CHAPTER 1 GENERAL PRINCIPLES

TAXATION DEFINED
-is a process inherent in every state to exercise the power to exact, enforced,
proportional contributions imposed upon persons, properties, or rights to raised
revenue in order to defray the necessary and legitimate expenses of the government.
-Taxation is inherent as long as there is a state
- A state does not need a constitutional grant for it to possess the power to tax.
Taxation is innate or inborn in every state.
-CIR V. FORTUNE TOBACCCO CORPORATION inherently legislative based on the
principle that taxes are a grant of the people who are taxed, and the grant must be
made by the immediate representatives of the people.
TAXATION AS AN IPLEMENT OF EMINENT DOMAIN
Tax measures are but enforced contributions exacted on pain of penal sanctions and
clearly imposed for public purpose.
TAXATION AS AN IMPLEMENT OF POLICE POWER
Southern Cross Cement corp. and Cement Manufacturers Association of the Philippines
taxation is distinguishable from police power as to the means employed to implement
good public goals.
TAXATION AS THE STRONGEST POWER OF THE STATE
-But it must not defeat the due process clause in the constitution.
-It should be exercised with caution to minimize injury to proprietary rights of a
taxpayer. It must be exercised fairly, equally, and uniformly. The power must be used
justly and not treacherously.
-Power to tax an attribute of sovereignty
- Equal protection clause may be invoked to invalidate a revenue measure.
-Due process clause may be invoked where the taxing statute is so arbitrary that it
finds no support in the constitution. (Confiscation of property)
- Collection should be made in accordance with the law as any arbitrariness will negate
the very reason for government itself.
- Without taxes the government would be paralyzed for lack of motive power to
activate and operate.
TOLL FEE DISTINGUISGHED FROM TAXES
Diaz v. Sec. of Finance- Tax is for the purpose of raising revenues to fund public
expenditures. Toll fees on the other hand are collected by private toll way operators as
reimbursement for the costs and expenses incurred in the construction, maintenance
and operation of the toll ways.
-Taxes are imposed only by the government and toll fees may be demanded by either
the government or private individuals or entities as an attribute of ownership..
VAT ON TOLLWAY OPERATIONS
-cannot be deemed a tax on tax due to the nature of vat as an indirect tax
-Liability for the tax and burden of the tax.
-The seller who is liable for the vat may shift or pass on the amount of vat it paid on
goods. In such case what is transferred is not the sellers liability but merely the
burden of the VAT.
-The VAT ceases to be a tax and simply become part of the cost that the buyer must
pay in order to purchase the good.
-VAT on toll ways is not really a tax on the toll way user, but on the toll way operator.

CHARACTERISTICS OF TAXATION
1) An enforced contribution (lifeblood theory)
2) It must be progressive (Art. VI Sec.28 of the Constitution)
3) Generally payable in money
4) Levied by the legislative
5) For public purpose
BASIS OF TAXATION
A. Lifeblood theory- use to support or sustain the governments functions.
-To generate funds for the state to finance the needs of citizenry and to advance the
common wealth.
- Due process does not require judicial proceedings in tax cases.
- That the modes adopted to enforce collection of taxes levied should be summary and
interfered with as little as possible.
-Must be continuously replenished and carefully preserved and no public official should
maintain a standard lower than utmost diligence in keeping our revenue system
flowing.
B. Necessity theory
- Without taxes the government cannot fulfill its mandate of promoting the general
welfare and well-being of the people.
PUROSES OF TAXATION
- Taxation is for the public, Its used cannot be lodged to a particular class or entity
without proper observance of the constitutional safeguard.
-Public purpose is an elastic concept that can be hammered to fit modern standards---
it does not only pertain to those purpose which are traditionally viewed as essentially
government functions.
--Include those designed to promote social justice
-Planters Products v. Feritphil Corp.- LOI is unconstitutional that the levy to be imposed
is to benefit a private company.
- Tests of validity- circumscribed by inherent and constitutional limitations.
-Cannot be used for private purpose
-A tax however, is not held void on the ground of public interest unless the want of
such interests clear.
- The primary purpose of the levy is revenue generation. If the purpose is primarily
revenue then the exaction is properly called tax.
Bagatsing v. Ramirez- Valid- entrusting collection of a market stall fees to a private
firm---So long as the purpose is public.
NOTE: no longer controlling. Local Government Code, collection of local taxes, fees,
charges and other impositions shall in no case be let to any private person.
NATURE OF POWER OF TAXATION
-Lodged in the legislative branch of the government.
-Power to decide and ascertain the kind of tax imposed the manner, subject, and the
method of taxation.
-While the legislative department is empowered by the constitution to delegate, still
this power is inherently legislative.
TAXATION IS INHERENTLY LEGISLATIVE
-In the legislature primarily lies the discretion to determine the nature, object, extent,
coverage, and situs of taxation.
ASPECTS OF TAXATION
1) Levy- vested on the legislative department
- may be exercised by local legislative bodies, not by delegation but pursuant to direct
authority conferred by Sec. 5 , Art. X of the Constitution.
2) Collection- Exercised by the executive department (BIR) Sec. 2 NIRC
-Taxes may be classified as to the manner of collection
 1) National taxes- national Government is charged with the collection (e.g. BIR,
BOC for tariffs and custom duties)
2) Local taxes- LGU collect the tax.

National taxes are: (Sec. 21 of NIRC)

a) Income tax
b) Estate and donors tax
c) VAT
d) Other percentage tax
e) Excise tax
f) Documentary Stamp taxes
g) Other taxes as are or hereafter may be imposed and collected by BIR (e.g.
Withholding tax)

POWER AND DFUTIES OF THE BUREAU OF INTERNAL REVENUE

- Supervision and control of the Department of Finance and its powers and duties shall
comprehend:
1) The assessment and collection of all national internal revenue taxes, fees, and
charges, and
2) The enforcement of all forfeitures, penalties, and fines connected therewith.
3) The execution of judgment in all cases decided in its favor by the CTA and
Ordinary Court
4) Give effect to and administer the supervisory powers conferred to it by the code or
other laws

POWER OF THE BIR COMMISSIONER

1) Exclusive and original jurisdiction to interpret the provisions of the code and other
tax laws subject to the review of the Secretary of Finance.
2) To decide disputed assessments
3) Refund, charges, penalties, or other matters arising under this Code or other laws
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
4) To obtain information and to Summon, examine and take testimony of persons
5) To make Assessments and prescribe additional requirements for tax administration
and enforcement.
6) To delegate powers
7) Assignment of internal revenue officers and other employees to other duties
8) Power to apply accounting period
9) Allocation of income and deductions
10) To suspend business operation of a taxpayer.
11) To compromise, abate and refund or credit taxes
12) To file civil and criminal actions.
CLASSIFICATION OF TAXES
1. BURDEN
a) Direct taxes
b) Indirect taxes
2. AMOUNT
 a) Specific
b) Ad Valorem
c) Mixed
3. RATES
a) Proportional
b) Progressive
c) Regressive
4. OBJECT
a) Personal
b) Property
c) Excise
5. PURPOSE
a) General
b) Special
6. SCOPE
a) National
b) Local
DIRECT TAX AND INDIRECT TAX
Direct tax- those that are exacted from the very person who it is intended should pay
them. Impositions for which taxpayer is directly liable on the transaction or business he
is engaged in.
Indirect tax- the liability for the payment of the tax falls on one person but the burden
thereof can be shifted or passed to another person. (What is passed is the burden not
the liability)
SCOPE OF POWER OF TAXATION
1) Comprehensive
2) Unlimited
3) Plenary
4) Supreme

TAXATION IS PLENARY AND UNLIMITED

-G.R. Plenary and unlimited thus the principal check against its abuse is to be found
only in the responsibility of the legislature.
- Tax legislation carries a presumption of constitutionality.
BASIC PRINCIPLE OF A SOUND TAX SYSTEM
1) Fiscal adequacy- To sustain legitimate expenses
2) Administrative feasibility- Capable of just and effective administration
3) Theoretical Justice or Equality- Taxes should be based on the taxpayers ability to
pay.
ADMINISTRATIVE FEASIBILITY
- Tax system should be capable of being effectively administered and enforced with the
least inconvenience to the tax-payer.
- Non observance however will not render a tax imposition invalid
-Exp. To the extent that specific constitutional or statutory limitations are impaired
UNIFORMITY AND EQUALITY OF TAXATION
- Uniformity means that all property belonging to the same class shall be taxed alike.
-Tax exemption has never been violative of the equal protection clause.
-Uniformity does not forfend classification as long as
1) Standards that are used are substantial and not arbitrary
2) Categorization is germane to achieve the legislative purpose
3) Applies, all things being equal to both present and future conditions
4) Classification applies equally well to all those belonging to the same class.
LIMITS OF TAXATION
1) Inherent limitation
2) Constitutional limitation
INHERENT LIMITATIONS
1) Taxes must be for public purpose
2) No improper delegation of the taxing power or authority
3) The exercise of power to tax is territorial in jurisdiction
4) Tax exemption of government entities
5) Recognition of international comity
6) Prohibition on double taxation.
TAX MUST BE FOR A PUBLIC PURPOSE
COCOFED v. Republic
- Coconut levy funds are not only affected with public interest; they are, in fact, prima
facie public funds.
Public Funds- Are those moneys belonging to the State or to any political subdivision of
the State, more specifically, taxes, customs duties and moneys raised by operation of
law for the support of the government or for the discharged of its obligations.

Three elements of tax

1) An enforced proportional contribution from person and properties
2) Imposed by the State by virtue of its sovereignty
3) Levied for the support of the Government
-Even if the money is allocated for a special purpose and raised by special means, it is
still public in character.
-Funds were even used to organize and finance State Offices
- To provide means for the rehabilitation and the stabilization of the threatened
industry which is so affected with public interest.
TAX EXCEMPTION OF GOVERNMENT ENTITIES
1) Income derived by the government or its political Subdivisions, Public utility or from
the exercise of any governmental function.
2) Incomes derived from foreign government, Investments in the Philippines
3) GOCC
-Congress has the power of control over local governments it can grant and take away
its power to tax.
-Local government has no power to tax instrumentalities of national government.
-The power of the local governments to impose taxes and fees is always subject to
limitations which Congress may provide by Law.
DOUBLE TAXATION
Taxing the same subject twice for the same taxable year, for the same tax under the
same taxing authority and within the same taxable territory
-There is no constitutional prohibition against double taxation but it is not allowed in
this jurisdiction
Villanueva v. City o Iloilo
Real property tax and tenement tax
To constitute double taxation in prohibited sense- the same property must be
taxed twice when it should be taxed but once. Taxing the same subject twice for the
same taxable year, for the same tax under the same taxing authority and within the
same taxable territory and they must be the same kind or character
INTERNATIONAL DOUBLE TAXATION
(CIR v. S.C. Johnson and Son Inc.)
Supreme Court- 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.
RATIO for doing away- To encourage free flow of goods and services and the
movement of capital, technology and persons between countries, conditions deemed
vital in creating robust and dynamic economics.

REMEDIES AGAINST DOUBLE TAXATION

1) Reciprocity Clause
2) Tax sparing rule
3) Tax credit method
4) Exemption method
5) Tax treaties

CONSTITUTIONAL LIMITATIONS
DUE PROCESS CLAUSE
SUBSTANTIVE DUE PROCESS IN TAX- There must be a law authorizing the imposition of
taxes
The measure must be clearly identify what, when, how and why to tax a person,
property, or right. It must not be arbitrary.
PROCEDURAL DUE PROCESS IN TAX- Opens the door to the taxpayer in his obligation to
pay taxes (Revenue code)
The taking of property is in the lawful exercise of the taxing power when:
1) The tax is for public use
2) Rule on uniformity of taxation is observed
3) Either the person or property taxed is within the jurisdiction of the government.
Notice and opportunity for hearing are provided
- Due process is usually violated
* For private purpose
* Imposed on property outside the State (extraterritorial taxation)
* Arbitrary and oppressive methods in assessing and collecting taxes
-But tax does not violate the due process clause although the purpose of the tax will
result in an injury rather than a benefit to such taxpayer.
- Due process does not require that the property subject to the tax should be
determined by judicial inquiry.
-FOR EQUAL PROTECTION, the applicable standard to avoid the charge is to
demonstrate that the governmental act assailed, far from being inspired the
attainment of the common weal was prompted by the spirit of hostility or at the very
least discrimination that finds no support or reason.
-Subject to reasonable classification. In order to be valid, must;
1) Rest on substantial distinctions
2) Be germane to the purposes of the law
 3) Not be limited to the purposes of the law
4) Apply equally to all members of the same class.
Non impairment clause
-exemption may thus be withdrawn at the pleasure of the taxing authority, The only
exemption is that if it is granted to private parties based on material consideration of a
mutual nature, which then becomes contractual and is thus covered by the non-
impairment clause (Mactan cebu international Airport V. Marcos)
Actually, directly and exclusively clause
1) Art. VI, Sec. 28 (3) or real property tax exemption
2) Art. XIV Sec. 4 (3) Or income tax exemption
3) Art XIV Sec. 4 (4) on donations
4) Sec. 234 of the LGC or real property tax exemption

-Their Creation is premised not principally for profit

NOTE: Notwithstanding the provisions in the preceding paragraph, the income of
whatever kind and character of the foregoing organizations from any of their properties,
real or personal or form any of their activities conducted for profit regardless of the
disposition made of such income shall be subject to tax imposed under this code with the
exception on non-stock and nonprofit educational institution all the rest are liable to
income tax on activities made for profit.
- To be granted exemption it must prove it with substantial evidenced that
1) It falls under the classification non-stock, non-profit educational institution
2) The income it seeks to be exempted from is used actually, directly and exclusively for
educational purposes.
3) There is substantial evidence to support the foregoing
-Lung center of the Philippines v Quezon City- General principle- A charitable institution
does not lose its character as such and its exemption from by reason of the fact that
those recipients of its benefit who are able to pay are required to do so.--- So long as the
money received is devoted to the charitable object which it is intended to achieve and no
money inures to the private benefit.
In order for Art. VI Sec. 28 to apply; the petitioner is burdened to prove the
following;
1) It is a charitable institution
2) Its real properties are actually, directly, and exclusively used for charitable
purposes.
EXCLUSIVE- Defined as possessed and enjoyed to the exclusion of others.
-The direct and immediate and actual application of the property itself to the
purpose for which the charitable organization is organized It is not the use of the
income from the real property that is determinative of whether the property is used for
tax-exempt purposes .
-Building fees are not within the exemption- It is a regulatory imposition

PARSONAGE
-Must be read not in technical or ecclesiastical sense, but in broad meaning of a
ministerial residence used in connection with any place of worship of any denomination.
-Does not lose its privilege because the clergyman residing in it.
Exemption extends to facilities which are incidental
Abra Valley College v. Aquino- Exemption extends to facilities which are incidental and
reasonably necessary for the accomplishment of the main purpose
EXEMPTIONS FROM REAL PROPERTY TAX UNDER THE LGC
-It was held that the GOCC claiming exemption must be the very entity that actually,
directly, and exclusively use the real properties
MIAA v. City of Pasay
-When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation, unless the government instrumentality is
organized as a stock or non-stock corporation. It has the power power to levy fees and
charges
-MIAA is a government instrumentality not a GOCC
-However if MIAA leases the property to a taxable person it becomes subject of real
property tax.

BENEFECIAL USE DOCTRINE ON EAL PROPERTY TAX

GSIS v. Service insurance System
-The lease to a private entity of a property shall be taxable pursuant to the beneficial use
principle under Sec. 234 (a) of the LGC.
-But tax exemption remains if the beneficial use of the property is granted to an agency
or instrumentality of the national government.
-The unpaid tax attaches to the property and is chargeable against the taxable person
who had actual or beneficial use and possession of it.
-The portions of the properties not leased to taxable entities are exempt from real estate
tax while the portion of the properties leased to taxable entities are subject to real estate
tax.

(IN LIEU OF ALL TAXES CLAUSE !check for other resource)

TAX AVOIDANCE AND TAX EVASION
-Tax avoidance is the tax saving device within the means sanctioned by law. This method
should be used by the taxpayer in good faith and at arms length.
-Tax evasion is a scheme used outside of those lawful means.
TAX EVASION CONNOTES THE INTEGRATION OF THREE FACTORS
1) The end to be achieved (e.g. the payment of less than that known by the taxpayer to
be legally due)
2) Accompanying state of mind which is described as being evil, in bad faith, deliberate
or incidental
3) A course of action or failure of action which is unlawful.
-The crime is complete when the taxpayer has knowingly and willfully filed a fraudulent
return with intent to evade and defeat tax.
PRINCIPLES OF TAX EXEMPTION
1) Not presumed
2) Construed strictissimi juris
3) Full or partial
4) Exemption of the government from taxation
5) Tax refund akin to tax exemptions. Etc.
TAX EXEMPTIONS ARE NOT PRESUMED
-The rule that tax exemptions should be construed strictly against the taxpayer
presupposes that the taxpayer is clearly subject to the tax being levied against him.
-Impositions also are not presumed--- in case of doubts tax laws must be construed
strictly against the government and in favor of the taxpayer.
STRICTISSIMI JURIS
CIR v. PLDT
- Strict interpretation of tax exemption
-He who claims refund and exemption rests the burden of justifying the exemption or
refund.

FULL OR PARTIAL EXEMPTION

NAPOCOR v. Province of Quezon
-A claim for tax exemption whether full or partial does not question the authority of local
assessor to assess real property tax. (Sec. 206)

EXEMPTION OF THE GOVERNMENT FROM TAXATION

-But may impose taxes upon GOCCs. Imposed only by the National Government
Also imposed upon corporations or associations engaged in the similar business, industry
or activity. The exceptions are;
1) GSIS
2) SSS
3) PHIC
4) PCSO
UNDER PROVISIONS ON EXCLUSION- the income derived by the government from the
exercise of any essential government functions is excluded from the items of gross
income therefore exempt.
HOWEVER the income must emanate from any public utility or from the exercise of any
essential governmental functions.
TAX REFUNDS AKIN TO TAX EXEMPTIONS
-Should be granted only by clear and unequivocal provision of the law on the basis of
language to plain to be mistaken.
INTERPRETATION OF TAX LAWS
Generally, statutes levying taxes or duties are to be construed strongly against the
Government and in favor of the subject or citizens, because burdens are not to be
imposed or presumed to be imposed beyond what statute expressly and clearly declare.
PROVISIONS OF TAX LAW CANNOT BE EXTENDED BY IMPLICATION
The general rule of requiring adherence to the letter in construing the statute applies
with particular strictness to tax laws and provisions of taxing act are not to be extended
by implication.
- In case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails as said rules cannot go beyond the terms and
provisions of the basic law.
-It must be stressed that the objective of issuing BIR revenue regulations is to establish
parameters or guidelines within which our tax laws should be implemented and not to
amend or modify its substantive meaning or import.
SET OFF OR COMPENSATION
Set off- simply means compensation; not allowed in this jurisdiction; because the
taxpayer and the government are not creditors and debtors of each other.
-Tax is compulsory rather than bargain. Do not depend on the consent of the taxpayer.
-A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a
claim against the government. (Philex mining Corp, v. CIR)
TAXES CAN BE SUBJECT OF SET OFF if the following requisites occur
1) Both the obligation from the government and the taxpayer are due and demandable
2) It is fully liquidated
SOLUTIO INDEBITI
The BIR receive something when there was no right to demand it and thus it has the
obligation to return it.
TAXPAYERS SUIT AND LOCUS STANDI
-The taxpayer though not the party in interest is allowed to sue, assail, or question
contract or acts entered into by the government which may be found to have no basis in
law at the expense of taxpayers money.
Locus Standi- Right of appearance in court of justice on a given question
Suits may be brought by the parties who have been personally or directly injured by
certain acts or omission. ---real party in interest
REQUISITES OF TAXPAYERS SUIT
1) Use of public funds
2) Disbursement is illegal or unconstitutional
- In cases where issues of transcendental public importance are presented, there is no
necessity to show that petitioner has experienced or is in actual danger of suffering
direct or personal injury.

Determinants of Transcendental Importance

1) The character of the funds or other assets involved in the case
2) The presence of a clear case of disregard of a constitutional or statutory prohibition by
the public respondent
3) Lack of any other party with a more direct and specific interest in raising the question
being raised.
INJUNCTION SUIT
-Sec 218 No court shall have the authority to grant an injunction to restrain the collection
of any National Internal Revenue tax, fee, or charged imposed by the code.
Exp. Where the taxpayer has shown a clear and unmistakable right to refuse or to hold in
abeyance the payment of taxes.
- No suspension of collection in case of Appeal.
-Except when in the opinion of the court the collection may jeopardize the interest of the
government or taxpayer and so requiring the taxpayer to either deposit the amount
claimed or to file a surety bond.
REQUISITES OF INJUCTION
1) The taxpayer has shown a clear and unmistakable right to refuse or to hold in
abeyance the payment of taxes
2) The collection by the government may jeopardize the interest of the government or
taxpayer
3) Require the taxpayer to deposit the amount or to file a surety bond
TAX AMNESTY
-A general pardon or intentional overlooking by the State of its authority to impose
penalties on persons otherwise guilty of evasion or violation of revenue or tax law.
TAX PYRAMIDINIG
-TAX ON ANOTHER TAX.

REVENUE REGUALTIONS AND BIR ISSUANCES

G.R. rules and regulations issued by administrative or executive officer pursuant to the
procedure conferred by law upon the administrative agency have the force and effect of
a statute.
-Revenue regulation is binding on the courts as long as the procedure fixed for its
promulgation is followed.
1) Be germane to the object and purpose of the law
2) Not contradict, but conform to, the standards the law prescribes
3) Issued for the sole purpose of carrying into effect
-Secretary of Finance upon recommendation of the Commissioner shall promulgate rules
and regulations for the effective enforcement if NIRC
Tax laws v. General Law
Internal revenue Code prevails over the Civil Code
TAX LAWS ARE CIVIL IN NATURE
DOCTRINE OF EQUITABLE RECOUPMENT
Basically refers to a taxpayer who has a claim for refund against the government but was
not able to file his written claim for refund because the reglementary period within which
to file his refund has already prescribed. Despite the lapse of period the doctrine allows
that the tax that should have been refunded be credited instead into his existing or other
tax liability Not allowed.