CIR vs.

Araneta
Scope and Nature of Taxation

Doctrine:
Taxes are the lifeblood of government and their prompt and certain availability is an
imperious need.

Commissioner vs. Algue

Theory and Basis of Taxation: Necessity Theory and Benefit-Received Principle

Doctrine:
It is said that taxes are what we pay for civilized society. Without taxes, the government
would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one's hard-earned income to the taxing authorities,
every person who is able to must contribute his share in the running of the government. The
government, for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values, This
symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it
is an arbitrary method of exaction by those in the seat of power.

Tolentino vs. Secretary of Finance

Purpose of Taxation: General/Fiscal/Revenue

Doctrine:
The legislature is not required to adhere to a policy of “all or none” in choosing the
subject of taxation.
What Congress is required by the Constitution to do is to “evolve a progressive system
of taxation.” This is a directive to Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the reduction of social,
economic and political inequalities (Art. XIII, § 1), or for the promotion of the right to “quality
education” (Art. XIV, § 1). These provisions are put in the Constitution as moral incentives to
legislation, not as judicially enforceable rights.
The inherent power to tax of the State, which is vested in the legislature, includes the
power to determine whom or what to tax, as well as how much to tax.

Roxas vs. CTA

Comparison with Police Power and Eminent Domain
Doctrine:
The power of taxation is sometimes called also the power to destroy.
Therefore, it should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the “hen
that lays the golden egg”.

Lutz vs. Araneta

Comparison with Police Power and Eminent Domain

Doctrine:
Taxation may be made the implement of the state’s police power.

Caltex vs. COA

Taxes distinguished from Debts

Doctrine:
It is settled that a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be set-off.

Domingo vs. Garlitos

Taxes distinguished from Debts, Exception from set-off

Doctrine:
The claim of the estate against the Government has been appropriated for the purpose
by a corresponding law (Rep. Act No. 2700) shows that both the claim of the Government for
inheritance taxes and the claim of the intestate for services rendered have already become
overdue and demandable as well as fully liquidated. Compensation, therefore, takes place by
operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code,
and both debts are extinguished to the concurrent amount.

Apostolic Prefect vs. Treasurer of Baguio

Taxes distinguished from Special Assessments/Levies

Doctrine:
 There is a recognized distinction between taxes and special assessments in that the
latter is confined to local impositions upon property for the payment of the cost of public
improvements in its immediate vicinity and levied with reference to special benefits to the
property assessed. A special assessment is not, strictly speaking, a tax.

CIR vs. Lincoln Philippine Life

Escape from Taxation: Tax Evasion and Tax Avoidance

Doctrine:
While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be
circumvented in order to evade the payment of just taxes.

CIR vs. Fortune Tobacco

Administrative Issuances

Doctrine:
Revenue Regulations of BIR must not go beyond the terms of the law it is supposed to
implement.

Phil. Comm. Satellite Corp. vs. Alcuaz

Delegation of Taxation Power

Doctrine:
Delegation of legislative power may be sustained only upon the ground that some
standard for its exercise is provided and that the legislature in making the delegation has
prescribed the manner of the exercise of the delegated power.

City Government of QC vs. Bayantel

Delegation of Taxation Power

Doctrine:
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may
be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as
before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution.
The grant of taxing powers to local government units under the Constitution and the
LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant to
a declared national policy. The legal effect of the constitutional grant to local governments
simply means that in interpreting statutory provisions on municipal taxing powers, doubts must
be resolved in favor of municipal corporations.

Mactan Cebu Airport vs. Marcos

Exemption of Government Agencies

Doctrine:
Nothing can prevent Congress from decreeing that even instrumentalities or agencies of
the Government performing governmental functions may be subject to tax.

Iloilo Bottlers vs. City of Iloilo

Territoriality or Situs of Taxation

Doctrine:
Excise Tax can be levied by the taxing authority only when the acts, privileges or
business are performed within the jurisdiction of said authority.

Tanada vs. Angara

International Comity

Doctrine:
While sovereignty has traditionally been deemed absolute and all-encompassing on the
domestic level, it is however subject to restrictions and limitations voluntarily agreed to by the
Philippines, expressly or impliedly, as a member of the family of nations.

Sison, Jr. vs. Ancheta

Due Process Clause

Doctrine:
Due process clause may be invoked where a tax statute is so arbitrary as to find no
support in Constitution.

Tan vs. Del Rosario

Equal Protection Clause

Doctrine:
Uniformity of taxation, like the kindred concept of equal protection, merely requires
that all subjects or objects of taxation, similarly situated, are to be treated alike both in
privileges and liabilities.

Tolentino vs. Secretary of Finance

Rule of Taxation shall be Uniform and Equitable

Doctrine:
The legislature is not required to adhere to a policy of “all or none” in choosing the
subject of taxation.
What Congress is required by the Constitution to do is to “evolve a progressive system
of taxation.” This is a directive to Congress. These provisions are put in the Constitution as
moral incentives to legislation, not as judicially enforceable rights.

Province of Abra vs. Hernando

Prohibition against Taxation of Religious and Charitable Institutions

Doctrine:
To be exempt from realty taxation there must be proof that the property of a religious
institution is actually and directly being used for religious purposes.

De La Salle University, Inc. vs. CIR

Prohibition against Taxation of Non-Stock Non-Profit Educational Institutions

Doctrine:
The requirements for an educational institution to be entitled to the exemption, to wit:
1) it falls under the classification of non-stock, non-profit educational institution; and 2) the
income it seeks to be exempted from taxation is used actually, directly, and exclusively for
educational purposes.

Lorenzo vs. Posadas

Construction of Tax Laws
Doctrine:
Revenue laws, generally, which impose taxes collected by the means ordinarily resorted
to for the collection of taxes are not classed as penal laws, although there are authorities to the
contrary.
While courts will not enlarge, by construction, the government's power of taxation they
also will not place upon tax laws so loose a construction as to permit evasions on merely
fanciful and insubstantial distinctions. When proper, a tax statute should be construed to avoid
the possibilities of tax evasion. Construed this way, the statute, without resulting in injustice to
the taxpayer, becomes fair to the government.

Roxas vs. Rafferty

Mandatory vs. Directory Provisions

Doctrine:
It is a general rule that those provisions of a statute relating to the assessment of taxes,
which are intended for the security of the citizen or to insure the equality of taxation, or for
certainty as to the nature and amount of each person's tax, are mandatory; but those designed
merely for the information or direction of officers, or to secure methodical and systematic
modes of proceedings, are merely directory.

CIR vs. Benguet Corporation

Application of Tax Laws

Doctrine:
Rulings, circulars, rules and regulations promulgated by the Commissioner of Internal
Revenue would have no retroactive application if to so apply them would be prejudicial to the
taxpayers.
While it is true that government is not estopped from collecting taxes which remain
unpaid on account of the errors or mistakes of its agents and/or officials and there could be no
vested right arising from an erroneous interpretation of law, these principles must give way to
exceptions based on and in keeping with the interest of justice and fairplay.

CIR vs. Guerrero

Exemptions from Taxation, In General

Doctrine:
Exemption, being obnoxious to taxation, is not favored and never presumed; if granted,
it must be categorically and unmistakably expressed in terms that admit of no doubt, yet such
exempting provision must be interpreted in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority.

PLDT vs. Davao City

Exemptions from Taxation, In General

Doctrine:
The Tax Code provision withdrawing the tax exemption was not construed as prohibiting
future grants of exemptions from all taxes.
The tax exemption must be expressed in the statute in clear language that leaves no
doubt of the intention of the legislature to grant such exemption. And, even if it is granted, the
exemption must be interpreted in strictissimi juris against the taxpayer and liberally in favor of
the taxing authority.

Republic Flour Mills vs. CIR

Construction of Tax Exemptions

Doctrine:
The fundamental postulate in statutory construction requiring fidelity to the legislative
purpose. What Congress intended is not to be frustrated. Its objective must be carried out.
Even if there be doubt as to the meaning of the language employed, the interpretation should
not be at war with the end sought to be attained.

Resins, Inc. vs. Auditor Gen.

Construction of Tax Exemptions

Doctrine:
Refund in the nature of exemption; Exempting provision strictly construed.

Coconut Oil Refiners vs. Torres

Construction of Tax Exemptions

Doctrine:
Tax and duty-free incentives being in the nature of tax exemptions, the basis thereof
should be categorically and unmistakably expressed from the language of the statute.
CIR vs. SC Johnson & Sons
Double Taxation

Doctrine:
International juridical double taxation is defined as 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; 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.

CIR vs. CA, CTA, and Fortune Tobacco Corp.

Phil. Bank of Communications vs. CIR
Powers and Duties of the BIR

Doctrine:
Administrative agencies possess quasi-legislative or rule making powers and quasi-
judicial or administrative adjudicatory powers. Quasi-legislative or rule making power is the
power to make rules and regulations which results in delegated legislation that is within the
confines of the granting statute and the doctrine of nondelegability and separability of powers.
Interpretative rule, one of the three (3) types of quasi legislative or rule making powers of an
administrative agency (the other two being supplementary or detailed legislation, and
contingent legislation), is promulgated by the administrative agency to interpret, clarify or
explain statutory regulations under which the administrative body operates. The purpose or
objective of an interpretative rule is merely to construe the statute being administered. It
purports to do no more than interpret the statute. Simply, the rule tries to say what the statute
means. Generally, it refers to no single person or party in particular but concerns all those
belonging to the same class which may be covered by the said interpretative rule. It need not
be published and neither is a hearing required since it is issued by the administrative body as an
incident of its power to enforce the law and is intended merely to clarify statutory provisions
for proper observance by the people. Quasi-judicial or administrative adjudicatory power on
the other hand is the power of the administrative agency to adjudicate the rights of persons
before it. It is the power to hear and determine questions of fact to which the legislative policy
is to apply and to decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law. The administrative body exercises its quasijudicial
power when it performs in a judicial manner an act which is essentially of an executive or
administrative nature, where the power to act in such manner is incidental to or reasonably
necessary for the performance of the executive or administrative duty entrusted to it. In
carrying out their quasijudicial functions the administrative officers or bodies are required to
investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw
conclusions from them as basis for their official action and exercise of discretion in a judicial
nature. Since rights of specific persons are affected it is elementary that in the proper exercise
of quasijudicial power due process must be observed in the conduct of the proceedings.

Connel Bros. Com. Phil. vs. CIR

Powers and Duties of the BIR

Doctrine:
Public policy demands that the date within which the correct taxes, as well as the
surcharges and interests in case of deficiency, are payable, being specifically fixed by law,
should not be moved or changed or made subject to the discretion of the Commissioner of
Internal Revenue.

Mitsubishi Corporation-Manila Branch vs. CIR

Powers and Duties of the BIR

Doctrine:
A revenue memorandum circular is an administrative ruling issued by the CIR to
interpret tax laws. It is widely accepted that an interpretation by the executive officers, whose
duty is to enforce the law, is entitled to great respect from the courts.

Misamis Oriental Association of Coco Traders vs. DOF

Power of the Commissioner to Interpret Tax Laws and Decide Tax Cases

Doctrine:
Opinion of the Commissioner of Internal Revenue in the absence of any showing that it
is plainly wrong is entitled to great weight.
The Commissioner of Internal Revenue is not bound by the ruling of his predecessors.

Eastern Telecom. Phils. vs. CIR

The Court of Tax Appeals

Doctrine:
The Court of Tax Appeals (CTA) has developed an expertise on the subject of taxation
because it is a specialized court dedicated exclusively to the study and resolution of tax
problems.