TAXATION

Definition of TAXATION:
1. Inherent power of sovereign
2. Exercised through the Legislature
3. To impose burdens
4. Upon Subjects and Objects within its Jurisdiction
5. To raise revenues
6. To meet legitimate objects of government

NATURE OF TAXATION:
- can be found in the first 2 elements in the definition
1. Inherent power of sovereign (INHERENT POWER)
An Attribute of Sovereignty (Republican State where sovereignty resides from people and all
governmental authorities emanate from them)
Basis: Lifeblood doctrine
Manifestation: Imposition even without constitutional grant (like Police Power or Power of Eminent Domain)
Right to select subjects and objects of taxation
No INJUNCTION RULE (Courts cannot issue injunction pleas to restrained
collection of taxes)

2. Exercised through the Legislature (LEGISLATIVE POWER)

Exercise of high prerogative of sovereignty (people cannot enact tax laws themselves)
Basis: Promulgation of Rules
Manifestation: No improper delegation of legislative power to tax

SUGGESTED ANSWER:

The state’s power to tax is two-fold being both an inherent power and a legislative power.

Taxation is inherent in nature being an attribute of sovereignty. It exists with or without a

constitutional provision to the effect because without tax revenues the government could not perform
the functions for which it has been organized and its continued existence would be imperiled.

Taxation is a legislative power because it involve the promulgation of rules. Taxation is a set of
rules, why the tax is to be paid, who pays the tax, how much is the tax to be paid, to whom it should be
paid and when tax should be paid.
BAR QUESTION:

Assuming that the constitution ratified by the people failed to provide for enactment of laws imposing
taxes, may the legislative body created by the same constitution enact tax laws? Explain your answer.
(1970)

SUGGESTED ANSWER:

Yes. Taxation is inherent in nature being an attribute of sovereignty and consequently it exists
with or without a constitutional provision to the effect.

This is so, because without revenues collected from taxation the state’s very existence would be
imperiled for lack of funds to perform the essential obligations of the state.

BAR QUESTION:

Why the power to tax is considered inherent in a sovereign state? (2003)

SUGGESTED ANSWER:

Taxation is inherent in nature being an attribute of sovereignty and consequently it exists with
or without a constitutional provision to the effect.

This is so, because without revenues collected from taxation the state could not perform
functions for which it has been organized and its continued existence would be subject to danger.

BAR QUESTION:

Describe the power of taxation. May a legislative body enact laws to raise revenues in the absence of a
constitutional provision granting said body the power to tax? Explain. (2005)

SUGGESTED ANSWER:

The state’s power to tax is two-fold. Because it is both an inherent power and a legislative
power.

Yes, the power to tax is inherent in the State, such being inherently legislative, it exists with or
without a constitutional provision to the effect.

This is so, because without revenues collected from the taxation the state could not perform the
functions for which it has been organized and its continued existence would be imperiled.
CHARACTERISTICS OF TAXATION (1980 and 1988)
– The above questions shall be explained when the lifeblood theory would be discussed

1. Attribute of sovereignty (Inherent in nature) Does not include the power to destroy
2. Legislative in Nature
3. Imprescriptible
4. Applies prospectively
5. Subservient to the non- impairment clause
6. May be exercised jointly with police power

PURPOSES OF TAXATION (1976, 1977, 1978 and 1979)

1. Inherent power of sovereign
2. Exercised through the Legislature
3. To raise revenues

Primary Purpose: Revenue

Secondary Purpose: Compensatory (1976 and 1978)
Regulatory or Sumptuary

*Revenue Raising
1. The basic purpose of taxation is to raise revenues
2. Taxes are imposed in order to raise funds used to meet the legitimate objectives of
government. This is sometimes referred to as the “lifeblood” theory of taxation
3. Revenue generation has undoubtedly been a major consideration in the passage of the
Tax Code (CIR vs Fortune Tabacco Corporation, GR Nos. 167274-75, July 21, 2008)

*Secondary (NON-REVENUE/ SPECIAL OR REGULATORY)

Compensatory Purpose:
1. Realize Social Justice
2. Achieve equal distribution of wealth
3. Economic progress
4. Maintain high level of employment

BAR QUESTION
How may the power to tax be utilized to carry out the Social Justice program of our
government? (1976)

SUGGESTED ANSWER:
The power to tax carries out the social justice program of our government through
redistribution of income using the progressive system of taxation.
 This is also known as the compensatory purpose of taxation which through the use of
the progressive system of taxation, results to equal distribution of wealth, etc.
Progressive income taxes alleviate the margin between rich and poor.

BAR QUESTION
The Constitution provides - “The rule of taxation shall be uniform and equitable. Congress shall
evolve a progressive system of taxation.” (Article VI, Sec. 28 (1)
Discuss briefly the rationale for its inclusion in the 1987 Constitution.

SUGGESTED ANSWER:
Implementation of the social justice provisions of the constitution is the rationale for the
inclusion of the progressive system of taxation in the 1987 Constitution.
Social justice is exemplified in the adage, he who has less in life should have more in
law.
Under the progressive system of taxation the higher the net income is the higher the tax
to be paid.
However, irrespective of the amount of taxes paid, equal access is to be had of the
public services and infrastructure resulting from the expenditure of public funds.

*Secondary (NON-REVENUE/ SPECIAL OR REGULATORY)

Regulatory or Sumptuary Purpose:
1. Joint exercise of power of taxation and police power
2. Levied for a regulatory purpose to provide means for the rehabilitation of a threatened
industry which is affected with public interest
3. “Sin taxes” on alcohol and tobacco products help dissuade consumers from excessive
consumption
4. Amount collected may exceed cost of police surveillance and regulation

BAR QUESTION:
Discuss the purposes of taxation (1978)

SUGGESTED ANSWER:
The purpose of taxation may either be classified in the primary and secondary purposes.
The primary purpose is to raise funds to meet the functions for which the government
has been organized. The secondary purpose is where the purpose is primarily for some other
purpose although revenue may incidentally be raised.
The purpose may be compensatory which is implemented under the progressive system
of taxation the higher the net income is the higher is the tax to be paid.
However, irrespective of the amount of taxes paid, equal access is to be had of the
public services and infrastructure resulting from the expenditure of public funds.
 Another is the regulatory purpose where taxes serves to limit personal freedom or the
use of property in order to promote general welfare and to protect the health and safety of the
inhabitants.
This is exemplified though the imposition of the so called sin taxes on the sale and
manufacture of tobacco products in order to make them expensive thus limiting their use which
results to protection of health of the general populace.

Other FORMS of EXACTION (as distinguished from TAX)

1. Tariff
2. Toll
3. License Fee
4. Special Assessment
5. Debt
Basis for the distinctions of TAX and TARIFF: CONCEPT, IMPOSING AUTHORITY, SUBJECT
MATTER, and COLLECTING AUTHORITY

1.CONCEPT, Tax is an embracing term which INCLUDES VARIOUS CONTRIBUTIONS imposed

UPON PERSONS for the attainment of public purpose WHILE a Tariff should be understood to
mean a kind of tax IMPOSED ON ARTICLES which are traded INTERNATIONALLY.
2. IMPOSING AUTHORITY, A tax may be levied by the NATIONAL GOV’T OR LOCAL GOV’T units
WHILE Tariff is always levied by the NATIONAL GOV’T.
3. SUBJECT MATTER, A tax may be levied upon domestic or imported products WHILE a tariff is
generally imposed ONLY upon imported or exported articles.
4. COLLECTING AUTHORITY, A tax is usually collected either by the Bureau of Internal Revenue
or a local government unit WHILE a tariff is collected by the Bureau of Customs.

Basis for the distinctions of TAX and TOLL: PURPOSE, BASIS, SUBJECT or OBJECT, AMOUNT,
IMPOSING AUTHORITY, SURRENDER, and EXEMPTIONS
1. PURPOSE, a tax is for revenue raising WHILE a toll is for reimbursement for the expenses
of infrastructure (express way)
2. BASIS, a tax is LAW, toll is CONTRACT
3. SUBJECT or OBJECT, tax subject is general WHILE toll used of a particular infrastructure
(road, bridge)
4. AMOUNT, tax is UNLIMITED, toll is LIMITED to the cost of reimbursement plus a
reasonable
5. IMPOSING AUTHORITY, tax , GOV’T, toll could be a PRIVATE ENTITY
6. SURRENDER, Gov’t to its prerogative, toll is paid to the owners
7. EXEMPTIONS, tax is LAW, toll is CONTRACTUAL AGREEMENT OF THE PARTIES
Basis for the distinctions of TAX and LICENSE FEE (LF): PURPOSE, AMOUNT, TIME OF PAYMENT
1. PURPOSE – tax is for raising revenues, LF is for purpose of regulations (to promote
general welfare and to protect the life, health, safety and morals of the inhabitants)
2. AMOUNT – tax is UNLIMITED sometimes include the power to destroy, LF is LIMITED
only to the cost of inspection, regulations and control (should not go beyond that
otherwise there will be grave abused of POLICE POWER)
3. TIME OF PAYMENT – tax is after the business has already been started (INCOME TAX), LF
PRE CONDITION in order to start a business
4. MODE OF PAYMENT – tax is in MONEY, LF is in MONEY
5. EFFECT of FAILURE TO PAY – in tax, TAX EVADER WHILE in LF is not paid as a pre-
condition business is ILLEGAL
6. SURRENDER – In TAX, gov’t to prerogative, In LF, there is a surrender of some
governmental prerogatives
7. EXEMPTION – tax may be subject to exemptions but LF is NOT subject to exemptions
8. RELATION TO THE NON IMPAIREMENT CLAUSE – tax arise from power of taxation. In LF,
WHY IT IS IMPORTANT?
The distinctions are important because there are limitations to the collection of one that
are not present in the other. Thus, we would know whether the collection is that of taxes or
that
of a license fee.

Basis for the distinctions of TAX and SPECIAL ASSESSMENT (SA): SUBJECT, AMOUNT, LIABILITY
1. SUBJECT, in tax general, in SA in LAND or REAL PROPERTY
2. AMOUNT, in tax UNLIMITED sometimes include the power to destroy, in SA LIMITED
only to the recovery of expenditure made by the local gov’t
3. LIABILITY- in tax ANYBODY, in SA imposed only upon the land benefited of its
expenditure
4. BASIS- tax to collect based on POWER OF TAXATION, in SA local gov’t purely to
REIMBURSE so far as expenses is concerned for infrastructure benefiting some LAND.
5. APPLICATION – tax to meet governmental functions, in SA merely to be used for the
reimbursement already made
6. SURRENDER – tax is gov’t in SA to benefited (reimbursement)

Basis for the distinctions of TAX and DEBT:

1. BASIS- tax is Statute (forced contribution), Debt is agreement of the parties (entered
VOLUNTARILY)
2. FAILURE TO PAY – tax can be criminalized, debt or poll tax (ex. Community taxes..tax
imposed on a per head/capital basis) cannot be imprisoned
3. MODE OF PAYMENT (extinguished) – tax MONEY, DEBT many ways in OBLICON like
performance, condonation, compensation
 4. ASSIGNABILITY – tax is NOT ASSIGNABLE WHILE Debt is ASSIGNABLE
5. COMPENSATION & SET OFF – tax is not a subject of it. Debt can be subject
6. INTEREST – tax is always due WHILE debt, dependent upon parties
7. PRESCRIPTION – tax stated in statute. Debt governed by CIVIL CODE
8. AUTHORITY- tax is imposed by GOVERNEMENT. Debt imposed by agreement of the
PARTIES.

WHEN TAX IS ALSO A DEBT?

Sambrano vs. CA (1957) - tax is also imposable by JUDICIAL ACTION
Republic vs. First East American (1963) – period of prescriptions and payments is similar to
DEBTS
Commissioner vs. Palanca (1966) – in the payment of business taxes.

DISTINCTION OF POLICE POWER, POWER OF TAXATION, POWER OF EMINENT DOMAIN

Similar to TAX vs. LF = POWER OF TAXATION (property taken: MONEY- Constructive (to
governmental functions) it benefits general populace and POLICE POWER (What is taken
that is the cause of EVIL – Destructive – all are destroyed) Note: Money is not the source of
EVIL, it is the in ordinate LOVE FOR MONEY that is the source of EVIL.

Police power is superior to NON-IMPAIRMENT CLAUSE (more urgent)

Power of taxation is subordinate to NON-IMPAIRMENT CLAUSE

CLASSIFICATION IN TAX (The law allows for a valid classification –

always there is discrimination)
1. Substantial distinction
2. Classification is germane to the purpose of law
3. Must be applicable only to existing conditions
4.

JOINT EXERCISE OF POWER OF TAXATION AND POLICE POWER (to supply the weakness of each
other)

EMINENT DOMAIN- 20% Senior Citizen

Limitation: Private Property shall not be taken for public use without just compensation.

POWER OF TAXATION and POWER OF EMINENT DOMAIN

1. Who could exercise? PT is the legislative dep’t, PED is the executive dep’t
2. Property taken – PT is MONEY generally, PED is PROPERTY specifically LAND
3. Disposition of Property – PT is INDIRECT disposition, PED is DIRECT and IMMEDIATELY
 4. Benefit derived – PT is INDIRECT , PED is DIRECT benefit due to compensation
5. Authority – PT COURT do not intervene , PED is generally COURT
POLICE POWER and POWER OF EMINENT DOMAIN
1. Purpose- PP is general welfare, PED taking property for public use
2. Rights affected- PP is Property and personal rights (liberty), PED is right to land only
3. Payment – PP is NO PAYMENT ,PED is JUST COMPENSATION
4. Who exercises the Power? – PP Executive does not need Judicial intervention, PED
Executive also there is a need for Judicial intervention
THEORY AND BASIS OF TAXATION
 LIFEBLOOD THEORY (1973, 1976, 1991, 2011 and 2016)
1. Gov’t existence necessity
2. Performance of all governmental functions redounds to all
3. Revenues could be raised

BAR QUESTION:
Discuss the meaning and the implication of the following statement: “Taxes are the lifeblood of
government and their prompt and certain availability is an imperious need. ” (1991)
SUGGESTED ANSWER:
The Lifeblood doctrine is the underlying theory of taxation.
Taxes constitute the blood that runs through the veins of the government for without
taxes, the government can neither exist nor endure.

PRINCIPLES THAT FLOW FROM THE LIFEBLOOD THEORY OF TAXATION

1. Power of taxation is PLENARY and UNLIMITED
2. It includes the power to destroy
3. Presumption that laws are valid
4. Right to collect taxes is imprescriptible
5. No injunction rule
6. No compensation and set-off

POWER TO TAX NOT TO DESTROY OR DESTROY

The power to tax involves the power to destroy (United Chief Justice Marshall in McCulloh vs,
Maryland, 17 US 316, 4 Wheat, 316 4 L ed. 579, 607 (1819))
VS.
The power to tax is not the power to destroy while this court sits. (Justice Holmes in Panhandle
Oil Co. vs Mississippi, 277 US 218)

How to reconcile?
Marshall referring to a VALID TAX. Holmes referring to an INVALID TAX

SUGGESTED ANSWER:
 The Marshall view that “the power to tax involves the power to destroy,” refers to a
valid TAX while the Holmes dictum that “The power to tax is not the power to destroy while this
court sits,” refers to an invalid tax
A valid tax could not be nullified on the basis that it shall result to the destruction of
property rights while an invalid tax could be invalidated by a court and could not anymore be
the source of the power to destroy.

OR
The Marshall view that “the power to tax involves the power to destroy,” is reconciled with the
Holmes dictum that “The power to tax is not the power to destroy while this court sits,” in the
following manner.
a. The imposition of a valid tax could not be judicially restrained merely because it would
prejudice taxpayer’s property
b. An illegal tax could be judicially declared invalid and should not work to prejudice a
taxpayer’s property
c. Marshall’s view refers to a valid tax while the Holme’s view refer to an invalid tax

 NECESSITY THEORY (2016) –

1. The theory behind the exercise of the power to tax
2. Emantes from necessity,
3. Without taxes, - government cannot fulfill its mandate of promoting the
GENERAL WELFARE and WELL-BEING of the people. (GR No. 149110, Apr 9,
2003)

 BENEFITS-PROTECTION THEORY (SYMBIOTIC RELATIONSHIP) (1973, 1978, 2011,2016)

1. The reciprocal relation of protection and support between the state
and the taxpayers.
2. The state gives protection and for it to continue giving protection, it
must be supported by the taxpayers in the form of taxes.
3. Taxes are what we pay for a CIVILIZED SOCIETY. Without taxes,
government would be paralyzed for lack of motive power to activate
and operate it. Despite the natural reluctance to surrender part of
one’s hard earned income to the taxing authorities, every person who
is able must contribute his share in running the government.
4. 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.
5. The 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 (Commissioner of Internal Revenue vs.
San Miguel Corporation, Jan 25, 2017)
  JURISDICTION OVER THE SUBJECT AND OBJECTS
1. Jurisdiction by the state over PERSON and PROPERTY within its territory
LONG ARM STATUTES (not discussed in PH but in US)
2. Power of taxation is TERRITORIAL in character
3. Exception to the TERROTORIAL character:
a. Resident citizens taxed on incomes from without
b. Mobiia sequuntur personam
c. Subject or Object is inside the PH but NOT TAXED (inside not
taxed, COMITY we don’t tax the income for example of
Diplomatic, RECIPROCITY)

Filipino resides abroad and his or her properties are outside the PH. cannot be taxed because
the there is no reciprocal duties like protection.

PRINCIPLES, CANONS, CHARACTERISTICS OF A SOUND TAX SYSTEM

1. Fiscal Adequacy (2011) – The means that the tax system must be able to generate
sufficient revenues in order to meet the legitimate objects of the government. Stated
otherwise, the taxes collected must be able to finance government expenditures and
their variations.
2. Theoretical Justice – This means that taxes should be collected premised on the ability
to pay.
3. Administrative Feasibility – The tax measures should be implemented in order to assure
the smooth flow into the treasury of the fiscally adequate revenues. (Which means that
the fiscally adequate laws could easily be collected from those who are able to pay).

STAGES OR ASPECTS OF TAXATION (1965 and 2006)

LEVY (NOT YET ASKED) – levy is the imposition of the tax by the taxing authority.
ASSESSMENT (NOT YET ASKED) in relation with TAX REMEDIES – The determination of the amount
of tax to be paid or the determination of the value of the property subject to tax. (Usually it is
the EXECUTIVE DEPARTMENT that makes ASSESSMENT)
COLLECTION (2011) – This stage prescribes the means, process and method of implementing
the tax law for the purpose of satisfying obligation. The actual effort in obtaining payment of
the tax.
PAYMENT (NOT YET ASKED) – Payment by the taxpayer of the tax is satisfaction of the tax
burden by whatever means that are available to him under the law.

Payment of tax in KIND (2009 and 2013) – discretionary on the part of BIR
 Not prohibited but not advisable
 Taxes are pecuniary burden
 Administrative feasibility may be affected due to valuation problems.
SUGGESTED ANSWER:
 True. There is no law that prohibits or allows it. It may be allowed under the lifeblood
theory to ensure the inflow of revenues into the coffers of the government.

REFUND (NOT YET ASKED) in relation with TAX REMEDIES - The return to the tax payer of illegally
collected, erroneously or excessive paid taxes.

STAGES OR ASPECTS OF TAXATION (1965 and 2006)

LEVY – ASSESSMENT – COLLECTION – PAYMENT - REFUND

In BAR asked only for 3 STAGES: (just combine)

1. Levy which is imposition of the tax
2. Assessment and collection. This is the stage where the state determines the amount to
be collected and the act of the state to demand satisfaction of the tax determined.
3. Payment. The satisfaction by the taxpayer of the tax assessed by the executive
department.
If not limited by numbers (state 5 stages)
1. Levy. The imposition BY THE LEGISLATURE of the amount of taxes to be paid.
2. Assessment. The determination by the EXECUTIVE DEPARTMENT of the amount of tax
due from the taxpayer
3. Collection. It is the act of EXECUTIVE DEPARTMENT in seeing to it that the assessed tax is
satisfied.
4. Payment. It is the act OF TAXPAYER in the satisfaction of the tax.
5. Refund. It is the return to the taxpayer by the EXECUTIVE DEPARTMENT of illegally
collected, or erroneously paid taxes.

REQUISITES OF A VALID TAX (1965, 1967 and 1971)

1. A valid tax should be within the jurisdiction of the taxing authority. (territoriality)
2. That the assessment and collection of certain kinds should be for public purpose (the
same as the inherent limitations of the power of taxation)
3. The rule of taxation should be uniform.
4. That either the person or the tax itself guarantees against injustice to individuals,
especially by way or notice and opportunity for hearing (judicial concept)
5. the proper procedure for its enactment must be observed
SUGGESTED ANSWER:
1. It should be for a public purpose
2. The rule of taxation should be uniform
3. That either the person or property taxed be within the jurisdiction of the taxing
authority.
4. That the assessment and collection of certain kinds of taxes must observe guarantees
against injustice to individuals, especially providing such guarantees by way or notice
and opportunity.
 5. The tax must not impinge on the inherent and Constitutional limitations of the power of
taxation.

KINDS OF TAXES (1967)

Taxes are classified according to
1. Object or Subject (1965)
 Personal, Poll, Capitation – per head basis (Community taxes) Natural or Juridical
person
 Property – on the privilege to use property
 Excise taxes – Privilege to do something (engage in business)

2. Burden or incidence (1965 and 2001)

 Direct –
DIRECT TAXES (directly paid by an individual not to a 3rd person)
Where the burden is borne by the taxpayer.
 Income tax
 Estate tax
 Donor’s tax
 Branch profits remittance tax
 Tax on improperly accumulated income
 Indirect -
INDIRECT TAXES (imposed upon the Consumers)
Where burden of the tax could be shifted to somebody else
 Value-added tax
 Excise tax
 Documentary stamp taxes
 Other percentage taxes
 Almost all business taxes

DIRECT TAXES vs. INDIRECT TAXES (1977, 1994, 2000 and 2001)
In a DIRECT TAX the burden of taxation falls directly upon the taxpayer and may not be
shifted to others while in an INDIRECT TAX the burden of taxation may be shifted or transferred
to others;
DIRECT TAXES are usually personal taxes due from natural person, such as income tax,
donor’s tax, estate tax, etc. while INDIRECT TAXES are usually business taxes due from juridical
persons such as Value-added Tax (VAT) documentary stamp tax, etc.

TAX PYRAMIDING (2006) – a tax imposed upon a tax. (Invalid and Illegal).
The practice of imposing a tax upon another tax.
It is a situation where some or all of the stages of distribution of goods or services are taxed,
with the accumulation borne by the final consumer.
There is a tax pyramiding when sales taxes are applied to both inputs and outputs, thus
shifting the tax burden to the ultimate consumer. (Foreign Authority).
 It has no legal basis. It is prohibited as a taxpayer cannot be compelled to pay a tax on the
tax itself. (READ: People of the Philippines vs. Sandiganbayan etc., et al., GR No. 152532,
August 16, 2005) Thus it violates the PRINCIPLE OF UNIFORMITY AND NEUTRALITY in
taxation.

3. Tax rates (not yet asked in the BAR)

 Specific – tax computed upon a unit of measure (per dozen, per kilo)
 Ad Valorem – it is tax imposed upon the value of the article
 Mixed or Compound – example: Tax is 10 pesos per piece plus 20 pesos ad
valorem

4. Purposes (1965)
 General, Fiscal or Revenue-
 Special or Regulatory- both an exercise of Police Power and Power of Taxation

5. Authority to impose (1964 and 1965)

 National
 Local or Municipal
BAR QUESTION:
Name 3 sources of basic tax laws of the Philippines (1964)

6. As to Graduation (not yet asked in the BAR)

 Progressive - taxation is progressive when its rate goes up depending on the
resources of the person affected.
PROGRESSIVITY IS NOT REPUGNANT TO UNIFORMITY AND EQUALITY. (The law
allows for a valid classification – because there is always a discrimination)
Uniformity does not require that things which are different should be treated the
same.
 Regressive – the tax decreases as the income of the taxpayer increases.
 Proportionate/Proportional System – Tax increases or decreases in relation to
tax bracket.

GENERAL CONCEPTS IN TAXATION

 Prospectivity of tax laws (1979, 2007) – Tax laws, unlike in remedial laws, are not to be
applied retroactively. A retroactive application would violate the taxpayer’s due process
rights. He could not violate a law that does not exist.
Effect of REPEAL OF A REVENUE LAW on a previously assessed tax (1979) NO
RETROACTIVE
The previously assessed and demanded tax may still be collected. The repeal is to be
construed as an exemption that must be strictly construed. After all, tax laws do not have
any retroactive application even if favorable to the tax payer because tax laws are not
considered as part of remedial or criminal law.
 RETROACTIVE APPLICATION OF RULES AND REGULATIONS (as a GR No retroactive but
there is in some case)
Where the taxpayer deliberately misstates or omits facts from his return or any document
required of him by BIR; where the facts subsequently gathered by the BIR are materially
different from the facts on which the ruling is based; or where the taxpayer acted in bad
faith.

 Imprescriptiblity (not yet asked in the BAR) but there is in TAX REMEDIES– Lifeblood
doctrine (but there is prescription in collection of NIRC and other laws) just to provide
due process and prevent BIR from abusing this power of taxation.
Generally imprescriptible:
Rationale: Lifeblood Doctrine
Exceptions: If provided for by law
Rationale: Due process

 Situs of taxation – Situs meaning, the place or authority that has the right to impose and
collect taxes
BASIS OR DETERMINANTS OF SITUS OF TAXATION
 Jurisdiction
 Symbiotic relation

 Double taxation (favorite to be ASKED 1976, 1978, 1997 and 2016) –

Taxing the same subject or object twice

KINDS OF DOUBLE TAXATION

1. Direct duplicate which violates the equal protection and uniformity
clauses
IN ITS STRICT SENSE direct duplicate taxation violates equal protection (1976, 1978, 1997, 2014,
2016 and 2018)
Elements:
st
1 element SAMENESS:
 Object or subject is taxed twice
 Taxing Authority
 Taxing Purpose
 Taxing Period
2nd element TAXING the 1st TIME WITHOUT TAXING ALL FOR THE 2nd TIME

NOTE: absence of 1 element there will be only a case of INDIRECT DUPLICATE. Because not
violative of the equal protection clause. So 2 ELEMENTS MUST BE PRESENT.

BAR QUESTION (2018)

Is there a Double Taxation?
SUGGESTED ANSWER
Yes. This amounts to double taxation because KM Corporation is taxed twice, when it should be
taxed but once.
There is indeed double taxation since KM Corporation is subjected to the taxes under both
sections 15 (tax on wholesalers, distributors or dealers), 17 (tax on Retailers) and 21 (tax on
business subject to excise, value added and percentage taxes under the NIRC) of the Revenue
Code of Kalookan City. (READ: Nursery Care Corporation, et al., vs. Acevedo, etc, et al., GR No.
180651, July 30, 2014)

2. Indirect duplicate which is not repugnant to the Constitution.

IN ITS BROAD SENSE Indirect duplicate taxation No Constitutional violation. (1964, 1971, 1976,
1980, 1984, 1996, 2004, 2011, 2013, 2015, 2017, and 2019)

In general,
 Taxing the SAME SUBJECT or OBJECT TWICE during the SAME TAXING PERIOD.
 Absence results to INDIRECT DUPLICATE TAXATION.
 No violation of equal protection and uniformity clauses.
READ: GR No. 149636, June 8, 2005
SUGGESTED ANSWER:
There is double taxation because X is taxed twice.
However, this type of double taxation is not prohibited by the Constitution because it is
not direct duplicate taxation violative of equal protection and uniformity in taxation.
The reason is that the taxes are imposed for different purposes and by different taxing
authorities.

Double taxation means taxing the same property twice when it should be taxed only once; it is
tantamount to taxing the SAME PERSON twice by the SAME JURISDICTION for the SAME THING.

BAR QUESTION:
Is double taxation a valid defense against the legality of a tax measure? (1997)

SUGGESTED ANSWER:
Double taxation may or may not be a valid defense against the legality of a tax
measure.
If the double taxation is direct duplicate taxation it could be a valid defense because it is
violative of the uniformity of taxation and the equal protection clause of the Constitution.
If the double taxation is indirect duplicate taxation it could not be a valid defense
against a tax measure.
The tax measure would be valid because it does not violate the uniformity and equal
protection clauses of the Constitution.
CONSTITUTIONALITY OF DOUBLE TAXATION
(1971, 1972, 1976 and 1978)
Unlike U. S. Constitution, no specific prohibition, but direct duplicate taxation may
violate equal protection and uniformity of taxation.

REITERATION OF CONCEPTS:
1. Direct duplicate taxation nullifies tax measures.
2. Indirect duplicate taxation does NOT invalidate tax measures.

MODES OF ELIMINATING DOUBLE TAXATION (1975, 1997, 2010 and 2015)

1. Statute Method
 Tax Credit method – where foreign taxes are
allowed as deductions from local taxes that are
due to be paid. Allowing foreign taxes as a
deduction from gross income. Reduction of the
income tax rate. Tax treaties which exempt foreign
nationals from local taxation and local nationals
from foreign taxation under the PRINCIPLE OF
RECIPROCITY.
Question: Dividend income of Filipino citizen taxed in US and taxed in PH, has the tax code
provided any remedy for such taxpayer?
Answer: Yes, because he could use the foreign income taxes as a tax credit or as a deduction
from the Philippine income taxes that may be due from him.

Question: What are the usual methods of avoiding the occurrence of double taxation?
Answer: The following are the methods foe easing the economic burden of double taxation:
1. Tax treaties which exempts foreign nationals from local taxation and local nationals
from foreign taxation under the PRINCIPLE OF RECIPROCITY.
2. Tax Credits where foreign taxes are allowed as deductions from local taxes that are due
to be paid.
3. Allowing foreign taxes as a deduction from gross income
4. Reduction of income tax rates.

 Tax Deduction Method

 Rate Reduction Method

2. Tax Treaty Method (NO BAR QUESTION YET)

Purpose: To reconcile the national legislations of the
contracting parties in order to help the taxpayer avoid
simultaneous taxation in TWO DIFFERENT JURISDICTIONS.
 More precisely, the tax convention are drafted with a view
towards the elimination of international juridical double
taxation.

Methods resorted to by a TAX TREATY TO ELIMINATE DOUBLE TAXATION

First Method: The tax treaty sets out the respective rights to tax by the state of source or situs
and by the state of residence with regard to certain classes of income or capital. In some cases,
an exclusive right to tax is conferred on one of the contracting states however, for other items
of income or capital both states are given the right to tax although the amount of tax that may
be imposed by the state of source is limited.

Second Method: The state of source is given a full or limited right to tax together with the state
of residence. In this case, the treaty makes it incumbent upon the state of residence to allow
relief in order to avoid double taxation. Two methods of relief are used under the second
method:
o The exemption method
o The credit method (GR No. 127105, June 25, 1999)

International Juridical double taxation (Indirect Duplicate Taxation): The imposition of

comparable taxes in two or more states on the same taxpayer in respect of the same subject
matter and for identical grounds.
Double taxation usually takes place, when a person is a resident of a contracting state and
derives income from or owns capital in the other contracting state and both states impose tax
on that income or capital
Rationale: 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.
Foreign investments will only thrive in a fairly predictable and reasonable international
investment climate and the protection against double taxation is crucial in creating such
climate.

 Escape from taxation

 Shifting of tax burden (1972, 1974, 2004, 2006, 2017 and 2019)
 Ways of shifting the tax burden – including the indirect tax in
selling price.
o Billing or listing the indirect tax separately (ceases
to be tax just a part of selling price) ex: All
business taxes
 Taxes that can be shifted
 Meaning of impact and incidence of taxation
RULE ON EXEMPTIONS FROM INDIRECT TAXES
The liability for the payment of indirect taxes lies with the seller and not with the buyer.
One cannot invoke his tax exemption privilege to avoid or the shifting of an indirect tax,
as such the VAT, to him by the manufacturers/suppliers of goods he purchased.

There is no violation of the tax exempt privilege even if the indirect tax, e.g. sales tax, is
billed separately in the sales invoice chargeable to the buyer because this merely avoids
the payment of the tax by the seller who is liable for the tax. The additional amount paid
by the buyer is not payment for the tax but payment for the PURCHASE PRICE. The
excise tax on aviation fuel is an indirect tax.

The proper party to question or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whim the tax is imposed by law and who paid the same even if
he shifts the burden thereof to another.

 Tax avoidance
 Tax evasion