufacturer, and at the same time,
VAT as a person selling goods in the course of trade or business.

(2) International juridical double taxation – It refers to

the imposition of comparable taxes in two or more states on the
same taxpayer in respect of the same subject matter and for
identical periods.10

When an item of income is taxed in the Philippines and the

same income is taxed in another country, there is a case of
double taxation but it is only a case of indirect duplicate
taxation, which is called “international juridical double taxation,”
which is not legally prohibited because the taxes are imposed by
different taxing authorities.

6. Is double taxation allowed in our Constitution?

The Supreme Court held that there is no constitutional

prohibition against double taxation in the Philippines. 11
Therefore, it is not a valid defense against the validity of a tax
measure.12 However, it is not favored but the same is permissible,
provided some other constitutional requirements are not thereby
violated.13 For example, double taxation becomes obnoxious only
9
Punzalan v. Mun. Board of Manila, 95 Phils. 46 (1994); City of Baguio v. De Leon, 25 SCRA 38 (1968)
10
CIR v. SC Johnson and Son., Inc. 309 SCRA 87 (1999)
11
Villanueva v. Iloilo, 26 SCRA 578, Dec. 28, 1968
12
Pepsi Cola v. Mun. of Tanauan, GR L-31156, Feb. 27, 1976 (69 SCRA 460)
13
Pepsi Cola Bottling Co. v. City of Butuan, GR L-22814, Aug. 28, 1968
where the taxpayer is taxed twice for the benefit of the same
governmental entity14 or by the same jurisdiction for the same
purpose,15 but not in a case where one tax is imposed by the
State and the other by a province, city or municipality. 16

7. Is double taxation a valid defense against the legality of

a tax measure?

No. Double taxation standing alone and not being forbidden

by our fundamental law is not a valid defense against the legality
of a tax measure.17 However, if double taxation amounts to a
direct duplicate taxation, that the same subject is taxed twice
when it should be taxed but once, in a fashion that both taxes are
imposed for the same purpose by the same taxing authority,
within the same jurisdiction or taxing district, for the same
taxable period and for the same kind or character of a tax, then it
becomes legally objectionable for being oppressive and
inequitable.

8. Can a court impose local business tax on manufacturers

of liquors, distilled spirits, whins and other article of commerce.

8. Is there double taxation where a lessor of a property

pays real estate tax on the premises being leased, a real
estate dealer’s tax based on rental receipts and income tax
on the rentals?

No. There is no double taxation here in the prohibited

sense. Double taxation in the prohibited sense means (1) taxing
for the same tax period, (2) the same thing or activity twice, (3)
when it should be taxed
but once, (4) by the same taxing authority, (5) for the same
purpose, and
(6) with the same kind or character of tax.

The real estate tax is a property tax.

On the other hand, the real estate dealer's tax is a tax on

the privilege to engage in business of real estate dealership.

While the income tax is a tax on the privilege to earn an

income.

14
CIR v. Lednicky GR L-18169, July 31, 1964 (11 SCRA 609)
15
SMB, Inc. v. City of Cebu, GR L-20312, Feb. 26, 1972 (43 SCRA 280)
16
Punzalan v. Mun. Board of City of Manila, 50 OG 2485
17
Pepsi Cola v. Mun. of Tanauan, GR L-31156, Feb. 27, 1976 (69 SCRA 460)
 These taxes are imposed by different taxing authorities and
are essentially of different kinds and character. 18

9. Is there double taxation when the interest income of a

bank derived from its bank deposits in another bank is
subjected to tax and it will again be subjected to the 5%
gross receipts tax on its interest income from its loan
transactions? BQ2012

No. There is no double taxation when the interest income of

a bank from its bank deposits in another bank had been
subjected to the 20% final withholding tax (which is a passive
income and a direct tax), and at the same time, its interest
income on loan transactions to its debtors-customers is
subjected to the 5% gross receipts tax (which is considered as
active income and indirect tax) because the first tax is income
tax, while the second tax is business tax.

10. Can a municipal mayor refuse to sign an ordinance

which requires that all establishments selling liquor
should pay a fixed annual fee and at the same time
imposing a sales tax equivalent to 5% of the amount paid
for the purchase or consumption of liquor in the said
establishments on the ground that it would constitute
double taxation?

No. The refusal of the mayor is not justified. The

impositions are of different nature and character. The fixed
annual fee is in the nature of a license fee imposed through the
exercise of police power while the 5% tax on purchase or
consumption is a local tax imposed through the exercise of taxing
powers. Both a license fee and a tax may be imposed on the
same business or occupation, or for selling the same article and
this is not in violation of the rule against double taxation. 19

11. Is there double taxation in the imposition of local

business tax based on gross revenue in the case of a
taxpayer whose method of accounting is on the accrual
basis?

Yes. In petitioner's case, its audited financial statements

reflect income or revenue which accrued to it during the taxable
period although not yet actually constructively received or paid.
This is because petitioner uses the accrual method of accounting,
where income is reportable when all the events have occurred
that fix the taxpayer's right to receive the income, and the
18
Villanueva v. City of Iloilo, 26 SCRA 578
19
Compania General de Tabacos de Filipinas v. City of Manila, 8 SCRA 367 (1963)
amount can be determined with reasonable accuracy; the right to
receive income, and not the actual receipt, determines when to
include the amount in gross income. The imposition of local
business tax based on petitioner's gross revenue will inevitably
result in the constitutionally proscribed double taxation - taxing
of the same person twice by the same jurisdiction for the same
thing -- inasmuch as petitioner's revenue or income for a taxable
year will definitely include its gross receipts already reported
during the previous year and for which local business tax has
already been paid. Thus, respondent committed a palpable error
when it assessed petitioner's local business tax based on its
gross revenue as reported in its audited financial statements, as
Sec. 143 of the LGC and Sec. 22(e) of the Pasig Revenue Code
clearly provide that the tax should be computed based on gross
receipts.20

12. What are the modes of avoiding/eliminating double

taxation?

The usual methods of avoiding the occurrence of double

taxation are:

(a) Entering into tax treaties with other states. -

Double or multiple taxation is avoided by means of allowing
reciprocal exemptions, which may be done either by statute or by
treaty.

(b) Application of the principle of reciprocity -

Exemption from taxation by treaty are generally granted on
grounds of reciprocity21 and to lessen the rigors of international
double or multiple taxation.

(c ) Allowance of deduction/tax credit for foreign taxes

paid - The rigors of international double taxation may also be
lessened by the allowance of deduction or tax credit taxes paid
to foreign countries.22 Example: A resident Filipino citizen has
the option to either claim the amount of income tax withheld
abroad as a deduction from his gross income in the Philippines or
to claim it as a tax credit23 provided that he includes the subject
income in the computation of his worldwide gross income
considering that he is a resident Filipino citizen. A resident
Filipino citizen is subject to tax on his income derived from
within and without the Philippines or his worldwide income.

20
Ericsson Telecom vs. City of Pasig, GR 176667, Nov. 22, 2007( 538 SCRA 99)
21
Reciprocity is used to denote the relation between two states when each of them, by their respective laws or by treaty, gives the
citizens or nationals of the other State certain privileges, as in the practice of a profession, on condition that its own citizens or nationals shall
enjoy similar privileges in the latter state. Sison v. Board of Accountancy, 85 Phil. 276 (1949)
22
Sec. 34(C), NIRC
23
Sec. 34(C)(1)(B), NIRC
 (d) Using the Tax Sparing Rule – A non-resident foreign
corporation (NRFC) who earned cash and/or property
intercorporate dividends from a domestic corporation is taxed on
a reduced rate of 15% tax on dividends (in lieu of the 30%
corporate income tax), which represents the difference between
the regular income tax of 30% and the 15% tax on dividends on
the condition that the country of residence of the NRFC shall
allow a credit against the tax due from the NRFC, taxes deemed
to have been paid in the Philippines.24

The apparent rationale for doing away with double taxation

is to encourage the free flow of goods and services and the
movement of capital, technology and persons between countries,
conditions deemed vital in creating robust and dynamic
economies. 25

IV. Escape from Taxation

13. What are the forms of escape from taxation?

Taxpayers escape paying their taxes thru the following

modes, although the modes used may not necessarily be legal,
and therefore, sanctionable.

(a) Shifting the tax burden to another taxpayer.

(b) Tax avoidance.
(c ) Tax evasion.

A. Shifting of Tax Burden

14. What is the meaning of the term “shifting of tax

burden”?

“Shifting of tax burden” simply means that the imposition

of tax is transferred from the statutory taxpayer, or the person
who is required by law to pay the tax, to another person who
shall bear the burden of the tax without violating the law. Only
the payment of indirect taxes may be shifted to another taxpayer,
but not direct taxes. Example: Under the VAT system, the seller
can shift the burden of the VAT to the buyer, the said tax (VAT)
being an indirect tax.

15. What are the ways of shifting the burden of tax to

another taxpayer?

24
Sec. 28(B)(5)(b), NIRC; CIR v. PGMC, GR 66838, Dec. 2, 1991
25
CIR v. SC Johnson and Son, Inc., 309 SCRA 87 (1999)
 The ways of shifting the burden of tax to another taxpayer
are as follows:

(1) Forward shifting – refers to the transfer of tax burden

from the producer to distributor until it finally reaches the
ultimate purchasers or end consumers. Example: The producer
shifts its VAT to the distributor, and the distributor shifts its VAT
to the final consumer.

(2) Backward shifting – refers to the reverse of forward

shifting, meaning, the burden of the tax is transferred from the
end consumer through the factors of distribution to the factor of
production. Example: The end consumer may shift the tax
imposed on him to the distributor by buying the goods only after
the price of the goods is reduced by the amount of the tax, and
lastly, the manufacturer agrees to buy the distributor’s products
only if the price is also reduced by the amount of tax.

(3) Onward shifting – the tax burden is shifted twice or

more either forward or backward.

16. What are the taxes which can be shifted to another

taxpayer?

Under the National Internal Revenue Code, the national

taxes which can be shifted to another taxpayers are the indirect
taxes, such as the VAT, Other percentage taxes, excise tax on
excisable articles and documentary stamp taxes.

In the case of VAT, the seller, who is the statutory taxpayer,

is given the right by law to shift the burden of tax to the buyer,
which tax shall become part of the cost of the goods or services
sold if the buyer is the end consumer.

17. What are the taxes which cannot be shifted to another

taxpayer?

Under the National Internal Revenue Code, all taxes which

are the direct tax liabilities of the taxpayers are the taxes which
cannot be shifted to another taxpayer, such as income tax, estate
tax and donor’s tax.

18. Why does the law allow the shifting of the burden of
tax to another person?

When the law allows that the burden of tax may be shifted
to another person, this is one form of escape from taxation which
does not result to any loss on the part of the Government, hence,
not objectionable.

19. What is the meaning of “impact” and “incidence” of

taxation?

The term "impact of taxation" refers to the point on

which the tax is originally imposed or the person/taxpayer who is
required by law to pay the tax or the taxpayer on whom the tax
can be formally assessed. Example: VAT is originally assessed
against the VAT-registered SELLER who is required to pay the
said tax. (This is the so-called "impact of taxation.")

On the other hand, "incidence of taxation" refers to the

point on which the tax burden finally rests or settles down. It
takes place when shifting has been effected from the statutory
taxpayer to another. Hence, VAT, being an indirect tax, the
burden of paying the tax is actually shifted or passed on to the
BUYER. (This is the so-called "incidence of taxation.")

20. What is the relationship between Impact, Shifting, and

Incidence of a tax?

The”impact of taxation,” which is the imposition of the tax

to the statutory taxpayer, is the initial phenomenon; the
“shifting of the tax,” which is the passing on of the tax to the
buyer, is the intermediate event, while the “incidence of the
tax” which is the final point of the transaction makes the end
consumer finally shouldering or bearing the burden of the tax,
which is the resultant effect.

B. Tax Avoidance

21. What is the meaning of “tax avoidance”? BQ2014

"Tax avoidance" is the other term for "tax minimization."

It is a legal tax saving device within the means sanctioned by
law the object of which is merely to minimize the payment of
taxes. This method should be used by the taxpayer in good faith
and at arm's length.

A taxpayer has the legal right to decrease the amount of

what otherwise would be his taxes or altogether avoid them by
means which the law permits. A taxpayer may therefore perform
an act that he honestly believes to be sufficient to decrease his
tax liability or to exempt him from taxes. He does not incur fraud
thereby even if the act is thereafter found to be insufficient. 26
26
Yutivo Sons Hardware Co. v. CTA, 1 SCRA 160 (1961); Heng Tong Textiles Co., Inc. v. CIR, 24 SCRA 767 (1968)
 C. Tax Evasion

22. What is the meaning of “tax evasion”?

"Tax evasion" is the other term for “tax dodging.” It is the

use of the taxpayer of illegal means to avoid or defeat the
payment of the tax. It is a scheme used outside of those lawful
means and when availed of is punishable by law because its main
purpose is to entirely escape the payment of taxes thru illegal
means. It usually subjects the taxpayer to further or additional
civil or criminal liabilities.27

Tax evasion connotes fraud through the use of pretenses

and forbidden devices to lessen or defeat the payment of correct
taxes. Mere understatement of tax in itself does not prove fraud.
Fraud is never imputed and courts never sustain findings of
fraud upon circumstances which create only suspicion; it must
be willful and intentional .

23. Distinguish "tax avoidance" from "tax evasion."

BQ2014

Tax Avoidance Tax Evasion

“Tax avoidance” is a “Tax evasion” is the use
tax saving device of illegal means to avoid
wherein the taxpayer or defeat the payment
uses legal means to of the tax.
reduce tax liability
within the means
sanctioned by law,
28
hence legal.
It is used by the It connotes fraud
taxpayer in good faith through the use of
and at arm's length. pretenses and forbidden
devices to lessen or
defeat the payment of
correct taxes.
Taxpayer is not When availed of, it
subjected to civil or usually subjects the
criminal liabilities taxpayer to additional
because it is a legal tax civil or criminal
saving device. liabilities.
It is “tax It is “tax dodging”.
minimization”.

27
CIR v. CA, 327 Phil. 1
28
Heng Tong Textiles Co., Inc. v. CIR, 24 SCRA 767 (1968)
24. What are the factors that constitute “tax evasion”?

To constitute "tax evasion," there must be an integration of

three factors, namely:

(1) The end to be achieved, i.e., payment of an amount of

tax less than what is known by the taxpayer to be legally due;

(2) An accompanying state of mind which is described as

being evil, in bad faith, willful or deliberate and not merely
accidental; and

(3) A course of action or failure of action which is unlawful.

The second and third factors are not present in tax

avoidance, hence there can be no tax evasion if what was
committed is just tax avoidance.29

Example: When a tax consultant advised the taxpayer to

execute two deeds of sale with the intent to evade the payment
of the correct tax, both the tax consultant and the taxpayer shall
be criminally liable for tax evasion considering that the above-
stated three requisite factors to constitute tax evasion are
present.

25. When is tax evasion deemed complete?

The Supreme Court ruled that tax evasion is deemed

complete when the violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat a part or all of
the tax.30

V. Exemption from Taxation

26. What is the meaning of the term “exemption from

taxation"?

Tax exemption is an immunity or privilege from a charge

or burden to which others are subject. It is the grant of
immunity, express or implied, to particular persons or
corporations of a particular class, from the obligation to pay
taxes generally within the same state or taxing district to which
others are obliged to pay. 31

27. What is the nature of tax exemption?

29
CIR v. The Estate of Benigno P. Toda, Jr., G.R.147188, Sept. 14, 2004. (48SCRA 290)
30
Ungab v. Judge Cusi, Jr., 186 Phil. 604 (1980)
31
Greenfield v. Meer, 77 Phil 394
 (a) The tax exemptions provided in the Constitution are
self-executing and need no legislation to enforce them.

(b) The grant of tax exemption is a matter of legislative

policy that is within the exclusive prerogative of Congress. 32

(c) Exemption from taxes is personal in nature and covers

only taxes for which the taxpayer-grantee is directly liable. In
any case, it cannot be transferred or assigned by the person to
whom it is given without the consent of the State. He who claims
tax exemption should prove by convincing proof that he is
exempted. Therefore, an exemption granted to a corporation
does not apply to its stockholders.33

(d) Tax exemptions are not presumed, but when public

property is involved, tax exemption is the rule, and taxation, the
exception.

(e) There can be no simultaneous tax exemptions under two

laws, one partial and the other total.

(f) It is an ancient rule that exemptions from taxation are

construed in strictissimi juris against the taxpayer and liberally
in favor of the taxing authority. Tax exemptions are looked upon
with disfavor and may almost be said to be odious to the law. 34

(g) He who claims that he is exempted from tax must be

able to justify his claim by the clearest grant of organic or statute
law by words to plain to be mistaken. If ambiguous, there is no
tax exemption.

28. What are the kinds of tax exemption?

The kinds of tax exemptions are as follows:

(1) Express tax exemption (or affirmative exemption)

– This is the tax exemption which expressly and affirmatively
exempts from taxation certain persons, properties or
transactions, either entirely or in part. It may be created by
express provisions of the Constitution, statute, treaty or
ordinance.

(2) Implied tax exemption (or exemption by

omission) – This is the tax exemption which may be either
32
Diaz v. Sec. of Finance, 654 SCRA 96 (2011)
33
Manila Gas Corp. v. Collector, 71 Phil. 513
34
MERALCO v. Vera, 67 SCRA 351; Phil. Petroleum Corp. v. Mun. of Pililla, Rizal, 198 SCRA 82 (1991)
accidental or intentional, as where the tax is laid on certain
classes of persons, properties or transactions without mentioning
other classes. All subjects for which taxation is not provided are
exempted, and the subjects selected are alone taxable. Tax
exemptions are not presumed, but when public property is
involved, exemption is the rule, and taxation, the exception

(3) Contractual tax exemption - Contractual tax

exemption, in the real sense of the term and where the non-
impairment clause of the Constitution can rightly be invoked, is
one which is agreed to by the taxing authority in contracts, such
as the one contained in government bonds or debentures,
lawfully entered into under enabling laws in which the
government, acting in its private capacity, sheds its cloak of
authority and waives its governmental immunity. 35 This
exemption must not be confused with the tax exemption granted
under a franchise, which is not a contract within the context of
non-impairment clause of the Constitution.36

In general, tax exemptions granted by contract are not

assignable. However, Congress may authorize a transfer of the
tax exemption either by the original act or by a subsequent
statute. A contractual tax exemption may also be transferred
where the original grant includes the successors and assigns of
the grantee.37

Statutory exemptions are generally granted on the basis of

contract and on grounds of public policy.

29. What is the rationale for the grant of tax exemption?

The rationale for the grant of tax exemption is some kind of

public benefit or interest which the law-making body considers
sufficient to offset the monetary loss entailed in the grant of tax
exemptions.

30. What are the grounds for tax exemption?

(1) The power of the Legislature to exempt taxpayers from

taxation, although of wide scope, is not unlimited. Exemptions
from taxation, when properly made, must be determined in the
legislative discretion, which must not, however, be arbitrary;
there must underlie in its exercise some principles of public

35
PAGCOR v. BIR, John Doe & Jane Doe, GR 172087, March 15, 2011
36
Cagayan Electronic Co. v. CIR, 138 SCA 629
37
PAL v. Commissioner of Customs, BTA No.184, Sept. 10, 1954
policy that can support a presumption that the public interest
will be subserved by the exemption allowed. 38

(2) The purpose of the grant is some public benefit or

interest which the law-making body considers sufficient to offset
the monetary loss entailed in the grant of tax exemptions.

(3) Tax exemptions in tax treaties are created on grounds

of reciprocity or to lessen the rigors of the international
double or multiple taxation.

31. May tax exemption be granted on the ground of equity?

No. Tax exemption cannot be recognized on grounds of

equity. The long range objective of all tax measures is the
accomplishment of social order. Although the variant forms of
taxation may sometimes produce individual hardships, a too
stilted interpretation of tax laws for the benefit of one particular
taxpayer may result in the loss of revenue at the expense of the
government and operate to the disadvantage of the others
contributing to its support. A tax exemption claimed merely on
the ground that another person similarly situated has not paid
similar taxes is unjustifiable and should be ignored. 39

32. May tax exemptions be revoked?

Yes. As a general rule, grants of tax exemption are

revocable. The Congressional power to grant an exemption
necessarily carries with it the consequent power to revoke the
same. In the case of franchises to operate public utilities, the
Constitution provides that no franchise shall be granted unless
subject to the condition that it shall be subject to repeal or
amendment. Therefore, any exemption granted under a
franchise may be revoked by Congress.

Exception: On the other hand, there is a recognized

exception as regards contractual exemptions, on the theory that
revocation without the consent of the grantee would impair the
obligation of contract. There is no vested right in a tax
exemption, more so when the latest expression of legislative
intent renders its continuance doubtful. Being a mere statutory
privilege, a tax exemption may be modified or withdrawn at will
by the granting authority. To state otherwise is to limit the
taxing power of the State, which is unlimited, plenary,
comprehensive and supreme. The power to impose taxes is one
so unlimited in force and so searching in extent, it is subject only
38
Art. 17(4), Art. VIII, 1987 Phil. Constitution; CIR v. Botelho Shipping Corp., L-21633-34, June 29, 1967 (20 SCRA 487)
39
BPI v. Trinidad, 45 Phil. 384
to restrictions which rest on the discretion of the authority
exercising it.40

COHAN RULE – under this principle, TP may use estimates

when they can show that there is some factual foundation on
which to base a reasonable approximation of the expense. It is
the use of estimates or approximations of the amount of cash and
other asses where the TP lacks adequate records.

VI. Tax Refund

33. What is the nature of a claim for refund?

Since an action for a tax refund partakes of the nature of
tax exemption, which cannot be allowed unless granted in the
most explicit and categorical language, it is strictly construed
against the claimant who must discharge such burden most
convincingly.41

34. Will the fact that a taxpayer is under audit by the BIR
or that there is a deficiency tax assessment and it has a
potential tax liability be a bar to a claim for tax refund?

No. As a general rule, a deficiency tax assessment is not a

bar to a claim for tax refund or tax credit of a taxpayer. The BIR
has no valid justification if it will not grant the refund or to
withhold the issuance of the Tax Credit Certificate (TCC).
Offsetting the amount of TCC against a potential tax liability is
not allowed, because both obligations are not yet fully liquidated.
While the amount of the TCC has been determined, the amount
of deficiency tax is yet to be determined through the completion
of the audit. To reopen the claim for TCC or Tax Refund in order
to give way to the introduction of evidence of a deficiency
assessment will lead to an endless litigation, which is not
allowed.42

However, if the deficiency tax assessment is already

final, the CIR should not grant the claim for refund unless the
taxpayer pays the deficiency tax. Likewise, no tax refund or tax
credit will be granted as long as there is a pending deficiency
tax assessment for the same taxable period. To award a tax
refund or tax credit despite the existence of deficiency
assessment for the same taxable period is an absurdity and a
polarity in conceptual effects. A taxpayer cannot be entitled to a
refund and at the same time be liable for a tax deficiency
assessment. In order to avoid multiplicity of suits, it is logically
40
Republic v. Caguioa, GR 168584, Oct. 15, 2007
41
South African Airways v. CIR, 612 SCRA 665
42
CIR v. Citytrust Banking Corp., 499 SCRA 477 (2006)
necessary and legally appropriate that the issue of deficiency tax
assessment be resolved jointly with the taxpayer’s claim for tax
refund, to determine once and for all in a single proceeding the
true and correct amount of the tax due or refundable.43

35. May a taxpayer who has pending claims for refund of

excess VAT input tax refund or set off said claims against
his other tax liabilities?

No. Taxes and claims for refund cannot be the subject of

set-off for the simple reason that the government and the
taxpayer are not creditors and debtors of each other. There is a
material distinction between a tax and a claim for refund. Claims
for refunds just like debts are due from the government in its
corporate capacity, while taxes are due to the government in its
sovereign capacity.

However, compromise or set-off may be available but only if

both obligations are liquidated and demandable. Liquidated
debts are those where the exact amounts have already been
determined. In the instant case, the claim of the taxpayer for
VAT refund is still pending and the amount has still to be
determined. Thus, the liquidated obligation of the taxpayer to
the government cannot be set-off against the unliquidated claim
which the taxpayer conceived to exist in his favor. 44

VII. Compromise

36. When is compromise agreement?

A compromise agreement is a contract whereby the

parties, by making reciprocal concessions, avoid a litigation or
put an end to one already commenced.45 It involves a reduction
of a person’s tax liability. Accordingly, a compromise is either
judicial, if the objective is to put an end to a pending litigation,
or extrajudicial, if the objective is to avoid a litigation. 46
Its validity is dependent upon the fulfillment of the
requisites and principles of contracts dictated by law; and its
terms and conditions must not be contrary to law, morals, good
customs, public policy, and public order.
When given judicial approval, a compromise agreement
becomes more than a contract binding upon the parties. Having
been sanctioned by the court, it is entered as a determination of
a controversy and has the force and effect of a judgment. It is
immediately executory and not appealable, except for vices of
43
CIR v. CA, Citytrust Banking Corp. and CTA, 234 SCRA 348 (1994)
44
Philex Mining v. CIR, GR 125704, Aug. 29, 1998
45
Art, 2928, New Civil Code
46
Malvar v. Kraft Food Phils., Inc., 705 SCRA 242 (2013)
consent or forgery. The nonfulfillment of its terms and conditions
justifies the issuance of a writ of execution; in such an instance,
execution becomes a ministerial duty of the court. 47
A compromise is generally allowed and enforceable under
the law when the subject matter thereof is not prohibited from
being compromised and the person entering such compromise is
duly authorized to do so.

VIII. Doctrine of Compensation and Set-Of

37. Discuss the “Doctrine of Compensation and Set-Off.”

May taxes be the subject of set-off or compensation?

General Rule: The Doctrine of Compensation and Set-off

states that taxes are NOT subject to set-off or legal compensation
because the government and the taxpayer are not mutual
creditor and debtor of each other.48

It is settled that a taxpayer may not offset taxes due from

the claims that he may have against the government for the
following reasons:

(1) A claim for taxes is not such a debt, demand, contract or

judgment as is allowed to be set-off.

(2) Taxes are of such distinct kind, essence and nature, and
these impositions cannot be classed in merely the same category
as ordinary obligations. Taxes and debts are of different nature
and character; hence, no set-off or compensation between these
two different classes of obligations is allowed.

(3) The taxes assessed are the obligations of the taxpayer

arising from law, while the money judgment against the
government is an obligation arising from contract, whether
express or implied.

(4) Debts are due to the Government in its corporate

capacity, while taxes are due to the Government in its sovereign
capacity.49

(5) Inasmuch that taxes are not debts, it follows that the
two obligations are not susceptible to set-off or legal
compensation.

47
Magbanua v. Uy, 497 Phil. 511 (2005) cited in Metro Manila Shopping Mecca Corp. v. City Treasurer of Manila,
GR 190818, Nov. 10, 2014
48
Republic v. Mambulao Lumber Co., 6 SCRA 522; Caltex Phils v. COA, 208 SCRA 726
49
South African Airways v. CIR, 612 SCRA 665 (2010)
 (6) There can be no off-setting of taxes against the claims
that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being
collected. The collection of a tax cannot await the results of a
lawsuit against the government.50

Examples:

(a) An assessment for a local tax cannot be the subject of

set-off or compensation against a final judgment for a
sum of money obtained by the taxpayer against the local
government unit that made the assessment.

(b) A taxpayer who has pending claims for VAT input

credit or refund cannot set off said claims against his
other tax liabilities.

(c) The income tax liability of a taxpayer cannot be

compensated with the amount owed by the Government
as just compensation for his property which had been
expropriated.

Exception: However, if the obligation to pay taxes and

the taxpayer’s claim against the government have already
become both due, and demandable, as well as fully liquidated,
compensation takes place by operation of law 51 and both
obligations are extinguished to their concurrent amounts. 52

A debt is liquidated when its existence and amount are

determined. A debt is considered liquidated, not only when it is
expressed already in definite figures which do not require
verification, but also when the determination of the exact amount
depends only on a simple arithmetical operation.53

IX. Doctrine of Equitable Recoupment

38. What is the meaning of the term “Doctrine of

Equitable Recoupment”? BQ2009

The doctrine of “equitable recoupment” arose from common

law origin allowing the offsetting of a prescribed claim for refund
against a tax liability arising from the same transaction on which
an overpayment is made on one hand and underpayment is due

50
Francia v. IAC, GR L- 76749, June 28, 1988 (162 SCRA 753)
51
Art. 1200, in relation to Arts. 1279 and 1290, NCC
52
Domingo v. Garlitos, 8 SCRA 443 (1963)
53
Philex Mining Corp. v. CIR, GR 125704, Aug. 29, 1998;.Montemayor v. Millora, 654 SCRA 580 (2011)
on the other hand. In other words, when the refund of a tax
supposedly due to the taxpayer has already been barred by
prescription, and the same taxpayer is assessed with a tax at
present, the two taxes may be set-off with each other. It allows a
taxpayer whose claim for refund has prescribed to offset tax
liabilities with his claim of overpayment.

But this doctrine of equitable recoupment is allowed only in

common law countries, but NOT in the Philippines. It finds no
application to cases where the taxes involved are totally
unrelated, and although it seems equitable, IT IS NOT ALLOWED
IN OUR JURISDICTION because of the doctrine of no set-off or
compromise.54

X. Tax Amnesty

39. What is the meaning of “tax amnesty”?

“Tax amnesty” is a general grant of pardon or the

intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of violation of a tax law. It
partakes of an absolute waiver by the government of its right to
collect what otherwise would be due it and to give tax evaders
who wish to relent a chance to start with a clean slate. A tax
amnesty, much like a tax exemption, is never favored nor
presumed in law and if granted by statute, the terms of the
amnesty like that of a tax exemption must be construed strictly
against the taxpayer and liberally in favor of the taxing
authority.55 It also gives the government a chance to collect
uncollected tax from tax evaders without having to go through
the tedious process of a tax case. 56

“Tax amnesty” refers to the articulation of the absolute

waiver by a sovereign of its right to collect taxes and power to
impose penalties on persons or entities guilty of violating a tax
law. Tax amnesty aims to grant a general reprieve to tax evaders
who wish to come clean by giving them an opportunity to
straighten out their records.57

40. Distinguish "tax amnesty" from "tax exemption."

Tax Amnesty Tax Exemption

Tax amnesty is an Tax exemption is an
immunity from all immunity from the

54
Collector v. UST, 104 Phil. 1062 (1958)
55
CIR v. Gonzalez, 633 SCRA 139 (2010)
56
ING Bank N.V., Manila Branch v. CIR, GR 167679, July 22, 2015
57
MBTC v. CIR, G.R. 178797, Aug. 4, 2009 (595 SCRA 234) cited in CS Garment, Inc. v. CIR, GR 182399, March 12, 2014
criminal, civil and civil liability only. It is
administrative an immunity or
liabilities arising privilege, a freedom
from non-payment of from a charge or
taxes. It is a general burden to which others
pardon given to all are subjected.
taxpayers.
It applies only to past It is generally
tax periods, hence of prospective in
retroactive application.
application.58
In a tax amnesty, In tax exemption, there
however, there will be a is no revenue loss
revenue loss since because there was no
there was actually taxes actual taxes due as the
due but the collection person or transaction is
was just waived by the protected by tax
Government. exemption.

41. How should tax amnesty be construed?

While tax amnesty, similar to a tax exemption, must be

construed strictly against the taxpayer and liberally in favor of
the taxing authority, it is also a well-settled doctrine that the
rule-making power of administrative agencies cannot be
extended to amend or expand statutory requirements or to
embrace matters not originally encompassed by the law.
Administrative regulations should always be in accord with the
provisions of the statute they seek to carry into effect, and any
resulting inconsistency shall be resolved in favor of the basic
law.59

42. May the creditable withholding taxes be the subject of

tax amnesty?

No. Just like in the compromise settlement of tax liability of

a taxpayer, withholding taxes cannot fall within the coverage of
tax amnesty because the same is not one of the taxes for which a
taxpayer is directly liable. Withholding tax is just a mode of
collecting the tax and the tax that is being withheld is treated as
a trust fund which should be remitted to the government because
it is not a personal tax liability of the withholding agent, but that
of the payor, which should have been remitted to the government
when the same was withheld from the taxpayer. 60

58
People v. Castaneda, GR L46881, Sept. 15, 1988
59
CS Garment, Inc. v. CIR , G.R. 182399, March 12, 2014
60
RMC 61-2014 (July 30, 2014)
 XI. Tax Pyramiding

43. What is the meaning of "tax pyramiding"? What is its

basis in law? BQ2006

“Tax pyramiding” refers to the imposition of a tax upon a

tax. This occurs when some or all of the stages of distribution of
goods or services are taxed, with the accumulation borne by the
final consumer. There is tax pyramiding when sales taxes are
applied to both inputs and outputs, thus shifting all the tax
burden to the end consumer. It has no basis whether in fact or in
law because it violates the principle of uniformity and neutrality
in taxation. Tax pyramiding has, since 1922, been rejected by
the Supreme Court, the legislature, and our tax authorities. 61

XII. Doctrine of Piercing the Veil of Corporate Fiction

44. What is the “Doctrine of Piercing the Veil of Corporate

Fiction”? BQ2013

Under the “doctrine of piercing the veil of corporate

fiction,” the court looks at the corporation as a mere collection of
individuals or an aggregation of person undertaking business as
a group, disregarding the separate juridical personality of the
corporation unifying the group.62 Another formulation of this
doctrine is that when two business enterprises are owned,
conducted and controlled by the same parties, both law and
equity will, when necessary to protect the rights of third parties,
disregard the legal fiction that two corporations are distinct
entities and treat them as identical or as one and the same. 63

It was held that while a corporation may exist for any lawful
purpose, the law will regard it as an association of persons or, in
case of two corporations, merge them into one, when its
corporate legal entity is used as a cloak for fraud or illegality.
The doctrine applies only when such corporate fiction is used to
defeat public convenience, justify wrong, protect fraud, or
defend crime, or when it is made as a shield to confuse the
legitimate issues, or where a corporation is the mere alter ego or
business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of
another corporation.

61
CIR v. American Rubber Co., 18 SCRA 842 (1966); Pp. v. Sandiganayan, 467 SCRA 137 (2005)
62
Kukan International Corp. v. Reyes, 631 SCRA 596 (2010)
63
Pantranco Employees Association v. NLRC, GR L-10689, March 17, 2009 (581 SCRA 598 )
45. May the stockholders be held personally liable for the
unpaid taxes of a dissolved corporation?
A corporation, upon coming into existence, is invested by
law with a personality separate and distinct from those of the
persons composing it as well as from any other legal entity to
which it may be related. For this reason, a stockholder is
generally not made to answer for the acts or liabilities of the
corporation, and vice versa. The separate and distinct personality
of the corporation is, however, a mere fiction established by law
for convenience and to promote the ends of justice. It may not be
used or invoked for ends that subvert the policy and purpose
behind its establishment, or intended by law to which the
corporation owes its being. This is true particularly when the
fiction is used to defeat public convenience, to justify wrong, to
protect fraud, to defend crime, to confuse legitimate legal or
judicial issues, to perpetrate deception or otherwise to
circumvent the law. This is likewise true where the corporate
entity is being used as an alter ego, 64 adjunct, or business
conduit for the sole benefit of the stockholders or of another
corporate entity. In such instances, the veil of corporate entity
will be pierced or disregarded with reference to the particular
transaction involved.65
Thus, as a general rule, stockholders cannot be held
personally liable for the unpaid taxes of a dissolved corporation.
The rule prevailing under our jurisdiction is that a corporation is
vested by law with a personality that is separate and distinct
from those of the persons composing it.66

However, stockholders may be held liable for the unpaid

taxes of a dissolved corporation if it appears that the corporate
assets have passed into their hands.67 Likewise, when
stockholders have unpaid subscriptions to the capital of the
corporation, they can be made liable for unpaid taxes of the
corporation to the extent of their unpaid subscription.

XIII. Doctrine of Usage

46. What is the “Doctrine of Usage”?

This is the test of exemption on real property tax provided

in the 1987 Constitution which mandates that such real
properties of non-stock non-profit educational institutions shall
be exempt from the real property tax if the said properties are
64
In applying the "instrumentality" or" alter ego" doctrine, the courts are concerned with reality, not form, and with how the
corporation operated and the individual defendant's relationship to the operation.
65
Land Bank of the Philippines v. Court of Appeals, G.R. 127181, Sept.. 4, 2001 (364 SCRA 375) cited in Commissioner of
Customs v. Oilink International Corp., GR 161759, July 2, 2014
66
Sunio v. NLRC, 127 SCRA 390 (1984)
67
Tan Tiong Bio v. CIR, 4 SCRA 986 (1962)
actually, directly and exclusively USED for religious,
charitable or educational purpose. The gauge of exemption
is the USE of the property, NOT the ownership, and in
accordance with the enabling law under Sec. 234 68 of the Local
Government Code of 1991.

XIV. Marshall Dictum

47. What does the “Marshall Dictum” state?

The Marshall Dictum69 states that “the power to tax is

the power to destroy”, which refers to the unlimitedness and
the degree or vigor with which the taxing power may be
employed to raise revenue. The financial needs of the State may
outrun any human calculation, so the power to meet those needs
by taxation must not be limited even though taxes become
burdensome or confiscatory.

However, Marshall Dictum has no application to a lawful

tax. This may be true only if the Legislature has no power to tax.
It has no relation to a case where such right exists, because the
power to destroy may be a consequence of taxation but it cannot
and should not tax to the point of being confiscatory.

XV. Holmes Doctrine

48. What does the “Holmes Doctrine” state?

The Holmes Doctrine,70 on the other hand, states that

“the power to tax is not the power to destroy while the
Supreme Court sits.” The power to tax knows no limit except
those expressly stated in the Constitution.It only means that in
the exercise of the taxing power, the authority should not violate
the Constitutional, inherent and contractual limitations of
taxation, otherwise the court has the primordial duty to declare
the same void and unconstitutional, thereby preventing the
destructive nature of the power of taxation.

XVI. Doctrine of Estoppel

68
SEC. 234. Exemptions from Real Property Tax. - The following are exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all
lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or
-controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938 (now RA 9520); and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of
this Code. (Local Government Code)
69
(Marshall Dictum) U.S. Chief Justice Marshall in McCulloch v. Maryland, 17 U.S. 316, 4 Wheat, 316, 4 L Ed. 579 (1819)
70
Panhandle Oil Co. v. Mississipi ex rel Knox 277 U.S. 233 (1928) (Justice Oliver Wendell Holmes, Jr.)
49. How is the "Doctrine of Estoppel" applied in taxation?
Is there any exception?

General Rule: It is rule in taxation that estoppel does not

apply to the government, especially on matters of taxation. It
does not prevent the government from collecting taxes; it is not
bound by the mistake or negligence of its agents. The rule is
based on the political law concept “the king can do no wrong,”71
which likens a state to a king; it does not commit mistakes, and it
does not sleep on its rights. The analogy fosters inequality
between the taxpayer and the government, with the balance
tilting in favor of the latter. This concept finds justification in the
theory and reality that government is necessary, and it must
therefore collect taxes if it is to survive. Thus, the mistake or
negligence of government officials should not bind the state, lest
it bring harm to the government and ultimately the people, in
whom sovereignty resides. 72 Upon taxation depends the ability of
the government to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of
government officials entrusted with the collection of taxes should
not be allowed to bring harm or detriment to the people." 73

Taxes are the nation’s lifeblood through which government

agencies continue to operate and with which the State
discharges its functions for the welfare of its constituents. 74

Exception: However, while the State in the performance of

governmental function is not estopped by the neglect or omission
of its agents, and nowhere is this truer than in the field of
taxation, yet this principle cannot be applied to work injustice
against an innocent party.

In one case, the Court held that "admittedly the government

is not estopped from collecting taxes legally due because of
mistakes or errors of its agents, but like other principles of law,
this admits of exceptions in the interest of justice and fair play, as
where injustice will result to the taxpayer by keeping the latter in
the dark for so long, as to whether it is liable for the tax and, if
so, for how much." 75

XVII. Presumption Regarding the Constitutionality

71
Eric R. Recalde, A Treatise on Tax Principles and Remedies, p. 33 (2009)
72
CIR v. Procter & Gamble PMC, GR L-66838, April 15, 1988 (160 SCRA 560), cited in CIR v. Raul M. Gonzales, G.R. 177279,
Oct. 13, 2010
73
Visayas Geothermal Power Company v. CIR, G.R. 197525, June 4, 2014 (725 SCRA 130) cited in CIR v. Nippon Express (Phils)
Corp., GR 212920, Sept. 16, 2015
74
CIR v. Petron Corp., 668 SCRA 735 (2012)
75
Republic v. Ker & Co., 124 Phil. 822 (1966); CIR v. Gonzalez, 633 SCRA 139 (2010)
 or Validity of Tax Laws

50. What is the meaning of “Presumption regarding the

constitutionality or validity of tax laws”?

The constitutionality or validity of tax laws, orders, or such

other rules with the force of law cannot be attacked collaterally.
There is a legal presumption of validity of these laws and rules,
and unless a law or rule is annulled in a direct proceeding, the
legal presumption of its validity stands.76

Every presumption must be indulged in favor of the

constitutionality of a statute. The burden of proving the
unconstitutionality of a law rests on the party assailing the law.
In passing upon the validity of an act of a co-equal and
coordinate branch of the government, courts must ever be
mindful of the time-honored principle that a statute is
presumed to be valid.77

XVIII. Presumption of Regularity in the

Performance of Oficial Duty & Doctrine of Good Faith

51. What is the meaning of “presumption of regularity in

the performance of official duty”?

The presumption of regularity in the performance of official

duty cannot by itself overcome the presumption of innocence nor
constitute proof of guilt beyond reasonable doubt.78

52. What is the presumption regarding the assessments

made by the Commissioner or by his duly authorized
representatives?

Tax assessments made by the CIR or by his duly authorized

representative shall be prima facie presumed correct and made
in good faith, and all presumptions are in favor of the correctness
of a tax assessment unless proven otherwise. 79 The taxpayer has
the burden of proof of showing the incorrectness or inaccuracy of
such assessment or its details lies with the taxpayer. In the
absence of proof of any irregularities in the performance of
duties, an assessment duly made by a Bureau of Internal
Revenue examiner and approved by his superior officers will not
be disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been

76
Chevron Phils., Inc. v. Commissioner of Customs, 561 SCRA 710 (2008)
77
Republic v. Caguioa, GR 168584, Oct. 15, 2007(536 SCRA 193)
78
Valdez v. People, GR 170180, Nov. 23, 2007 (538 SCRA 611)
79
CIR v. Gonzalez, 633 SCRA 139 (2010)
arrived at arbitrarily or capriciously. The burden of proof is upon
the complaining party to show clearly that the assessment is
erroneous. Failure to present proof of error in the assessment
will justify the judicial affirmance of said assessment. All
presumptions are in favor of the correctness of tax
assessments. 80

53. What is the meaning of “Doctrine of Good Faith”?

“Good faith” is that state of mind denoting honesty of

intention and freedom from knowledge of circumstances which
ought to put the holder upon inquiry; an honest intention to
abstain from taking any unconscientious advantage of another,
even through technicalities of law, together with absence of all
information, notice, or benefit or belief of facts which render
transaction unconscientious.81

XIX. Doctrine of Exhaustion of

Administrative Remedies

54. What is the meaning of “Doctrine of Exhaustion of

Administrative Remedies”?

It is settled that the premature invocation of the court's

intervention is fatal to one's cause of action -- if a remedy within
the administrative machinery can still be resorted to by giving
the administrative officer every opportunity to decide on a
matter that comes within his jurisdiction then such remedy must
first be exhausted before the court's power of judicial review can
be sought.

The party with an administrative remedy must not only

initiate the prescribed administrative procedure to obtain relief
but also pursue it to its appropriate conclusion before seeking
judicial intervention in order to give the administrative agency
an opportunity to decide the matter itself correctly and prevent
unnecessary and premature resort to the court.82
Nonetheless, jurisprudence allows certain exceptions to the
rule on exhaustion of administrative remedies. The doctrine of
exhaustion of administrative remedies is a relative one and its
flexibility is called upon by the peculiarity and uniqueness of the
factual and circumstantial settings of a case. Hence, it is
disregarded

(1) when there is a violation of due process,

80
CIR v. Kudos Metal Corp., G.R. 178087. May 5, 2010; CIR v. Traders Royal Bank, G.R. L-167134, March 18, 2015
81
Civil Service Commission v. Maala, G.R. 165523, Aug. 18, 2005 (467 SCRA 390)
82
RCBC v. CIR, G.R.L-170257, Sept. 7, 2011
 (2) when the issue involved is purely a legal question,
(3) when the administrative action is patently illegal
amounting to lack or excess of jurisdiction,
(4) when there is estoppel on the part of the administrative
agency concerned,
(5) when there is irreparable injury,
(6) when the respondent is a department secretary whose
acts as an alter ego of the President bears the implied and
assumed approval of the latter,
(7) when to require exhaustion of administrative remedies
would be unreasonable,
(8) when it would amount to a nullification of a claim,
(9) when the subject matter is a private land in land case
proceedings,
(10) when the rule does not provide a plain, speedy and
adequate remedy,
(11) when there are circumstances indicating the urgency of
judicial intervention, and
(12) when the exhaustion will result in an exercise in
futility.83

XX. Doctrine of Operative Fact

55. What is the “Doctrine of Operative Fact”?

The GENERAL RULE is that a void law or administrative act

cannot be the source of legal rights or duties. Article 7 of the
Civil Code enunciates this general rule, as well as its exception.
“Laws are repealed only by subsequent ones, and their violation
or non-observance shall not be excused by disuse, or custom or
practice to the contrary. When the courts declared a law to be
inconsistent with the Constitution, the former shall be void and
the latter shall govern. Administrative or executive acts, orders
and regulations shall be valid only when they are not contrary to
the laws or the Constitution.”

The “doctrine of operative fact” is, however, an

EXCEPTION to that general rule, such that it recognizes that a
judicial declaration of invalidity may not necessarily obliterate all
the effects and consequences of a void act prior to such
declaration.84 A legislative or executive act, prior to its being
declared as unconstitutional by the courts, is valid and must be
complied with. This doctrine is in fact incorporated in Section
246 of the Tax Code which provides that taxpayers may rely upon
a rule or ruling issued by the Commissioner from the time the

83
Commissioner of Customs v. Oilink Intl. Corp., GR 161759, July 2, 2014’ Banco De Oro v. RP & CIR, G.R. 198756, Jan. 13,
2015
84
Republic v. CA, GR 79732, Nov. 8, 1993 (227 SCRA 509)
rule or ruling is issued up to its reversal by the Commissioner or
by the Court. The reversal is not given retroactive effect. This,
in essence is the doctrine of operative fact. There must,
however, be a rule or ruling issued by the Commissioner or by
the judiciary that is relied upon by the taxpayer in good faith. A
mere administrative practice, not formalized into a rule or ruling,
will not suffice because such a mere administrative practice may
not be uniformly and consistently applied. An administrative
practice, if not formalized as a rule or ruling, will not be known
to the general public and can be availed of only by those with
informal contacts with the government agency.85

XXI. Principle of “Pacta Sunt Servanda”

56. What is the principle of “Pacta Sunt Servanda”?

The Philippine Constitution provides for adherence to the

general principles of international law as part of the law of the
land. The time honored international principle of ‘pacta sunt
servanda’ demands the performance in good faith of treaty
obligations on the part of the states that enter into the
agreement. In this jurisdiction, treaties have the force and effect
of law.86

XXII. Doctrine of “Stare Decisis”

57. What is the Doctrine of “Stare Decisis”?
Time and again, the Court has held that it is a very
desirable and necessary judicial practice that when a court has
laid down a principle of law as applicable to a certain state of
facts, it will adhere to that principle and apply it to all future
cases in which the facts are substantially the same. Stare decisis
et non quieta movere. Stand by the decisions and disturb not
what is settled. Stare decisis simply means that for the sake of
certainty, a conclusion reached in one case should be applied to
those that follow if the facts are substantially the same, even
though the parties may be different. It proceeds from the first
principle of justice that, absent any powerful countervailing
considerations, like cases ought to be decided alike. Thus, where
the same questions relating to the same event have been put
forward by the parties similarly situated as in a previous case
litigated and decided by a competent court, the rule of stare
decisis is a bar to any attempt to relitigate the same issue. 87

XXIII. Principle of Good Governance

85
CIR v. San Roque Power Corp., GR 187485, Oct. 8, 2013; CIR v. Puregold Duty Free, Inc., GR 202789, June 22, 2015
86
Deutsche Bank AG Manila Branch v. CIR, cited in CBK Power Co. Ltd. v. CIR/CIR v. CBK Power Co. Ltd. v. CIR,, G.R.
193383-84/G.R. 193407-08, Jan. 14, 2015
87
Fort Bonifacio Devt. Corp. v. CIR, G.R. Nos. 175707 / 180035 / 181092, Nov. 19, 2014; RP, represented by the Bureau of
Customs v. Pilipinas Shell Petroleum Corp., GR 209324, Dec. 9, 2015
58. How should the principle of good governance be
applied?

The principle of good governance cannot, should not, be

trivialized nor oversimplified by tenuous whimpering and
individualism intended to detract from the urgent need to
cleanse the Republic from a mainstream culture of unabated
corruption, perpetuated with impunity and sense of self-
entitlement. The issue at hand is not about who, but what; it is
not about individual loss, but about national gain. Whether from
the birth pains of reform, this nation can gain a foothold, nay, a
stride into restoring this nation into its prideful place from the
clutches of a “kleptocratic mafia” that had gained a
strangehold into one of the nation’s primary sources of
revenue.88
XXIV. Doctrine of Primary Administative Jurisdiction

59. What is the “Doctrine of Primary Administrative

Jurisdiction”?

The Doctrine of Primary Administrative Jurisdiction states

that “courts will not determine a controversy where the issue for
resolution demand the exercise of sound administrative
discretion requiring the special knowledge, experience and
service of the administrative tribunal to determine technical and
intricate matters of fact.”89

88
DOF v. Judge Marino M. de la Cruz, Jr., GR 209331, Aug. 24, 2015
89
Nestle Phils, Inc. v. Uniwide Sales, Inc. 634 SCRA 232 (2010)