General Principles 22/06/2015 18:18:00
GENERAL PRINCIPLES
Sec 42: Income Tax Situs / Location / Place (last asked: 1957)
Services - where such services are performed / rendered
Sale of real property – location of real property
Sale of personal property – place of sale (GR; X: Gross Philippine Billings)
Interest income – residence of the debtor (National Development Corporation v Commissioner)
GENERAL PRINCIPLES
Scope – Local Taxation (2007) / National Taxation
The power of taxation may be described as…(CUPS)
Comprehensive – The power to tax reaches to every trade / occupation, to every object of industry, to every space of possession, and in case of failure to
discharge the same, may be followed by confiscation / forfeiture of property (e.g. tax is imposable on exercise of profession, possession of property, use / enjoyment of a right)
o Consequences in case of failure to pay tax - Distrain of personal property, Levy
Simple: The power to tax co-exists with the State. It exists independently of the Constitution. Such Constitutional limitations merely regulate imposed
limitations on the exercise of the power to tax. (p.14 footnote 17)
Authoritative: The power to tax is inherent in the sovereign state because it is a necessary attribute of sovereignty. Without this power, no state can exist nor enjoy. The power to tax proceeds from the theory that the existence of the
government is a necessity.
It is an essential and necessary attribute belonging as a matter of right to every independent state or government. No state can exist w/o the means to pay its
expenses, hence the power to compel the payment of taxes (Emergence of
the power to tax)
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As a principal attribute of sovereignty, the exercise of the power to tax derives its source from the very existence w/ the State, whose social contract with the citizens obliges it to promote the common good. It emanates from the theory of necessity; without taxes government cannot fulfill its mandate of promoting the general welfare and well-being of the people. (Yuchengco, BPI v.
Commissioner)
Legislative
Why is the power to tax legislative in character: (p.15, footnote 18)
Simple: It is legislative because the power to tax is vested exclusively in the law-making body of the State. It is Congress that has the power to enact tax
laws.
Impressive: It is based on the theory that taxes are a grant of the people, and this grant shall be made by the immediate representatives of the people. And where the people have laid this power, then it shall remain to be exercised.
Explain the Symbiotic Relationship Theory between the State & its inhabitants as espoused in Commissioner v. Algue
Despite the natural reluctance to surrender part of one’s income to the taxing authorities, every person who is able to must contribute his share in the burden of running the government. The government for its part is expected to re-spend in the form of tangible & intangible benefits intended to improve the lives of the
people, and enhance their material & moral values.
Ability to Pay
Taxes must be based on taxpayer’s ability to pay. Basis of equitable taxation
Constitutional Basis: Art VI Sec 28 (1) o Uniform & equitable
o The government on its part emphasizes the reciprocal duty of the government
Purposes:
Primary: Raise Revenue
P rotect local industries against unfair foreign competition (TCCP) o Countervailing and dumping duties
I nequalities (reduce…) – to promote social justice, it must adopt a system which must impose just, fair & reasonable taxes: progressive system of taxation
Encourage the growth of local industries & manufacturers – Power to tax includes the power to grant exemptions, tax amnesties, tax condonations
R egulatory purposes – as an implement of the police power of the State
Does the power to tax include the power to destroy?
The power to tax does not include the power to destroy as long as the Court sits.
Reconcile these seemingly conflicting pronouncements / opinions (see p.20 Dimaampao)
Justice Marshall is correct that the power to tax includes the power to destroy if used validly as an implementing
Justice Holmes is also correct. If it is used solely for the purpose of…
The power to tax may be used as an implement of the power of eminent domain.
Taking / expropriation of private property
o E.g. RA 7432 as amended by RA 9257: Covered establishments are mandated to grant 20% to Senior citizens. It is now a deductible tax, no longer a tax credit.
For public use / purpose – Has no concrete definition; Test cited: the ultimate result, general welfare of the people. Special care and attention to Senior
Citizens may create social problems. Thus, it will in effect redound to the general benefit of the people.
o If the beneficiary is any of the following, it within the contemplation of public purpose (Art XIII Sec 11 as cited in Carlos Rach Co. v.
Commissioner):
Payment of just compensation – Could be claimed as a deductible tax.
Tax Credit v. Deductible Tax
Tax Credit Deductible Tax
Reduces TP’s tax
liab
Reduces TP’s taxable income
City Trust v. CA 234 SCRA 348 – improved version of the lifeblood doctrine in Commissioner v. Molina, etc
Taxes are the lifeblood of the nation, through which government agencies continue to operate, and which the State continues its functions…
Is deficiency assessment a bar to a claim for refund?
Deficiency Assessment of a Claim for Refund – To avoid multiplicity of suits & prevent absurdity, the claim of the taxpayer that there is tax deficiency must first be settled.
Reason: An error / mistake is not binding on the government.
o OMEN of government officials, BIR, agents of the government shall not be binding upon it.
Omissions, mistake, error, negligence
City Trust - 499 SCRA 77: different answer – no, it will not bar such claim for refund.
Claim for refund and protest are governed by different rules. If the government made an assessment, and subsequently the taxpayer files a written claim for refund,
Fundamental Principles of a Sound Tax System (Abakada Guro v. Ermita) – FAT
Fiscal Adequacy
- Administrative Feasibility – Art VI Sec 28 par 1
Theoretical Justice / Equality -
To be considered sound, legal / constitutional basis does not necessarily follow.
Inherent Limitations on the Exercise of the Power of Taxation (PINET)
Public purpose (Senior Citizens Act)
International Comity
Non-delegation of the power to tax
o Art VI Sec 28 Par 2: Tariff power of the president o Art X Sec 5: Power of LGUs
Exercised thru the local legislative council
Subject to guidelines & limitations (Memorize: Fundamental principles of LG / RP Taxation: Sec 130 – principles of local gov’t taxation & Sec 198 – fundamental principles of LG taxation, LGC)
Imposes / provides 15 limitations (Sec 133)
Local government units cannot impose national, donor’s, estate taxes
No tax may be imposed on instrumentality of the NG, its agencies, LGUs
Based on sound public policy that the State may not tax itself (no constitutional prohibition; mere statutory provision in RA 7160, which Congress can repeal)
Mactan Cebu Int’l Airport Authority v. Marcos (261 SCRA 667, 1996): MCIAA is subject to RPT
Mla Int’l Airport Auth case (495 SCRA): MIAA is exempt from RPT on its airport lands & buildings
Distinctions: MCIAA is a GOCC. All exemptions granted to GOCCs are withdrawn upon effectivity of
RA 7167 – considered as an instrumentality.
MIAA is not an instumentality of the national government is not qualified under Sec 2 Par XIII of
the Revised Admin Code.
o Meaning of instrumentality v GOCC
MIAA v. Pasay City
Justice Tinga & Justice Nachura:
Adopted the majority view. MIAA is not considered as a GOCC (Sec 2 Title X – Definition of
instrumentality)
Now: Exempt from R/PT.
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Instrumentalities of National Government
Bangko Sentral ng Pilipinas
UP
PPA
MCIAA – instrumentality of the government.
Therefore, exempt
P
Exemption from tax of Government
Territoriality
Tax Evasion (Estate of Benigno Toda Jr. v. Commissioner) – 3 Factors that concurs for tax evasion to arise:
Unlawful
State of mind – must be coupled with bad faith, evil, deliberate
End to be achieved – reduce taxpayer’s liability / evade payment of tax
Double Taxation – may either be direct or indirect
Direct double taxation is prohibited.
o Same
Taxpayer
Taxing authority
Taxable period
Nature of tax
Indirect double taxation is allowed.
o If taxing authorities are different o International Juridical Double Taxation
Different taxing authority
Same
Taxpayer
Taxable period
Subject: e.g. Royalties
Methods to mitigate the harshness of double taxation / avoid its occurrence:
Tax credit method, as embodied in a tax treaty – Sec 34C item 3
Exemption method – reciprocity
Vanishing deduction - Method under the law on estate tax designed to mitigate the harshness of double taxation Requisites:
Death of present decedent must have occurred within 5 yr period from previous decedent
Identity of the property with that inherited from prior decedent
Previous taxation
Inclusion of the property in the prior estate
No previous VD
GR: Exemptions are strictly construed against the taxpayer
X: Liberally construed in favor of the TP
Special persons under special circumstances
Agency of the government (Maceda v. Macaraig)
Law provides for liberal interpretation
Traditional exemptees: non-stock, non-profit organizations (e.g. Charitable, Religious, Philanthropic organizations)
GR: Taxes are not subject to set-off (Mambulao Doctrine 1961, Francia v. Sia doctrine 1997)
Taxes are not subject to set-off / compensation. A pending claim for tax credit / tax refund can not be set off against the tax deficiency of the taxpayer. It may only be allowed if the claim is demandable, due and liquidated. (Phoenix Mining
v. Commissioner)
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X: There was already a law appropriating an amount in payment of the claim of the TP. [TP and government are not considered Drs-Crs of each other.] (Domingo v. Garlitos, 1962)
City Trust Case
Taxpayer’s Suit (Abaya v. Ebdane Jr)
Requires disbursement / illegal expenditure of public fund derived from taxes
came from contributions (Marcos case 65 SCRA 624)
no need to present proof of direct injury, for as long as evidence of illegal disbursement / expenditure of public fund, TP suit will lie (Maceda case)
illegal contracts which may involve disbursement of public fund (Abaya v.
Ebdane)
Provisions of the Constitution Relative to the Power of Taxation: REVENUE-LESS-DAN-PTN
Religious privity must be respected – free exercise of religious profession &
worship (Art III Sec 5)
Equal protection clause (Art III Sec 1)
Veto power of the president re: appropriation, revenue & tariff bills (Art VI Sec __, Par 2)
Exemption from property taxation of REC: religious educational charitable institutions, provided actually, directly & exclusively used for REC purposes (Art
VI, Sec 28 par 3)
Non-impairment clause (Art III Sec 10)
Uniformity of taxation (Art VI Sec 28 par 1)
Exemption shall be approved by majority of all members of Congress (absolute majority - according to Art VI Sec 28 par 4)
L ocal government units are constitutionally conferred / constitutionally delegated with the power of taxation (Art X Sec 5)
Exemption from income tax, property tax, custom’s duties of stock,
non- S pecial Fund collected, levied under special law shall only be used for such purpose (prevents juggling of funds – Art VI Sec 29 par 3)
S upreme Court has the jurisdiction to review, reverse, affirm on appeal
decisions of lower courts involving legality, validity of tax, imposts, assessments or penalties (Art VIII Sec 5 (2b))
D ue Process must be observed in the imposition of tax (Art III Sec 1)
A ppropriation, revenue and tariff bills shall originate exclusively in the house of
representatives. (Art VI Sec 24)
N o public money / property shall be used directly / indirectly for religious
purpose. (Art VI Sec 29 par 2) – in line with separation of church and state
Press (freedom of…) – Art III Sec 4
Tariff power of the president (Art VI Sec 28 Par 2)
N on-imprisonment: No person shall be imprisoned for non-payment of poll tax / community tax certificate under Sec 156 RA 7167 (Art III Sec 20)