TAX PRINCIPLES

KINDS OF TAXES DIFFERENTIATED

1.As to the burden:
Direct and Indirect

2. As to the manner of computation:
Specific and ad valorem

3. As to the purpose:
General and Special


4. As to the authority imposing tax:
National and Local

5. As to the subject matter:
Personal and Property

6. As to the rate:
Progressive and Regressive
Direct and Indirect Tax

Direct Tax is a tax for which a taxpayer is
directly liable on the transaction or business it
engages in.

Indirect Tax is a tax primarily paid by persons
who can shift the burden upon someone else.
Specific and Ad Valorem Tax

Specific tax is imposed and based on weight
or volume capacity or any other physical unit
of measurement.

Ad Valorem tax is based on selling price or
other specified value of the goods.
General and Special Tax

General tax is imposed solely to raise revenue
for the government.

Special tax is imposed and collected to
achieve a particular legitimate object of
government.
National and Local Tax

National tax is imposed by the national
government.

Local tax is levied and collected by the local
government.
Personal and Property Tax

Personal tax is of fixed amount imposed on
individuals, whether citizens or not, residing
within a specified territory, without regard to
their property or occupation.

Property tax is imposed on property, real or
personal, in proportion to its value.
Progressive and Regressive Tax

Progressive tax is one whereby the rate
increases as the tax base (amount) increases.

Regressive Tax is one where the tax rate
decreases as the tax base increase.
CONCEPT
OF
DOUBLE TAXATION
There is double taxation where one tax is
imposed by the State and the other is imposed
by the city.

There is nothing inherently obnoxious in the
requirement that license fees or taxes be
enacted with respect to the same occupation,
calling or activity by both the State and the
political subdivision thereof.
Kinds of Double Taxation
As to its validity:
a. Direct
b. Indirect

As to its scope:
a. Domestic
b. International
As to its validity: DIRECT
It constitutes double taxation in the objectionable or
prohibited sense.

It violates the equal protection clause of the
Constitution.

Same property is taxed twice when it should be
taxed but once.

Local business tax based on gross revenues
amounts to direct double taxation.
Elements of direct double taxation:
1. The same:
a. object or property taxed twice
b. for the same taxing purpose
c. by the same taxing authority
d. within same jurisdiction
e. within the same tax period
f. same kind or character

2. Taxing all the objects or property for the first
time without taxing all of them for the
second time.
As to its validity: INDIRECT

It is permissible and not repugnant to the
Constitution.

This is allowed if the taxes are of different
nature or character imposed by different taxing
authorities.
As to its scope: DOMESTIC


This arises when the taxes are imposed by the
local or national government within the same
State.
As to its scope: INTERNATIONAL

It refers to the imposition of comparable taxes
in two or more states on the same taxpayer in
respect of the same subject matter and for
identical periods.
In general, double taxation is not forbidden by
the Constitution since we have not adopted as
part thereof the injunction against double
taxation found in the Constitution of the United
States and some states of the union.

However, direct double taxation is
unconstitutional for violating the substantial
due process and equal protection clause.
TAX TREATY
AS A MODE OF ELIMINATING
DOUBLE TAXATION
Two methods of relief:
EXEMPTION METHOD The income or
capital which is taxable in the state of source
or situs is exempted in the state of residence.
The focus is mainly on the income or capital.

CREDIT METHOD The tax paid in the state
of source is credited against the tax levied in
the state of residence. It simply focuses upon
the tax itself.
TAX EVASION

and

TAX AVOIDANCE
TAX EVASION

It connotes fraud through the use of pretenses
and forbidden devices to lessen or defeat
taxes.

It must be proven by clear and convincing
evidence amounting to more than mere
preponderance.
TAX EVASION

Connotes integration of three factors:
a. the end to be achieved
b. an accompanying state of mind evil, bad
faith, willful or deliberate and not accidental
c. course of action or failure of action which is
unlawful
TAX EVASION
Evidence to prove tax evasion:
a. Failure of taxpayer to declare for taxation
purposes his true and actual income derived
from business for 2 consecutive years;
(Republic v. Gonzales)

b. Substantial under declaration of income in
the income tax return for four (4)
consecutive years coupled intentional
overstatement of deductions.
(Perez v. CTA )
TAX AVOIDANCE
It is a legal means used by the taxpayer to
reduce taxes.

A taxpayer has the legal right to decrease the
amount of what otherwise would be his taxes
or altogether avoid them by means which the
law permits.

The person does not incur fraud thereby even
if the act is thereafter found to be insufficient.
Tax Evasion vs. Tax Avoidance
As to validity:
-Illegal and subject to
criminal penalty

As to its effect:
- Almost always results
in absence of tax
payments
As to validity:
-Legal and not subject
to criminal penalty.

As to its effect:
- Minimization of taxes.
CIR vs. Estate of Benigno Toda, Jr.
Toda Jr. is authorized by Cibeles Insurance
Corp. to sell the Cibeles Bldg and two parcels
of land (less than P90 million).
Sold to Rafael A. Altonaga for P100 million.
Altonaga sold to Royal Match Inc., on the
same day, for P200 million.
CIC filed its corporate annual income tax
return declaring its gain from sale in the
amount of P75,728.021.
Toda sold entire shares of stocks in CIC to Le
Hun Choa for P12.5 million.
CIR vs. Estate of Benigno Toda, Jr.

BIR sent an assessment notice and demand
letter for deficiency income tax in the amount
of P79,099,999.22.
Notice was issued to the Estate of Benigno P.
Toda, Jr.
Allegedly, CIC committed fraud to deprive the
government of taxes due it through a
preconceived scheme.

UNGAB DOCTRINE

While there can be no civil action to enforce
collection before the assessment procedures
provided in the Code have been followed,
there is no requirement for the precise
computation and assessment of the tax before
there can be a criminal prosecution under the
Tax Code. (Ungab vs. Cusi)
CIR vs. PASCOR
An assessment is not necessary before a
criminal charge can be filed.
1. Section 205 of Tax Code clearly mandates
that the civil and criminal aspects of the case
may be pursued simultaneously.
2. A criminal complaint is instituted not to
demand payment but to penalize the
taxpayer for violation of the Tax Code.
3. The crime is complete when the violator has
knowingly and willfully filed a fraudulent
return with intent to evade and defeat a part
of all of the tax.
DOCTRINE OF
IMPRESCRIPTIBILITY

General rule: Taxes are imprescriptible as they
are the lifeblood of the government.

Exception: Tax statutes may provide for statute
of limitations.
Rules adopted:
National Internal Revenue Code for the
assessment and collection of tax.
a. 10 years if tainted with falsity or fraud
b. 3 years if there is no fraud
- from the last day prescribed by law or
- from the date of actual filing if filed after
the last day prescribed by law

* If assessed within the period of limitation,
may be collected by distraint or levy or by a
proceeding in court within 5 years following the
assessment of tax. (Sec. 222, NIRC)
TARIFF AND CUSTOMS CODE
It does not actually express any general
statute of limitation. However it becomes
final and conclusive after the expiration of
3 years from the date of the final payment
of duties, that is in the absence of fraud, or
protest or compliance audit.
- Exception: liquidation of the import entry was
mere tentative.
(Sec. 4, R.A. 9135)
LOCAL GOVERNMENT CODE
- Local taxes, fees or charges shall be
assessed within 5 years from the date they
become due.
- In case of fraud or intent to evade, it shall be
assessed within 10 years from the
discovery of the fraud or intent to evade.

*Collected either by administrative or judicial
action within 5 years from date of assessment.
(Sec. 194, LGC)
NATURE AND PROSPECTIVITY
OF TAX LAWS
Tax laws are civil in nature.

Article 5, Civil Code: acts executed against the
mandatory provisions of law are void, except
when the law itself authorizes the validity of
those acts.
Sec. 228, NIRC: Taxpayers shall be informed
in writing of the laws and that facts on which
the assessment is made; otherwise, the
assessment shall be void.
General Rule: Tax must only be imposed
prospectively.

Exception: Retroactive application of revenue
laws may be allowed if it will not amount to
denial of due process.
- There is violation of due process when the
tax law imposes harsh and oppressive tax.
Rulings promulgated by the CIR shall be
retroactive in the following cases:

a. Where the taxpayer deliberately misstates
or omits material facts from his return or
any
document required of him by the BIR;

b. Where the facts subsequently gathered by
the BIR are materially different from the
facts on which the ruling is based; or

c. Where the taxpayer acted in bad faith.

Prohibition against ex post facto law not
applicable in tax laws.

- Criminal penalties arising from tax violations
may not be given retroactive effect.

Strict construction of tax laws
When legislative intent is clear:
Tax statutes are to receive a reasonable
construction with a view to carrying out their
purpose and intent.

They should not be construed as to permit the
taxpayer easily to evade the payment of taxes.
Strict construction of tax laws
When there is doubt:
Statutes levying taxes or duties are to be
construed strongly against the Government
and in favor of the subject or citizens.

Burdens are not to be presumed. Statutes must
expressly and clearly declare.

CIR vs. CA: No person or property is subject to
taxation unless they fall within the terms or
plain import of taxing statute.
On tax exemption...

Smart Comm. Inc. vs The City of Davao:

The rule that a tax exemption should be applied
in strictissimi juris against the taxpayer and
liberally in favor of the government applies
equally to tax exclusions.
TAXPAYER'S
SUIT
What is a taxpayer's suit?

It is a case where the act complained of directly
involves the illegal disbursement of public
funds collected through taxation.


Requisites for taxpayers' suit
a. The tax money is being extracted and spent in
violation of specific constitutional
protections against abuses of legislative
power.
b. That public money is being deflected to any
improper purpose (Pascual vs Secretary of
Public Works)
c. That the petitioner seeks to restrain
respondents from wasting public funds
through the enforcement of an invalid or
unconstitutional law
Taxpayer's Suit vs. Citizen Suit
The plaintiff is
affected by the
expenditure of public
funds.
The right of a citizen
and a taxpayer to
maintain an action in
courts to restrain the
unlawful use of public
funds to his injury
cannot be denied.
The plaintiff is but a
mere instrument of
the public concern.
It is at least the right,
if not the duty, of
every citizen to
interfere and see that
a public offense be
properly pursued and
punished, and that a
public grievance be
remedied
Maceda vs. Macaraig

Right of a taxpayer to file a petition questioning
the legality of tax refund to NPC by way of tax
credit certificates and use of said assigned tax
certificate by oil companies to pay for their tax
and duty liabilities to the BIR and Bureau of
Customs.
Gonzales vs. Marcos

The taxpayer has no legal personality to assail
the validity of EO No. 30 creating the Cultural
Center of the Philippines. This is because the
assailed order does not involve the use of
public funds. The funds actually came from
donations and contributions and not by
taxation.
Abaya vs. Ebdante, Jr.
Taxpayer's suits: to allow taxpayers to
question contracts entered into by national
government or GOCCs allegedly in
contravention of law.

Enforcement of invalid/unconstitutional law:
- public funds are illegally disbursed
- public money deflected to improper purpose
- wastage of public funds

A taxpayer need not be a party to the contract.