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Ancheta, supra – BP 135

1. DUE PROCESS OF LAW FACTS: Batas Pambansa 135 was enacted. Sison, as
 There must be a valid law taxpayer, alleged that its provision (Section 1) unduly
 Tax measure should not be unconscionable discriminated against him by the imposition of higher
rates upon his income as a professional, that it
and unjust as to amount to confiscation of
amounts to class legislation, and that it transgresses
property. against the equal protection and due process clauses
 Tax statute must not be arbitrary as to find of the Constitution as well as the rule requiring
no support in the Constitution. uniformity in taxation.

Sec. 1 Art. III 1987 - No person shall be deprived of Issue: Whether BP 135 violates the due process and
life, liberty, or property without due process of law, equal protection clauses, and the rule on uniformity
nor shall any person be denied the equal protection in taxation.
of the laws.
HELD: No, there was no violation of the due process
Tan v. Del Rosario, supra – (SNITS); and equal protection clause, since petitioner did not
made a case, only allegations.
FACTS: Petitioners challenge the constitutionality of
RA 7496 or the simplified income taxation scheme  The Congress has the power to determine
(SNIT) under Arts (26) and (28) and III (1). The SNIT the rates of taxation; thus, the due process
contained changes in the tax schedules and different clause may be invoked where a taxing
statute is so arbitrary that it finds no support
treatment in the professionals which petitioners assail
in the Constitution. An obvious example is
as unconstitutional for being isolative of the equal where it can be shown to amount to the
protection clause in the constitution. Petitioner confiscation of property. That would be a
contends that the tile of House Bill No. 34314 clear abuse of power. It then becomes the
progenitor of RA 7496, is a misnomer or, at least, duty of this Court to say that such an
deficient for being merely entitled, “Simplified Net arbitrary act amounted to the exercise of an
Income Taxation Scheme for the Self-Employed and authority not conferred. That properly calls
for the application of the Holmes dictum.
Professional Engaged in the Practice of their
Profession”.  It has also been held that where the assailed
tax measure is beyond the jurisdiction of the
HELD: Tax law is constitutional. Uniformity of state, or is not for a public purpose, or, in
taxation, like the hindered concept of equal case of a retroactive statute is so harsh and
unreasonable, it is subject to attack on due
protection, merely require that all subjects or objects
process grounds.
of taxation similarly situated are to be treated alike
both privileges and liabilities. Uniformity, does not
offend classification as long as it rest on substantial
distinctions, it is germane to the purpose of the law. It – Right to be treated under like circumstance.
is not limited to existing only and must apply equally  All persons subject to legislation shall be
to all members of the same class. The due process treated alike under similar circumstances
clause may correctly be invoked only when there is a and conditions both in the privileges
clear contravention of inherent or constitutional conferred and liabilities imposed.
limitations in the exercise of the tax power. No such  The doctrine does not require that persons
transgression is evident to us. or properties different in fact be treated in
law as though they were the same. What it
prohibits is “Class Legislation” which
discriminates against some and favors purposes of taxation. Where the
others. differentiation conforms to the practical
 As long as there are rational or reasonable dictates of justice and equity, similar to the
standards of equal protection, it is not
grounds for so doing. Congress may group
discriminatory within the meaning of the
persons or property to be taxed and it is clause and is therefore uniform.
sufficient if all members of the same class
are subject to the same rate and the tax is It suffices then that the laws
administered impartially upon them. operate equally and uniformly on all persons
under similar circumstances or that all
Requisites of a Valid Classification: persons must be treated in the same
manner, he conditions nt being different,
1. Must be based on Substantial both in the privileges conferred and liabilities
Distinctions. imposed.
2. Germane to the purpose of law
3. Classification must not be limited to It is inherent in the power to tax
existing conditions only but must also that a state be free to select the subjects of
taxation and it has been repeatedly held that
apply to future conditions substantially
inequalities which result from a singling out
identical to those of the present. of one particular class for taxation, or
4. It must apply equally to all members of exemption infringes no constitutional
the same class. limitation.

Application Villegas vs Hiu Chiong Tsai Pao Ho

Where the statute or ordinance in question
applies alike to all persons, firms, or FACTS: The Municipal Board of Manila enacted
Ordinance 6537 requiring aliens (except those
corporations placed in similar situations, or
employed in the diplomatic and consular missions of
differently to persons, firms, or corporations foreign countries, in technical assistance programs of
belonging to different classes provided all those the government and another country, and members
belonging to one class are treated alike, there is of religious orders or congregations) to procure the
no infringement of the constitutional guarantee. requisite mayor’s permit so as to be employed or
What the Constitution requires is equal engage in trade in the City of Manila. The permit fee
treatment under the law and this may involve is P50, and the penalty for the violation of the
ordinance is 3 to 6 months imprisonment or a fine of
same or different treatment depending on the
P100 to P200, or both.
ISSUE: Whether the ordinance imposes a regulatory
Sison v. Ancheta, supra. fee or a tax.

 There is a need for proof of such persuasive HELD: The ordinance’s purpose is clearly to raise
character as would lead to a conclusion that money under the guise of regulation by exacting P50
there was a violation of the due process and from aliens who have been cleared for employment.
equal protection clauses. Absent such
showing, the presumption of validity must  The amount is unreasonable and excessive
prevail. because it fails to consider difference in
 Equality and uniformity in taxation means situation among aliens required to pay it, i.e.
that all taxable articles or kinds of property being casual, permanent, part-time, rank-
of the same class shall be taxed at the same and-file or executive.
rate.  The Ordinance was declared invalid as it is
 The taxing power has the authority to make arbitrary, oppressive and unreasonable,
reasonable and natural classifications for being applied only to aliens who are thus
deprived of their rights to life, liberty and Alhambra. CA affirming such decision, hence, this
property and therefore violates the due appeal.
process and equal protection clauses of the
Constitution. ISSUE: whether private respondent's reliance on a
 Further, the ordinance does not lay down void BIR ruling conferred upon the latter a vested
any criterion or standard to guide the Mayor right to apply the same in the computation of its ad
in the exercise of his discretion, thus valorem tax and claim for tax refund
conferring upon the mayor arbitrary and
unrestricted powers. HELD: The government is not stopped from
collecting taxes legally due because of mistake/errors
Tan v. Del Rosario, supra. of its agents, this admits of exceptions in the interest
of justice and fair play, as where injustice will result to
 The said law is not arbitrary; it is germane to the taxpayer. As regards, petitioner’s argument the
the purpose of the law and; applies to all private respondent should have made consultations
things of equal conditions and of same class. with it before private respondent used the
computation mandated by BIR ruling 473-88 suffice it
to state that the BIR ruling was clear and categorical,
 It is neither violative of equal protection
there leaving no room for interpretation. The failure
clause due to the existence of substantial
of private respondent to consult petitioner does not
difference between one who practice his
imply bad faith on the part of the former.
profession alone and one who is engaged to
 Further, the SC said that RA 7496 is just an Tiu v. Court of Appeals, 301 SCRA 278 (1999) – The
amendatory provision of the code of Subic Special Economic Zone case.
taxpayers where it classifies taxpayers in to
four main groups: Individuals, Corporations,  The Constitutional right to equal protection
Estate under Judicial Settlement and
of the law is not violated by an executive
Irrevocable Trust. The court would have
appreciated the contention of the petitioner order, issued pursuant to law, granting tax
if RA 7496 was an independent law. But since and duty incentives only to business within
it is attached to a law that has already the “secured area” of the Subic Special
classified taxpayers, there is no violation of Economic Zone and denying them to those
equal protection clause. who live within the Zone but outside such
“fenced in” territory.
CIR VS. CA AND ALHAMBRA 267 SCRA 557 (1997)  The Constitution does not require absolute
equality among residents. It is enough that
FACTS : Alhambra industries, Inc. (Alhambra) is a
domestic corporation engaged in the manufacture all persons under like circumstances or
and sale of cigar and cigarette products. On May 7, conditions are given the same privileges and
1991 private respondent received a letter dated April required to follow the same obligations. In
26, 1991 from the Commissioner of Internal Revenue short, a classification based on valid and
assessing its deficiency Ad Valorem Tax (AVT) in the reasonable standards does not violate the
total amount of P488,396.62, inclusive of increments, equal protection clause.
on the removals of cigarette products from their
 We find real and substantial distinctions
place of production during the period Nov. 2, 1990 to
January 22, 1991.Alhambra filed protest against between the circumstances obtaining inside
amount assessed by the CIR, however, it was denied and those outside the Subic Naval Base,
by the latter at the same time increasing the amount thereby justifying a valid and reasonable
assessed to P520,835.29. Alhambra filed a petition for classification.
review with the CTA, despite payment under protest
the amount of P520,835.29. On December 1, 1993, Classification based on:
CTA ordered petitioner to refund said amount to 1. Valid & Does not violate
2. Reasonable Standards equal protection
· The concept of equity in taxation requires
that the apportionment of the tax burden
3. UNIFORMITY AND EQUITY IN TAXATION be, more or less, just in the light of the
- same class, same rate
taxpayer’s ability to shoulder the tax burden
- classification of taxpayers, subject or items
and, if warranted, on the basis of the
to be taxed
benefits received from the government. Its
cornerstone is the taxpayer’s ability to pay.
 The rule of taxation shall be uniform and
equitable (Sec.28 (1), Art. III, 1987
Tolentino v. Sec. of Finance, supra, -
 The tax is uniform when it operates with
 Equity and uniformity in taxation means that
the same force and effect in every place
all the taxable articles or kinds of properties
where the subject of it is found.
of the same class be taxed at the same rate.
"Uniformity" means all property
The taxing power has the authority to make
belonging to the same class shall be
reasonable and natural classifications for
taxed alike. It does not signify an
purposes of taxation. To satisfy this
intrinsic, but simply a geographic,
requirement, it is enough that the statute or
uniformity (Churchill & Tait vs.
ordinance applies equally to all persons,
Conception, 34 Phil. 969). Uniformity
firms, and corporations placed in a similar
does not require the same treatment; it
simply requires reasonable basis for
 It is inherent in the power to tax that the
state be free to select the subjects of
 The concept of equality in taxation
taxation & it has been repeatedly held that
requires that the apportionment of the
the inequalities which result from a singling
tax burden be more or less just in the
out of 1 particular class for taxation or
light of the taxpayer’s ability to shoulder
exception infringe no constitutional
the tax burden and if warranted, on the
basis of the benefits received from the
government. Its cornerstone is the Manila Race Horse v. Dela Fuente – No arbitrary
taxpayer’s ability to pay. classification

 it was said there is equality and uniformity in

Uniformity v. equity in taxation
taxation if all articles or kinds of property of
the same class are taxed at the same rate.
 The concept of uniformity in taxation implies
that all taxable articles or properties of the  The owners of boarding stables for race
horses and, for that matter, the race horse
same class shall be taxed at the same rate. It
owners themselves, who in the scheme of
requires the uniform application and shifting may carry the taxation burden, are a
operation, without discrimination, of the tax class by themselves and appropriately taxed
in every place where the subject of the tax is where owners of other kinds of horses are
found. It does not, however, require taxed less or not at all, considering that
absolute identity or equality under all equity in taxation is generally conceived in
circumstances, but subject to reasonable terms of ability to pay in relation to the
benefits received by the taxpayer and by the
public from the business or property taxed.
 Taking everything into account, the
differentiation against which the plaintiffs
complain conforms to the practical dictates
of justice and equity and is not established outside the City of Butuan,
discriminatory within the meaning of the would be exempt from the disputed tax.
 It is true that the uniformity essential to the
 Equity in taxation is generally conceived in
valid exercise of the power of taxation does
terms of liability to pay in relation to the
not require identity or equality under all
benefits received by the taxpayer and by the
circumstances, or negate the authority to
public from the business or property taxed.
classify the objects of taxation.
Eastern Theatrical Co. Inc., vs. Alfonso  The classification made in the exercise of this
authority, to be valid, must, however, be
 there is equality and uniformity in taxation if reasonable and this requirement is not
all articles or kinds of property of the same deemed satisfied unless:
class are taxed at the same rate. Thus, it was
o (1) it is based upon substantial
held in that case, that "the fact that some
distinctions which make real
places of amusement are not taxed while
others, such cinematographs, theaters,
vaudeville companies, theatrical shows, and o (2) these are germane to the
boxing exhibitions and other kinds of purpose of the legislation or
amusements or places of amusement are ordinance;
taxed, is not argument at all against the
o (3) the classification applies, not
equality and uniformity of tax imposition."
only to present conditions, but, also,
 The taxing power has the authority to make to future conditions substantially
reasonable and natural classifications for identical to those of the present;
purposes of taxation. and
o (4) the classification applies equally
to all those who belong to the same
FACTS: The ordinance imposes taxes for every case of Shell Company of P.I, Ltd. Vs. Vano, etc. 94 Phil 387
soft drinks, liquors and other carbonated beverages,
regardless of the volume of sales, shipped to the FACTS: The municipal council of Cordova, Cebu
agents and/or consignees by outside dealers or any adopted several ordinances among which Ordinance
person or company having its actual business outside 10 imposing an annual tax of P150 on occupation or
the City. the exercise of the privilege of installation manager.
Shell Co., a foreign corporation, filed suit for the
ISSUE: Does the tax ordinance violate the uniformity refund of the taxes paid by it on the ground that the
requirement of taxation? ordinance imposing such tax is ultra vires for being
discriminatory and hostile because there is no other
HELD: Yes. The tax levied is discriminatory. person in the locality who exercise such designation
or occupation.
 Even if the burden in question were regarded
HELD: A tax on “installation manager” is not
as a tax on the sale of said beverages, it
discriminatory just because at the time said tax was
would still be invalid, as discriminatory, and
imposed, there was no other person in the locality
hence, violative of the uniformity required by
who exercised such occupation. The tax is and will be
the Constitution and the law therefor, since
applicable to any person or firm who exercises such
only sales by "agents or consignees" of
calling or occupation designated as “installation
outside dealers would be subject to the tax.
Sales by local dealers, not acting for or on
behalf of other merchants, regardless of the
volume of their sales, and even if the same CITY OF BAGUIO vs. DE LEON 25 SCRA 938
exceeded those made by said agents or
FACTS: The City of Baguio passed an ordinance
consignees of producers or merchants
imposing a license fee on any person, entity or
corporation doing business in the City. De Leon was ISSUE: Whether the E-VAT law discriminates against
assessed for P50 annual fee it being shown that he customs brokers.
was engaged in property rental and deriving income
therefrom. The latter assailed the validity of the HELD: The phrase “except custom brokers” is not
ordinance arguing that it is ultra vires for there is no meant to discriminate against custom brokers but to
statutory authority which expressly grants the City of avert a potential conflict between Sections 102 and
Baguio to levy such tax, and that there it imposed 103 of the Tax Code, as amended.
double taxation, and violates the requirement of
uniformity.  The distinction of the customs brokers from
the other professionals who are subject to
HELD: No. occupation tax under the Local Tax Code is
 First, RA 329 was enacted amending Section based upon material differences, in that the
2553 of the Revised Administrative Code activities of customs brokers partake more of
empowering the City Council not only to a business, rather than a profession and
impose a license fee but to levy a tax for were thus subjected to the percentage tax
purposes of revenue, thus the ordinance under Section 174 of the Tax Code prior to its
cannot be considered ultra vires for there is amendment by EO 273. EO 273 abolished the
more than ample statutory authority for the percentage tax and replaced it with the VAT.
enactment thereof.
Villanueva vs. City of Iloilo, supra:
 Second, an argument against double taxation The ordinance is not violative of the rule of uniformity
may not be invoked where one tax is in taxation.
imposed by the state and the other is  The Supreme Court has already ruled that
imposed by the city. tenement houses constitute a distinct class
 And third, violation of uniformity is out of of property. It has likewise ruled that "taxes
place it being widely recognized that there is are uniform and equal when imposed upon
nothing inherently obnoxious in the all property of the same class or character
requirement that license fees or taxes be within the taxing authority."
exacted with respect to the same  The fact, therefore, that the owners of other
occupation, calling or activity by both the classes of buildings in the City of Iloilo do not
state and the political subdivisions thereof. pay the taxes imposed by the ordinance in
question is no argument at all against
 A tax is considered uniform when it operates uniformity and equality of the tax imposition.
with the same force and effect in every place  Neither is the rule of equality and uniformity
where the object may be found. violated by the fact that tenement taxes are
Kapatiran vs. Tan not imposed in other cities, for the same rule
does not require that taxes for the same
FACTS: EO 273 amended the Revenue Code, purpose should be imposed in different
adopting the (VAT) effective 1 January 1988. Four territorial subdivisions at the same time.
petitions assailed the validity of the VAT Law for being  So long as the burden of the tax falls equally
beyond the President to enact; for being oppressive, and impartially on all owners or operators of
discriminatory, regressive, and violative of the due tenement houses similarly classified or
process and equal protection clauses, among others, situated, equality and uniformity of taxation
of the Constitution. The Integrated Customs Brokers is accomplished.
Association particularly contend that it unduly
discriminate against customs brokers (Section 103 [r]) Association of Custom Brokers v. Mun.Board, supra:
as the amended provision of the Tax Code provides Facts: The Association of Customs Brokers, Inc., which
that “service performed in the exercise of profession is composed of all brokers and public service
or calling(except custom brokers) subject to operators of motor vehicles in the City of Manila
occupational tax under the Local Tax Code, and challenge the validity Ordinance No. 3379 on the
professional services performed by registered general ground that (1xxx (2) said ordinance offends against
professional partnerships are exempt from VAT. the rule of uniformity of taxation; and (3) xxx.
 The ordinance exacts the tax upon all motor In the case of husband and wife, the additional tax
vehicles operating within the City of Manila. herein imposed shall be based upon the total
 It does not distinguish between a motor property owned by them and the total gross receipts
vehicle for hire and one which is purely for or earnings derived by them.
private use. Neither does it distinguish
between a motor vehicle registered in the Section 158. Juridical Persons Liable to Community
City of Manila and one registered in another Tax. - Every corporation no matter how created or
place but occasionally comes to Manila and organized, whether domestic or resident foreign,
uses its streets and public highways. This is engaged in or doing business in the Philippines shall
an inequality which the Court finds in the pay an annual community tax of Five hundred pesos
ordinance, and which renders it offensive to (P500.00) and an annual additional tax, which, in no
the Constitution. case, shall exceed Ten thousand pesos (P10,000.00) in
accordance with the following schedule:

4. PROHIBITION AGAINST IMPRISONMENT FOR (1) For every Five thousand pesos (P5,000.00) worth
NON-PAYMENT OF POLL TAX of real property in the Philippines owned by it during
the preceding year based on the valuation used for
Section 20, Article III, Constitution. No person shall the payment of real property tax under existing laws,
be imprisoned for debt or non-payment of poll tax. found in the assessment rolls of the city or
municipality where the real property is situated - Two
The non-imprisonment rule applies to non-payment pesos (P2.00); and
of poll tax which is punishable only by a surcharge,
but not to other violations like falsification of
(2) For every Five thousand pesos (P5,000.00) of gross
community tax certificate and non-payment of other
receipts or earnings derived by it from its business in
the Philippines during the preceding year - Two pesos
Community Tax v. Poll Tax (P2.00).

 Poll tax is a tax of fixed amount imposed on The dividends received by a corporation from another
residents within a specific territory corporation however shall, for the purpose of the
additional tax, be considered as part of the gross
regardless of citizenship, business or
receipts or earnings of said corporation.
profession. Example is community tax.
 Community tax – Cities or municipalities may Section 159. Exemptions. - The following are exempt
levy a community tax in accordance with the from the community tax:
provisions of this article. 156 RA 7160.
(1) Diplomatic and consular representatives; and
Section 157. Individuals Liable to Community Tax. -
(18) or over who has been regularly employed on a (2) Transient visitors when their stay in the Philippines
wage or salary basis for at least thirty (30) does not exceed three (3) months.
consecutive working days, or who is engaged in
business or occupation, or who owns real property Section 160. Place of Payment. - The community tax
with an aggregate assessed value of One thousand shall be paid in the place of residence of the
pesos (P1,000.00) or more, or who is required by law individual, or in the place where the principal office of
to file an income tax return shall pay an annual the juridical entity is located.
additional tax of Five pesos (P5.00) and an annual
additional tax of One peso (P1.00) for every One
164 (c) The proceeds of the community tax actually
thousand pesos (P1,000.00) of income regardless of
and directly collected by the city or municipal
whether from business, exercise of profession or from
treasurer shall accrue entirely to the general fund of
property which in no case shall exceed Five thousand
the city or municipality concerned. However,
pesos (P5,000.00).
proceeds of the community tax collected through the
barangay treasurers shall be apportioned as follows:
(1) (50%) shall accrue to the general fund of OPOSA vs. FACTORAN
the city or municipality concerned; and
 Police power prevails over the non-
(2) (50%) shall accrue to the barangay where impairment clause
the tax is collected. LA INSULAR vs. MANCHUCA
 A lawful tax on a new subject or an increased
5. PROHIBITION AGAINST IMPAIRMENT OF tax on an old one, does not interfere with a
OBLIGATION OF CONTRACTS contract or impairs its obligation.
 The constitutional guarantee of the non-
No law impairing the obligation of contracts shall be impairment clause can only invoked in the
passed. [Section 10, Article III, Constitution] grant of tax exemption.

The power of taxation cannot be exercised in a RULES:

manner that would impair the obligation of contracts.
What is prohibited is that a taxing statute be passed 1. If the exemption was granted for valuable
that would alter the relative rights of the parties with consideration and it is granted on the basis
each other. of a contract.
 cannot be revoked
The mere fact that a tax makes the conduct of a 2. If the exemption is granted by virtue of a
contract, wherein the government enters
business more expensive or makes an activity more
into a contract with a private corporation
difficult does not result in the impairment of the  cannot be revoked unilaterally by
obligation of contracts. Contract is impaired only if the government
the relative position of the parties to a contract (i.e. 3. If the basis of the tax exemption is a
equality that is assumed when the contract was franchise granted by Congress and under the
entered into) is disturbed by the operation of a taxing franchise or the tax exemption is given to a
particular holder or person
can be unilaterally revoked by the
government (Congress)
 The obligation of a contract is impaired when  The non-impairment clause applies
its terms or conditions are changed by law or only to contracts and not to a
by a party without the consent of the other, franchise.
thereby weakening the position or rights of  The non-impairment clause applies
to taxation but not to police power
the latter.
and eminent domain.
 An example of impairment by law is when a  Furthermore, it applies only where
later taxing statute revokes a tax exemption one party is the government and
based on a contract. But this only applies the other, a private individual.
 As a rule, the obligation to pay tax is
when the tax exemption has been granted
based on law. But when, for
for a valid consideration. instance, a taxpayer enters into a
 A later statute may revoke exemption from compromise with the BIR, the
obligation of the taxpayer becomes
taxation provided for in a franchise because
one based on contract.
the Constitution provides that a franchise is
subject to amendment, alteration or repeal. Tolentino v. Sec. of Finance, supra:
1 issue that was raised was whether the imposition of
Note: A latter statue may revoke exemption from the VAT on sales & leases on real estate by virtue of
taxation provided for in a franchise because the contract s entered into prior to the efectivity of the
Constitution provides that a franchise is subject to law would violate the non-impairment of contracts
rule in the constitution.
amendment, alteration or repeal. [Sec. 11 Art. XII]
HELD: to the exercise of one's religion since the
constitutional guaranty of the free exercise
 It is enough to say that parties to a contract
and enjoyment of religious profession and
cannot, through the exercise of prophetic
worship carries with it the right to
discernment, fetter the exercise of the taxing
disseminate religious information.
power of the state.
 For not only are existing laws read into  It is one thing to impose a tax on the income
contracts in order to fix obligations as or property of a preacher, and another to
between parties, but the reservation of exact a tax for him for the privilege of
essential attributes of sovereign power is delivering a sermon.
also read into contracts as a basic postulate
 The power to tax the exercise of a privilege
of the legal order.
is the power to control or suppress its
 The policy of protecting contracts against
impairment presupposes the maintenance of
a government which retains adequate
authority to secure the peace & good order
of society.

6. PROHIBITION AGAINST INFRINGEMENT OF Section 29, Article VI, Constitution

1. No money shall be paid out of the Treasury
except in pursuance of an appropriation
No law shall be made respecting an establishment of made by law.
religion, or prohibiting the free exercise thereof. The
2. No public money or property shall be
free exercise and enjoyment of religious profession
appropriated, applied, paid, or employed
and worship, without discrimination or preference,
directly or indirectly, for the use, benefit, or
shall forever be allowed. No religious test shall be
support of any church, denomination,
required for the exercise of civil or political rights.
sectarian institution or system of religion, or
[Section 5, Article III, Constitution]
of any priest, preacher, minister or other
American Bible Society v. City of Manila religious teacher, or dignitary as such except
when such priest, preacher, minister or
FACTS: In the course of its ministry, the Philippine
dignitary is assigned to the armed forces, or
agency of the American Bible Society has been
to any penal institution, or government
orphanage or leprosarium.
and selling bibles and/or gospel portions thereof
throughout the Philippines and translating the same 3. All money collected on any tax levied for a
into several Philippine dialets. The acting City special purpose shall be treated as a special
Treasurer of Manila required the society to secure the fund and paid out for such purpose only. If
corresponding Mayor’s permit and municipal license the purpose for which a special fund was
fees, together with compromise covering the period created has been fulfilled or abandoned, the
from the 4th quarter of 1945 to the 2nd quarter of balance, if any, shall be transferred to the
1953. The society paid such under protest, and filed general funds of the government.
suit questioning the legality of the ordinances under
Use of tax levied for a special purpose:
which the fees are being collected.
Osmena v. Orbos, supra - It seems clear that while
HELD: The payment of license fees for the the funds collected may be referred to as taxes, they
distribution and sale of bibles suppresses the are exacted in the exercise of the police power of the
constitutional right of free exercise of religion. State. Moreover, that the OPSF as a special fund is
plain from the special treatment given it by E.O. 137.
 A tax ordinance is considered violative of the It is segregated from the general fund; and while it is
free exercise of religion when it becomes a placed in what the law refers to as a "trust liability
prior restraint to the exercise thereof. In this account," the fund nonetheless remains subject to
case, the business permit is a prior restraint
the scrutiny and review of the COA. The Court is  The test of exemption from taxation is the
satisfied that these measures comply with the use of the property for purposes mentioned
constitutional description of a "special fund." in the Constitution.
 “Use” overrides “ownership”.
8. Prohibition against taxation of real property  If a property is incidentally used for the
actually, directly and exclusively used for aforementioned purposes, it is clear from
religious, charitable and educational purposes decided cases that tax exemption still
 Charitable institutions, churches and
parsonages or convents appurtenant
thereto, mosques, non-profit 9. Prohibition against taxation of the revenues
cemeteries, and all lands, buildings, and and assets of non-stock, non-profit educational
improvements, actually, directly, and institutions
exclusively used for religious, charitable,
or educational purposes shall be exempt
from taxation. [Section 28 (3) , Article VI, All revenues and assets of non-stock, non-profit
Constitution] educational institutions used actually, directly, and
 This is an exemption from real property exclusively for educational purposes shall be exempt
tax only. from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such
institutions, their assets shall be disposed of in the
Abra Valley College vs. Aquino
manner provided by law. [Section 4, Article XIV,
Facts: Abra Valley College rents out the ground floor
of its college building to Northern Marketing
Corporation while the second floor thereof is used by This exemption from corporate income tax is
the Director of the College for residential purposes. embodied in Section 30 of the NIRC which includes a
The municipal and provincial treasurers served upon non-stock, non-profit educational institution.
the College a “notice of seizure” and later a “notice of
sale” due to the alleged failure of the College to pay Note: however the last paragraph of Section 30
real estate taxes and penalties thereon. The school
which states: “Notwithstanding the provisions in the
filed suit to annul said notices, claiming that it is tax-
exempt. preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any
Issue: Whether the College is exempt from taxes of their property, real or personal, or from any of
HELD: their activities conducted for profit, regardless of the
 While the Court allows a more liberal and disposition made of such income, shall be subject to
non-restrictive interpretation of the phrase tax imposed under this Code.”
“exclusively used for educational purposes,”
reasonable emphasis has always been made Charitable institutions, churches and parsonages or
that exemption extends to facilities which convents appurtenant thereto, mosques, non-profit
are incidental to and reasonably necessary cemeteries, and all lands, buildings, and
for the accomplishment of the main improvements, actually, directly, and exclusively used
purposes. for religious, charitable, or educational purposes shall
 While the second floor’s use, as residence of be exempt from taxation. [Section 28 (3) , Article VI,
the director, is incidental to education; the Constitution]
lease of the first floor cannot by any stretch  This is an exemption from real
of imagination be considered incidental to
property tax only.
the purposes of education.
The exemption in favor of property
used exclusively for charitable or
educational purposes is not limited administered by a private individual
to property actually indispensable or group offering formal education,
therefore, but extends to facilities and with an issued permit to
which are incidental to and operate by the DECS.
reasonably necessary for the  Revenues derived from and assets
accomplishment of said purposes. used in the operation of
[Abra Valley College v. Aquino, 162 cafeteria/canteens, dormitories,
SCRA 106] and bookstores are exempt from
taxation provided they are owned
Department of Finance Order 145-85 and operated by the educational
institution as ancillary activities and
 Non-stock, non-profit educational the same are located within the
institutions are exempt from taxes school premises.
on all their revenues and assets
used actually, directly and CIR v. Court of Appeals,, 298 SCRA 83 (1998)
exclusively for educational
purposes. FACTS: The Young Men’s Christian Association of
 However, they shall be subject to the Philippines, Inc. (YMCA) was established as “a
internal revenue tax on income welfare, educational and charitable non-profit
from trade, business or other corporation.” It conducts various programs and
activity, the conduct of which is not activities that are beneficial to the public, especially
related to the exercise or the young people, pursuant to its religious,
performance by such educational educational and charitable objectives.
institution of its educational
purposes or functions. HELD: In this case, the Supreme Court held that the
 Interest income shall be exempt income derived by YMCA from leasing out a portion
only when used directly and of its premises to small shop owners, like restaurant
exclusively for educational and canteen operators, and from parking fees
purposes. To substantiate this claim, collected from non-members are taxable income.
the institution must submit an
annual information return and duly First, the constitutional tax exemption granted to
audited financial statement. A non-stock, non-profit educational institutions does
certification of actual utilization and not find application because YMCA is not an
the Board resolution or the educational institution. The term “educational
proposed project to be funded out institution” or “institution of learning” has acquired a
of the money deposited in banks well known technical meaning. Under the Education
shall also be submitted. Act of 1982, such term refers to schools.

Department of Finance Order 137-87 Second, even if it be exempt under Section 30 of the
NIRC as a non-profit, non-stock educational
 An educational institution means a corporation, the income from the rent of its premises
non-stock, non-profit corporation or and parking fees is not covered by the exemption,
association duly registered under according to the last paragraph of the same section.
Philippine law, and operated Section 30 provides that income of whatever kind and
exclusively for educational character from any of its properties, real or personal,
purposes, maintained and
or from any of its activities for profit are not exempt a certain extent, in the local legislative
from income tax. bodies.
 Section 28 (4), Article VI of the Constitution,
specifically provides: "No law granting any
Finally, Section 28(3), Article VI of the Constitution
tax exemption shall be passed without the
does not apply as it extends exemption only from real concurrence of a majority of all the Member
property taxes – not from income taxes. of the Congress."
 The PCGG has absolutely no power to grant
CIR v. CA, CTA, and ATENEO tax exemptions, even under the cover of its
authority to compromise ill-gotten wealth
cases. Even granting that Congress enacts a
 The Supreme Court denied the petition and
law exempting the Marcoses form paying
affirmed the assailed Decision of the Court taxes on their properties, such law will
of Appeals. The Court ruled that the private definitely not pass the test of the equal
respondent is not a contractor selling its protection clause under the Bill of Rights.
services for a fee but an academic institution Any special grant of tax exemption in favor
conducting these researches pursuant to its only of the Marcos heirs will constitute class
commitments to education and, ultimately, legislation. It will also violate the
constitutional rule that "taxation shall be
to public service.
uniform and equitable."
 For the institute to have tenaciously
continued operating for so long despite its
2. Veto of appropriation, revenue, or tariff bills
accumulation of significant losses, we can
by the President
only agree with both the Court of Tax
Appeals and the Court of Appeals that
The President shall have the power to veto any
“education and not profit is motive for
particular item or items in an appropriation, revenue,
undertaking the research projects
or tariff bill, but the veto shall not affect the item or
items to which he does not object. [Section 27 (2)
10. Other Constitutional Limitations
Article VI, Constitution]

1. Grant of tax exemption

 An item in a bill refers to particulars, details,
the distinct and severable parts of a bill. In
No law granting any tax exemption shall be passed
budgetary legislation, an item is an
without the concurrence of a majority of all Members
individual sum of money dedicated to a
of Congress. [Section 28 (4), Article VI, Constitution]
stated purpose. [Gonzales v. Macaraig, 191
SCRA 452]
 The General and Supplemental Agreement 3. Non-impairment of the jurisdiction of the
dated December 28, 1993, which PCGG and
Supreme Court
the Marcos heirs entered into are hereby
declared NULL AND VOID for being contrary
to law and the Constitution.  Congress cannot take away from the
 Under Item No. 2 of the General Agreement, Supreme Court the power given to it by the
the PCGG commits to exempt from all forms Constitution as the final arbiter of tax cases.
of taxes the properties to be retained by the
Marcos heirs. This is a clear violation of the Section 5 (2) (b), Article VIII, Constitution - The
Construction. Supreme Court shall have the following powers:
 The power to tax and to grant tax
exemptions is vested in the Congress and, to Review, revise, reverse, modify, or affirm on appeal
or certiorari, as the law or the Rules of Court may
provide, final judgments and orders of lower courts saying the ordinance was of “doubtful validity. City of
in: Cebu then filed a suit for collection where it squarely
put in issue the validity of such ordinance.
All cases involving the legality of any tax, impost,
assessment, or toll, or any penalty imposed in Issue: Can City’s act of filing suit after the Secretary
relation thereto. of Justice’s opinion was rendered be considered "an
appeal" under the Presidential Decree?
CIR v. Santos
HELD: Yes, action by City valid. The writs prayed for,
 The policy of the courts is to avoid ruling on certiorari and prohibition, cannot issue.
constitutional questions and to presume that
the acts of the political departments are  The validity of a statute, an executive order
valid in the absence of a clear and or ordinance is a matter for the judiciary to
unmistakable showing to the contrary. decide and whenever in the disposition of a
 This is not to say that RTC has no power pending case such a question becomes
whatsoever to declare a law unavoidable then it is not only the power but
unconstitutional, but this authority does not the duty of the Court to resolve such a
extend to deciding questions which pertain question.
to legislative policy.  It is undoubted that under the Constitution,
 RTC have the power to declare the law even the legislative body cannot deprive this
unconstitutional but this authority does not Court of its appellate jurisdiction over all
extend to deciding questions which pertain cases coming from inferior courts where the
to legislative policy. constitutionality or validity of an ordinance
 RTC can only look into the validity of a or the legality of any tax, impost,
provision, that is whether or not it has been assessment, or toll is in question.
passed according to the provisions laid down
by law, and thus cannot inquire as to the  Since it is likewise expressly provided in
reasons for its existence. Section 43 of the Judiciary Act that the
 RULING ON THE EXTENT OF LEGISLATIVE original jurisdiction over all civil actions
POWER TO TAX : SC held that it is within the involving the legality of any tax, impost or
power of the legislature whether to tax assessment appertains to the Court of First
jewelry or not. With the legislature primarily Instance, it takes a certain degree of
lies the discretion to determine the nature ingenuity to allege that the lower court was
(kind), object(purpose), extent (rate), bereft of such authority.
coverage (subject) and situs (place) of  Both under the Constitution and the
taxation Judiciary Act, respondent Judge is vested
with jurisdiction to make a declaration
San Miguel Corp. v. Avelino regarding an ordinance’s validity

FACTS: City Treasurer, on April 1, 1974, demanded  It would be therefore premature for the
from SMC payment of the made specific tax on the corrective power of this Tribunal to be
total volume of beer it produced in the City of interposed, just because he did not grant the
Mandaue. SMC on April 8,1974, contested the motion to dismiss on the allegation that
correction of said specific tax "on the ground that there was lack of jurisdiction. Authorities
Section 12(e) (7) in relation to Section 12(e) (1) and support the municipal power to impose
(2), Mandaue City Ordinance No. 97, is illegal and void specific taxes on beverages manufactured
because it imposed a specific tax beyond its territorial within its territorial boundaries.
In an opinion the City Fiscal upheld its validity which
was reversed by the Secretary of Justice,
4. Revenue bills shall originate exclusively from
the House of Representatives
Section 24, Article VI, Constitution - All removed them from the exemption to pay
appropriation, revenue or tariff bills, bills authorizing VAT. Suffice it to say that since the law
an increase of the public debt, bills of local granted the press a privilege, the law could
application, and private bills shall originate exclusively take back the privilege anytime without
in the House of Representatives, but the Senate may offense to the Constitution. By granting
propose or concur with amendments. exemptions, the State does not forever
waive the exercise of its sovereign
Tolentino v. Secretary of Finance prerogative.

 The Constitution simply means that the 6. Grant of franchise

initiative for the filing of bills must come
from the House of Representatives, on the
Tax exemptions included in the grant of a franchise
theory that, elected as they are from the
districts, the members of the House can be may be revoked by another law as it is specifically
expected to be more sensitive to the local provided in the Constitution that the grant of any
needs and problems. franchise is always subject to amendment, alteration,
or repeal by the Congress when the common good so
 It is not the law – but the revenue bill –
which is required by the Constitution to requires.
originate exclusively in the House of
Representatives, because a bill originating in  Petitioners claim that the R.A. violates their
the House may undergo such extensive press freedom and religious liberty, having
changes in the Senate that the result may be removed them from the exemption to pay
a rewriting of the whole, and a distinct bill VAT. Suffice it to say that since the law
may be produced.
granted the press a privilege, the law could
 The Constitution does not also prohibit the take back the privilege anytime without
filing in the Senate of a substitute bill in offense to the Constitution. By granting
anticipation of its receipt of the bill from the
exemptions, the State does not forever
House, as long as action by the Senate is
waive the exercise of its sovereign
withheld until receipt of said bill. [Tolentino
v. Secretary of Finance] prerogative. [Tolentino v. Sec. of Finance]

 Senate can endorse an entirely new bill.


5. Infringement of Press Freedom

 This limitation does not mean that the press  Meaning of Situs – The source of the tax, or
is exempt from taxation. the place of taxation. Literally, situs of
 Taxation constitutes an infringement of taxation means place of taxation. It is the
press freedom when it operates as a prior State or political unit which has jurisdiction
restraint to the exercise of this to impose a particular tax.
constitutional right.  The determination of the situs of taxation
depends on various factors including the:
 When the tax is imposed on the receipts or
the income of the press it is a valid exercise 1. Nature of the tax;
of the sovereign prerogative. 2. Subject matter thereof (i.e. person,
property, act or activity;
Tolentino v. Sec. of Finance, supra
3. Possible protection and benefit that
 Petitioners claim that the R.A. violates their may accrue both to the government
and the taxpayer;
press freedom and religious liberty, having
4. Residence or citizenship of the  General rule: Situs is the domicile of the
taxpayer; and owner pursuant to the principle of mobilia
5. Source of the income. sequuntur personam. This rule is based on
the fact that such property does not admit of
A. Situs of tax on persons (poll tax) any actual location and that such property
 Poll tax may be properly levied upon persons receives the protection and benefits of the
who are inhabitants or residents of the State, law where they are located.
whether or not they are citizens.
 Exceptions:

B. Situs of tax on real property 1. When it is inconsistent with the express

provisions of the statute.
 Situs is where the property is located
2. When the property has acquired a
pursuant to the principle of lex rei sitae. This
applies whether or not the owner is a business situs in another jurisdiction.
resident of the place where the property is
located. Mobilia sequuntor personam
 This is so because the taxing authority has
control over the property which is of a fixed  This Latin maxim literally means that the
and stationary character. property follows the person. Thus, the
place where the owner is found is the
 The place where the real property is located
gives protection to the real property, hence, situs of taxation under the rule that
the owner must support the government of movables follow the person. This is
that place. generally where the owner resides.
 In taxation, this principle is applied to
 Lex rei sitae - This is a principle followed in
fixing the situs of taxation of a property. This intangible personal property the situs of
means that the property is taxable in the which is fixed by the domicile of the
State where it has its actual situs, specifically owner. The reason is that this type of
in the place where it is located, even though property rarely admits of actual location.
the owner resides in another jurisdiction.  However, there are two exceptions to
 With respect to property taxes, real property the rule. One is when it is inconsistent
is subject to taxation in the State where it is with the express provisions of a
located and taxable only there. Lex rei sitae statute. Two, when the interests of
has also been adopted for tangible personal justice demand that it should not be
property under Article 16 of the Civil Code. A
applied, i.e. where the property has in
different rule applies to intangible personal
property, specifically, mobilia sequuntur fact a situs elsewhere.
Theories re: Situs of Income tax
C. Situs of tangible personal property
1. Domicilliary theory
 It is taxable in the State where it has actual
situs although the owner resides in another
The location where the income earner
resides is the situs of taxation. This is where
 As stated above, lex rei sitae has also been he is given protection, hence, he must
adopted for tangible personal property support it.
under Article 16 of the Civil Code.
2. Nationality theory
D. Situs of taxation of intangible personal property
2. Upon the principle that as to intangibles, a
single location in space is hardly possible,
The country of citizenship is the situs of considering the multiple, distinct relationships
taxation. This is so because a citizen is given which may be entered into with respect thereto.
protection by his country no matter where
he is found or no matter where he earns his The actual situs of the shares of stock is in the
income. Philippines, the corporation being domiciled
therein. And besides, the certificates of stock
3. Source law have remained in this country up to the time
when the deceased died in California, and they
The country which is the source of the were in the possession of the secretary of the
income or where the activity that produced Benguet Corporation. The secretary had the right
the income is the situs of taxation. to vote, collect dividends, among others. For all
practical purposes, the secretary had legal title to
Wells Fargo v. Collector, 70 Phil 325 the certificates of stock held in trust for Eye. Eye
extended in the Philippines her activities re: her
This case involves the collection of inheritance intangible personal property so as to avail herself
taxes on shares of stock issued by the Benguet of the protection and benefits of the Philippine
Consolidated Mining Corporation and owned by laws.
Lillian Eye. Said shares were already subjected to
inheritance taxes in California and are now being E. Income – Income tax may properly be exacted
taxed by Philippine authorities. from persons who are residents or citizens in the
taxing jurisdiction and even from those who are
Originally, the settled law in the United States is neither residents nor citizens provided the
that intangibles have only one situs for the income is derived from sources within the taxing
purpose of inheritance tax – the domicile of the state.
decedent at the time of death. But this rule has, F. Business, occupation and transaction – The
of late, been relaxed. The maxim mobilia general rule is that the power to levy an excise
sequuntur personam, upon which the rules rests, tax depend upon the place where the business is
has been decried as a mere fiction of law having done, or the occupation is engaged in, or the
its origin in considerations of general transaction took place.
convenience and public policy and cannot be G. Gratuitous transfer of Property – The
applied to limit or control the right of the State to transmission of property from a donor to a done
tax property within its jurisdiction. It must yield or from a decedent to his heirs may be subject to
to established fact of legal ownership, actual taxation in the state where the transferor is or
presence and control elsewhere, and cannot be was a citizen or resident, or where the property is
applied if to do so would result in inescapable located.
and patent injustice.

The relaxation of the original rule rests on either Commissioner vs. British Overseas Airways Corp.
of two fundamental considerations:
 The source of an income is the property,
activity or service that produced the income.
1. Upon the recognition of the inherent  For the source of income to be considered
power of each government to tax persons, as coming from the Philippines, it is
properties and rights within its jurisdiction and sufficient that the income is derived from
enjoying the protection of its laws; or activity within the Philippines. Herein, the
sale of tickets in the Philippines is the respect to her intangibles so as to avail
activity that produced the income. The herself of the protection and benefit of the
tickets exchanged hands here and payments Philippine laws
for fares were also made here in Philippine
 The situs of the source of payments is the 3. MULTIPLICITY OF SITUS
Philippines. The flow of wealth proceeded
from, and occurred within, Philippine
 Multiplicity of situs, or the taxation of the
territory, enjoying the protection accorded
by the Philippine Government. In same income or intangible subject in several
consideration of such protection, the flow of taxing jurisdictions, arises from various
wealth should share the burden of factors:
supporting the government.
 PD 68, in relation to PD 1355, ensures that 1. The variance in the concept of domicile for tax
international airlines are taxed on their purposes;
income from Philippine sources.

2. Multiple distinct relationships that may arise

CIR v. Japan Airlines
with respect to intangible personal property; or
 Citing the case of CIR v BOAC, the court
reiterated that the source of an income is 3. The use to which the property may have been
the property, activity or service that devoted all of which may receive the protection of
produced the income. the laws of jurisdictions other than the domicile of
 For the source of income to be considered as the owner thereto.
coming from the Philippines, it is sufficient
that the income is derived from activity
within the Philippines.  The remedy to avoid or reduce the
 The absence of flight operations to and from consequent burden in case of multiplicity of
the Philippines is not determinative of the situs is either to:
source of income or the situs of income
taxation. 1. Provide exemptions or allowance of
 The test of taxability is the source, and the deduction or tax credit for foreign
source of the income is that activity which
taxes; or
produced the income. In this case, as JAL
constitutes PAL as its agent, thesales of JAL 2. Enter into tax treaties with other
tickets made by PAL is taxable States.

Wells Fargo Bank v. Collector Collector v. De Lara

 It is the identity or association of intangibles
with the person of their owner at his  The Supreme Court did not subject to estate
domicile which gives jurisdiction to tax. and inheritance taxes the shares of stock
 But when the taxpayer extends his activities issued by Philippine corporations which were
with respect to his intangibles, so as to avail
left by a non-resident alien after his death.
himself of the protection and benefit of the
laws of another state, in such a way as to Considering that he is a resident of a foreign
bring his person or property within the reach country, his estate is entitled to exemption
of the tax gatherer there, the reason for a from inheritance tax on the intangible
single place of taxation no longer obtains. personal property found in the Philippines.
 In this case, the actual situs of the shares of This exemption is granted to non-residents
stock is in the Philippines, the corporation
to reduce the burden of multiple taxation,
being domiciled therein. The owner residing
which otherwise would subject a decedent’s
in California has extended her activities with
intangible personal property to the
inheritance tax both in his place of residence Constitutionality of double taxation
and domicile and the place where those
properties are found.  Unlike the United States Constitution, our
 This is, therefore, an exception to the Constitution does not prohibit double
decision of the Supreme Court in Wells Fargo taxation.
v. Collector. This has since been incorporated  However, while it is not forbidden, it is
in Section 104 of the NIRC. something not favored. Such taxation
 As to the shares of stocks issued by should, whenever possible, be avoided and
Philippine corporations, an exemption was prevented.
granted to the estate by virtue of Section
 In addition, where there is direct double
122 of the Tax Code, which provides as
taxation, there may be a violation of the
follows:. . ."And Provided, however, That no
tax shall be collected under this Title in constitutional precepts of equal protection
respect of intangible personal property (a) if and uniformity in taxation.
the decedent at the time of his death was a
resident of a foreign country which at the CIR v. S.C. Johnson and Son, Inc.
time of his death did not impose a transfer
tax or death tax of any character in respect The RP-US Tax Treaty is just one of a number of
of intangible personal property of citizens of bilateral treaties which the Philippines has entered
the Philippines not residing in that country, into for the avoidance of double taxation.
or (b) if the laws of the foreign country of
which the decedent was resident at the tune The purpose of these international agreements is to
of his death allow a similar exemption from reconcile the national fiscal legislations of the
transfer taxes or death taxes of every contracting parties in order to help the taxpayer avoid
character in respect of intangible personal simultaneous taxation in two different jurisdictions.
property owned by citizen, of the Philippine
not residing in that foreign country. More precisely, the tax conventions are drafted with
a view towards the elimination of international
4. Double Taxation juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states
 In its strict sense, referred to as direct on the same taxpayer in respect of the same subject
matter and for identical periods.
duplicate taxation, double taxation means:

1. taxing twice; The apparent rationale for doing away with double
taxation is of encourage the free flow of goods and
2. by the same taxing authority; services and the movement of capital, technology and
3. within the same jurisdiction or persons between countries, conditions deemed vital
in creating robust and dynamic economies.
taxing district;

4. for the same purpose; Double taxation usually takes place when a person is
resident of a contracting state and derives income
5. in the same year or taxing period;
from, or owns capital in, the other contracting state
6. some of the property in the and both states impose tax on that income or capital.
territory. In order to eliminate double taxation, a tax treaty
resorts to several methods. First, it sets out the
 In its broad sense, referred to as indirect
respective rights to tax of the state of source or situs
double taxation, double taxation is taxation
and of the state of residence with regard to certain
other than direct duplicate taxation. It
classes of income or capital. In some cases, an
extends to all cases in which there is a
exclusive right to tax is conferred on one of the
burden of two or more impositions.
contracting states; however, for other items
of income or capital, both states are given the right to 7. of the same kind or character of tax.
tax, although the amount of tax that may be imposed
by the state of source is limited. C. Constitutionality of Double Taxation

b. Double Taxation in its broadest sense.

 Unlike the United States Constitution, our
In its broad sense, referred to as indirect double Constitution does not prohibit double
taxation, double taxation is taxation other than direct taxation.
duplicate taxation. It extends to all cases in which  However, while it is not forbidden, it is
there is a burden of two or more impositions. something not favored. Such taxation
should, whenever possible, be avoided and
Villanueva v. City of Iloilo, 265 SCRA 528
 In addition, where there is direct double
 An ordinance imposing a municipal tax on taxation, there may be a violation of the
tenement houses was challenged because constitutional precepts of equal protection
the owners already pay real estate taxes and and uniformity in taxation.
also income taxes under the NIRC.
 The Supreme Court held that there was no City of Baguio v. De Leon, 25 SCRA 938
double taxation.
 The same tax may be imposed by the  The argument against double taxation may
National Government as well as the local not be invoked where one tax is imposed by
government. the State and the other is imposed by the
 There is nothing inherently obnoxious in the city, it being widely recognized that there is
exaction of license fees or taxes with respect nothing inherently obnoxious in the
to the same occupation, calling, or activity by requirement that license fees or taxes be
both the State and a political subdivision exacted with respect to the same
thereof. occupation, calling, or activity by both the
State and a political subdivision thereof.
 Further, a license tax may be levied upon a
 And where the statute or ordinance in
business or occupation although the land
questions applies equally to all persons,
used in connection therewith is subject to
firms and corporations placed in a similar
property tax.
situation, there is no infringement of the rule
In order to constitute double taxation in the on equality.
objectionable or prohibited sense:
Pepsi-Cola Bottling Co. vs. City of Butuan
1. the same property must be taxed twice
when it should be taxed once; The Ordinance, as amended, is discriminatory since
2. both taxes must be imposed on the only sales by “agents or consignees” of outside
dealers would be subject to the tax. Sales by local
same property or subject matter;
dealers, not acting for or on behalf of other
3. for the same purpose; merchants, regardless of the volume of their sales ,
and even if the same exceeded those made by said
4. by the same State, Government, or agents or consignees of producers or merchants
taxing authority; established outside the city, would be exempt from
the tax. The classification made in the exercise of the
5. within the same jurisdiction or taxing
authority to tax, to be valid must be reasonable,
district; which would be satisfied if the classification is based
6. during the same taxing period; and upon substantial distinctions which makes real
differences; these are germane to the purpose of Means of Avoiding or Minimizing the Burden of
legislation or ordinance; the classification applies not Taxation:
only to present conditions but also to future
conditions substantially identical to those of the
present; and the classification applies equally to all 1. Shifting - is the transfer of the burden of a tax
those who belong to the same class. These conditions by the original payer or the one on whom the
are not fully met by the ordinance in question. tax was assessed or imposed to someone else.

Sanchez v. Collector It should be borne in mind that what is

transferred is not the payment of the tax but
Sanchez has an accessoria building which she leases the burden of the tax.
out as an apartment. Searate tax levied upon a
business or occupation and the property used therein Only indirect taxes may be shifted; direct taxes
does not amount to double taxation. Income tax and cannot be shifted.
real estate dealer’s tax are different taxes.
Ways of shifting the tax burden
Double taxation may not be invoked as a defense
against the validity of a tax law as where the real a. Forward shifting - When the burden of
estate dealer’s tax is imposed for engaging in the the tax is transferred from a factor of
business of leasing real estate in addition to the real production through factors of
estate tax on the property leased and the income tax distribution until it finally settles on the
on the income derived as it is a different kind of tax. ultimate purchaser or consumer.
i. Example: Manufacturer or
City of Manila v. Interisland Gas Service producer may shift tax
assessed to wholesaler, who in
The City of Manila collects deficiency municipal tax turn shifts it to the retailer,
from interisland for liquefied flammable gas taxed as who also shifts it to the final
merchandise. Fees aid for storage, installation, use purchaser or consumer.
and transportation of compressed inflammable gas b. Backward shifting - when the burden of
are charged by way of license fees in the exercise of the tax is transferred from the
police power of the state. consumer or purchaser through the
factors of distribution to the factor of
Double Taxation may not be invoked as a defense production.
against the validity of a tax law as where aside from i. Example: Consumer or
the tax, a license fee is imposed in the exercise of purchaser may shift tax
police power. Here the license fee is imposed for a imposed on him to retailer by
different purpose, i.e, as a regulatory measure. purchasing only after the price
is reduced, and from the latter
Compana General de Tabacos v. City of Manila,
to the wholesaler, and finally
to the manufacturer or
Both a license fee and a tax may be imposed on the producer.
same business or occupation for selling the same c. Onward shifting - when the tax is
article and this is not in violation of the rules against shifted two or more times either
double taxation. forward or backward.
i. Thus, a transfer from the
seller to the purchaser
involves one shift; from the
producer to the Relationship between impact, shifting, and incidence
wholesaler, then to of a tax
retailer, we have two
shifts; and if the tax is  The impact is the initial phenomenon, the
transferred again to the shifting is the intermediate process, and the
purchaser by the retailer, incidence is the result. Thus, the impact in a
we have three shifts in all. sales tax (i.e. VAT) is on the seller
(manufacturer) who shifts the burden to the
Persons Liable (Sec. 105) - Any person who, in the customer who finally bears the incidence of
course of trade or business, sells barters, exchanges, the tax.
leases goods or properties, renders services, and any
 Impact is the imposition of the tax; shifting is
person who imports goods shall be subject to the
the transfer of the tax; while incidence is the
value-added tax (VAT)imposed in Sections 106 to 108
of this Code. The value-added tax is an indirect tax setting or coming to rest of the tax.
and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, 2. Tax Evasion
properties or services. This rule shall likewise apply to
existing contracts of sale or lease of goods, properties  Tax evasion is the use by the taxpayer of
or services at the time of the effectivity of Republic illegal or fraudulent means to defeat or
Act No.7716. lessen the payment of a tax. It is also known
as “tax dodging.” It is punishable by law.
Impact and incidence of taxation
 Tax evasion is a term that connotes fraud
through the use of pretenses or forbidden
 Impact of taxation is the point on which a tax
devices to lessen or defeat taxes. [Yutivo v.
is originally imposed. In so far as the law is
Court of Tax Appeals, 1 SCRA 160]
concerned, the taxpayer is the person who
must pay the tax to the government. He is  Example: Deliberate failure to report a
also termed as the statutory taxpayer – the taxable income or property; deliberate
one on whom the tax is formally assessed. reduction of income that has been received.
He is the subject of the tax.
 Incidence of taxation is that point on which Elements of tax evasion:
the tax burden finally rests or settle down. It
takes place when shifting has been effected 1. The end to be achieved.
from the statutory taxpayer to another.  Example: the payment of less
than that known by the
Statutory taxpayer - The statutory taxpayer is the taxpayer to be legally due, or in
person required by law to pay the tax or the one on paying no tax when such is
whom the tax is formally assessed. In short, he or she due.
is the subject of the tax. 2. An accompanying state of mind
described as being “evil,” “in bad faith,”
 In direct taxes, the statutory taxpayer is the “willful” or “deliberate and not
one who shoulders the burden of the tax accidental.”
while in indirect taxes, the statutory taxpayer 3. A course of action (or failure of action)
is the one who pay the tax to the which is unlawful.
government but the burden can be passed to
another person or entity.
Evidence to prove evasion in a corporation which they themselves
owned and controlled. By virtue of the deed
 Since fraud is a state of mind, it need not be
of exchange, the Pachecho co-owners saved
proved by direct evidence but may be
on inheritance taxes. The Supreme Court
proved from the circumstances of the case.
said the records do not point to anything
wrong and objectionable about this estate
Republic v. Gonzales [13 SCRA 633]
planning scheme resorted to. The legal right
of the taxpayer to decreased the amount of
 SC affirmed the assessment of a deficiency
what otherwise could be his taxes or
tax against Gonzales, a private
altogether avoid them by means which the
concessionaire engaged in the manufacturer
law permits cannot be doubted.
of furniture inside the Clark Air Base, for
 What they really did was to invest their
underdeclaration of his income. SC held that
properties and change the nature of
the failure of the taxpayer to declare for
their ownership from unincorporated to
taxation purposes his true and actual income
incorporated form by organizing Delpher
derived from his business for two (2)
Trades Corporation to take control of
consecutive years is an indication of his
their properties and at the same time save
fraudulent intent to cheat the government if
on inheritance taxes. The "Deed of
its due taxes.
Exchange" of property between the
Pachecos and Delpher Trades Corporation
SEC. 254. Attempt to Evade or Defeat Tax. - Any
cannot be considered a contract of sale.
person who willfully attempts in any manner to evade
 There was no transfer of actual ownership
or defeat any tax imposed under this Code or the
interests by the Pachecos to a third party.
payment thereof shall, in addition to other penalties
The Pacheco family merely changed their
provided by law, upon conviction thereof, be
ownership from one form to another. The
punished by a fine not less than Thirty thousand
ownership remained in the same hands.
(P30,000) but not more than One hunderd thousand
Hence, the private respondent has no basis
pesos (P100,000) and suffer imprisonment of not less
for its claim of alight of first refusal under the
than two (2) years but not more than four (4) years:
lease contract.
Provided, That the conviction or acquittal obtained
under this Section shall not be a bar to the filing of a
Yutivo v. CTA
civil suit for the collection of taxes.
Facts: Yutivo Sons Hardware Co. bought a number of
3. Tax Avoidance cars and trucks from General Motors Overseas
Corporation. As importer, GM paid sales tax
 Tax avoidance is the exploitation by the
prescribed by sections 184, 185and 186 of the Tax
taxpayer of legally permissible alternative tax Code on the basis of its selling price to Yutivo. Said
rates or methods of assessing taxable tax being collected only once on original sales, Yutivo
property or income in order to avoid or paid no further sales tax on its sales to the public.
reduce tax liability. It is politely called “tax Southern Motors, Inc. was organized to engage in the
minimization” and is not punishable by law. business of selling cars, trucks and spare parts. After
the incorporation of SM and until the withdrawal of
GM from the Philippines in the middle of 1947, the
Delphers Traders Corp. v. IAC[157 SCRA 349], cars and trucks purchased by Yutivo from GM were
sold by Yutivo to SM which, in turn, sold them to the
 SC upheld the estate planning scheme public in the Visayas and Mindanao.
resorted to by the Pacheco family in
converting their property to shares of stock
Issue: Whether or not Southern Motors, Inc. was 5. Transformation
organized as a tax evasion device.
6. Avoidance
Held: NO.
 SM was organized in June, 1946 when it
could not have caused Yutivo any tax savings.
From that date up to June 30, 1947, or a
period of more than one year, GM was the
importer of the cars and trucks sold to
Yutivo, which, in turn resold them to SM.
 During that period, it is not disputed that GM
as importer, was the one solely liable for
sales taxes. Neither Yutivo or SM was subject
to the sales taxes on their sales of cars and
 The sales tax liability of Yutivo did notarize
until July 1, 1947 when it became the
importer and simply continued its practice of
selling to SM. The decision, therefore, of the
Tax Court that SM was organized purposely
as a tax evasion device runs counter to the
fact that there was no tax to evade
 Intention to minimize taxes used in the
context of fraud, must be proved by clear
and convincing evidence amounting to more
than mere preponderance and cannot be
justified by mere speculation. Fraud is never

4. Exemption from Taxation

 It is the grant of immunity to particular

persons or corporations or to persons or
corporations of a particular class from a tax
which persons and corporations generally
within the same state or taxing district are
obliged to pay.
 It is an immunity or privilege; it is freedom
from a financial charge or burden to which
others are subjected.

 Exemption is allowed only if there is a clear

provision therefor.

 It is not necessarily discriminatory as long as

there is a reasonable foundation or rational