TAX

 1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  

 
GENERAL  PRINCIPLES   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.  
I. Concept,  Nature  and  Characteristics  of  Taxation  and  Taxes   6. Lutz  v.  Araneta  -­‐  It  is  inherent  in  the  power  to  tax  that  a  state  be  free  to  
  select   the   subjects   of   taxation,   and   it   has   been   repeatedly   held   that  
1. CIR  v.  CTA  (July  21,  1994)  -­‐  Government  cannot  and  must  not  be  estopped   “inequalities   which   result   from   a   singling   out   of   one   particular   class   for  
particularly  in  matters  involving  taxes.  Taxes  are  the  lifeblood  of  the  nation   taxation  or  exemption  infringe  no  constitutional  limitation  
through   which   the   government   agencies   continue   to   operate   and   with   7. Gomez   v.   Palomar   -­‐   The   eradication   of   a   dreaded   disease   is   a   public  
which  the  State  effects  its  functions  for  the  welfare  of  its  constituents.   purpose,   but   if   by   public   purpose   the   petitioner   means   benefit   to   a  
2. CIR  v.  Cebu  Portland  -­‐  The  lifeblood  theory  states  that  an  assessment  of  a   taxpayer   as   a   return   for   what   he   pays,   then   it   is   sufficient   answer   to   say  
tax   is   enforceable   despite   it   being   contested   because   of   the   urgency   to   that   the   only   benefit   to   which   the   taxpayer   is   constitutionally   entitled   is  
collect  taxes,  this  being  the  government’s  primary  source  of  revenue   that  derived  from  his  enjoyment  of  the  privileges  of  living  in  an  organized  
3. Reyes  v.  Almanzor  -­‐  Adversely  effecting  as  it  does  property  rights,  both  the   society,   established   and   safeguarded   by   the   devotion   of   taxes   to   public  
due   process   and   equal   protection   clauses   of   the   Constitution   may   properly   purposes.  
be  invoked  to  invalidate  in  appropriate  cases  a  revenue  measure.  The  due   8. Chavez  v.  Ongpin  -­‐  Fiscal  adequacy,  which  is  one  of  the  characteristics  of  a  
process  clause  may  be  invoked  where  a  taxing  statute  is  so  arbitrary  that  it   sound  tax  system,  requires  that  sources  of  revenues  must  be  adequate  to  
finds  no  support  in  the  Constitution.  It  is  therefore  necessary  to  reconcile   meet  government  expenditures  and  their  variations.    
the  apparently  conflicting  interests  of  the  authorities  and  the  taxpayers  so   9. Diaz  v.  Sec.  of  Finance  -­‐  Under  Sec  108  of  NIRC,  VAT  is  levied  on  the  gross  
that  the  real  purpose  of  taxations,  which  is  the  promotion  of  the  common   receipts  derived  from  the  sale  or  exchange  of  services  as  well  as  from  the  
good,  may  be  achieved   use  or  lease  of  properties.  The  law  imposes  VAT  on  "all  kinds  of  services"  
4. Phil.   Guaranty   v.   CIR   -­‐   Validity   of   a   tax   cannot   be   assailed   until   after   the   rendered   in   the   Philippines   for   a   fee,   including   those   specified   in   the   list.    
taxpayer   has   paid   the   tax   under   protest.   By   questioning   a   tax’s   legality   The   enumeration   of   affected   services   is   not   exclusive.     By   qualifying  
without  first  paying  it,  a  taxpayer,  in  collusion  with  BIR  officials,  can  unduly   "services"   with   the   words   "all   kinds,"   Congress   has   given   the   term  
delay,  if  not  totally  evade  the  payment  of  such  tax.   "services"  an  all-­‐encompassing  meaning.    The  listing  of  specific  services  are  
5. CIR   v.   Algue   -­‐   Despite   the   natural   reluctance   to   surrender   part   of   one's   intended   to   illustrate   how   pervasive   and   broad   is   the   VAT's   reach   rather  
hard-­‐earned  income  to  the  taxing  authorities,  every  person  who  is  able  to   than   establish   concrete   limits   to   its   application.     Thus,   every   activity   that  
must   contribute   his   share   in   the   running   of   the   government.   The  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
can   be   imagined   as   a   form   of   "service"   rendered   for   a   fee   should   be   12. Progressive   Development   Corp.   v.   CIR   -­‐   License   fee  is   a   legal   concept  
deemed  included  unless  some  provision  of  law  especially  excludes  it.   distinguishable   from  tax.  If   the   generating   of   revenue   is   the   primary  
  purpose   and   regulation   is   merely   incidental,   the   imposition   is   a   tax.   If  
II. Classifications  and  Distinctions   regulation   is   the   primary   purpose,   the   fact   that   incidentally   revenue   is   also  
  obtained  does  not  make  the  imposition  a  tax.  License  fee  is  regulatory  
10. Association  of  Customs  Brokers  v.  Municipal  Board  -­‐    If  a  tax  is  in  its  nature   13. PAL   v.   Edu   -­‐   the   legislative   intent   and   purpose   behind   the   law   requiring  
an  excise,  it  does  not  become  a  property  tax  because  it  is  proportioned  in   owners  of  vehicles  to  pay  for  their  registration  is  mainly  to  raise  funds  for  
amount   to   the   value   of   the   property   used   in   connection   with   the   the   construction   and   maintenance   of   highways   and   to   a   much   lesser  
occupation,   privilege   or   act   which   is   taxed.   Every   excise   necessarily   must   degree,   pay   for   the   operating   expenses   of   the   administering   agency.   It   is  
finally   fall   upon   and   be   paid   by   property   and   so   may   be   indirectly   a   tax   possible   for   an   exaction   to   be   both   tax   and   regulation.   License   fees   are  
upon  property;  but  if  it  is  really  imposed  upon  the  performance  of  an  act,   often  looked  to  as  a  source  of  revenue  as  well  as  a  means  of  regulation.  If  
enjoyment   of   a   privilege,   or   the   engaging   in   an   occupation,   it   will   be   the   purpose   is   primarily   revenue,   or   if   revenue   is   at   least   one   of   the   real  
considered  an  excise.  The  character  of  the  tax  as  a  property  tax  or  a  license   and   substantial   purposes,   then   the   exaction   is   properly   called   a   tax.  
or   occupation   tax   must   be   determined   by   its   incidents,   and   from   the   (Calalang)  These  exactions  are  sometimes  called  regulatory  taxes.  Indeed,  
natural  and  legal  effect  of  the  language  employed  in  the  act  or  ordinance,   taxation   may   be   made   the   implement   of   the   state’s   police   power   (Lutz   v  
and  not  by  the  name  by  which  it  is  described,  or  by  the  mode  adopted  in   Araneta)  
fixing  its  amount.  If  it  is  clearly  a  property  tax,  it  will  be  so  regarded,  even   14. Villegas  v.  Hiu  Chiong  Tsai  Pao  Ho  -­‐  The  contention  that  City  Ordinance  No.  
though  nominally  and  in  form  it  is  a  license  or  occupation  tax;  and,  on  the   6537  is  not  a  purely  tax  or  revenue  measure  because  its  principal  purpose  
other  hand,  if  the  tax  is  levied  upon  persons  on  account  of  their  business,  it   is   regulatory   in   nature   has   no   merit.   While   it   is   true   that   the   first   part  
will   be   construed   as   a   license   or   occupation   tax,   even   though   it   is   which  requires  that  the  alien  shall  secure  an  employment  permit  from  the  
graduated  according  to  the  property  used  in  such  business,  or  on  the  gross   Mayor  involves  the  exercise  of  discretion  and  judgment  in  the  processing  
receipts  of  the  business.   and   approval   or   disapproval   of   applications   for   employment   permits   and  
11. Esso  Standard  v.  CIR  -­‐  that  margin  fees  are  NOT  revenue  measures,  but  “an   therefore   is   regulatory   in   character   the   second   part   which   requires   the  
exaction   designed   to   curb   the   excessive   demands   upon   our   international   payment   of   P50.00   as   employee's   fee   is   not   regulatory   but   a   revenue  
reserve.”  Margin  fees  are  a  police  power  measure  and  not  an  exercise  of   measure.   There   is   no   logic   or   justification   in   exacting   P50.00   from   aliens  
the  state’s  power  to  tax.   who  have  been  cleared  for  employment.  It  is  obvious  that  the  purpose  of  
the  ordinance  is  to  raise  money  under  the  guise  of  regulation.    

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
15. Compania   General   de   Tabacos   de   Filipinas   v.   City   of   Manila   -­‐   The   term   assessment  being  a  levy  upon  property  predicated  on  the  doctrine  that  the  
"tax"   applies—generally   speaking—to   all   kinds   of   exaction   which   become   property   against   which   it   is   levied   derives   some   special   benefit   from   the  
public  funds.  The  term  is  often  loosely  used  to  include  levies  for  revenue  as   improvement.   Special   assessment   is   not   a   tax   measure   intended   to   raise  
well   as   levies   for   regulatory   purposes.   Thus   license   fees   are   commonly   revenues   for   the   Government.   Consequently,   once   it   has   been   determined  
called   taxes.   Legally   speaking,   license   fee   is   a   legal   concept   quite   distinct   that   no   benefit   accrues   or   inures   to   the   property   owners   paying   the  
from   tax;   the   former   is   imposed   in   the   exercise   of   police   power   for   assessment,   or   that   the   proceeds   from   the   said   assessment   are   being  
purposes   of   regulation,   while   the   latter   is   imposed   under   the   taxing   power   misapplied  to  the  prejudice  of  those  against  whom  it  has  been  levied,  then  
for  the  purpose  of  raising  revenues   the  authority  assessment  ceases.    
16. American   Mail   Lines   v.   City   of   Basilan   -­‐   The   power   to   regulate   as   an   19. Victorias   Milling   Co.   v.   Municipality   of   Victorias   -­‐   The   use   of   the   term  
exercise   of   police   power   does   not   include   the   power   to   impose   fees   for   "municipal  license  tax"  does  not  necessarily  connote  the  idea  that  the  tax  
revenue   purposes.   Basilan   argues   that   it   imposed   these   fees   purely   as   a   is   imposed   as   a   revenue   measure   in   the   guise   of   a   license   tax.   For   really,  
regulatory   measure   in   the   exercise   of   its   police   power.   It   has   been   held   this   runs   counter   to   the   declared   purpose   to   make   money.   Besides,   the  
that   fees   for   purely   regulatory   purposes   “may   only   be   of   sufficient   amount   term   "license   tax"   has   not   acquired   a   fixed   meaning.   It   is   often   "used  
to  include  the  expenses  of  issuing  the  license  and  the  cost  of  the  necessary   indiscriminately   to   designate   impositions   exacted   for   the   exercise   of  
inspection  or  police  surveillance,  taking  into  account  not  only  the  expense   various  privileges.  In  many  instances,  it  refers  to  "revenue-­‐raising  exactions  
of  direct  regulation  but  also  incidental  expenses…regulatory  fee  “must  be   on  privileges  or  activities".  On  the  other  hand,  license  fees  are  commonly  
more  than  sufficient  to  cover  the  actual  cost  of  inspection  or  examination   called   taxes.   But   legally   speaking,   the   latter   are   "'for   the   purpose   of   raising  
as  nearly  as  the  same  can  be  estimated.   revenues",  in  contrast  to  the  f  former  which  are  imposed  "in  the  exercise  
17. Osmena   v.   Orbos   -­‐     Quoting   Gaston   case:   stabilization   fees   collected   are  in   of  the  police  power  for  purposes  of  regulation".  
the   nature   of   a   tax,   which   is   within   the   power   of   the   State   to   impose   for   20. PCGG  v.  Cojuangco  –  The  SC  ruled  that  the  government  rightly  owned  the  
the   promotion   of   the   sugar   industry.   The   tax   collected   is   not   in   a   pure   UCPB   shares   which   were   bought   using   the   coco   levy   fund.   The   coco   levy  
exercise   of   the   taxing   power.  It   is   levied   with   a   regulatory   purpose,   to   fund   was   generated   by   enforced   contributions   which   were   intended   for  
provide   a   means   for   the   stabilization   of   the   sugar   industry.   The   levy   is   the  rehabilitation  and  stabilization  of  the  threatened  coconut  industry.  It   is  
primarily  in  the  exercise  of  the  police  power  of  the  State.   thus  a  tax  imposed  by  the  government.  Since  the  shares  were  bought  using  
18. Republic   v.   Bacolod-­‐Murcia   Milling   Co.   -­‐   If   the   proceeds   collected   pursuant   taxes,  the  UCPB  shares  rightfully  belonged  to  the  government.  
to  RA  632  are  indeed  special  assessments,  then  they  may  be  devoted  only   21. CIR  v.  PLDT  -­‐  Direct  taxes  are  those  that  are  exacted  from  the  very  person  
to   the   specific   purpose   for   which   the   assessment   was   authorized,   a   special   who,  it  is  intended  or  desired,  should  pay  them—they  are  impositions  for  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
which   a   taxpayer   is   directly   liable   on   the   transaction   or   business   he   is   24. Chevron  v.  BCDA  -­‐  In  distinguishing  tax  and  regulation  as  a  form  of  police  
engaged   in.   Indirect   taxes   are   those   that   are   demanded,   in   the   first   power,   the   determining   factor   is   the   purpose   of   the   implemented  
instance,  from,  or  are  paid  by,  one  person  in  the  expectation  and  intention   measure.   If   the   purpose   is   primarily   to   raise   revenue,   then   it   will   be  
that   he   can   shift   the   burden   to   someone   else—stated   elsewise,   indirect   deemed  a  tax  even  though  the  measure  results  in  some  form  of  regulation.  
taxes   are   taxes   wherein   the   liability   for   the   payment   of   the   tax   falls   on   one   On   the   other   hand,   if   the   purpose   is   primarily   to   regulate,   then   it   is  
person   but   the   burden   thereof   can   be   shifted   or   passed   on   to   another   deemed  a  regulation  and  an  exercise  of  the  police  power  of  the  state,  even  
person,  such  as  when  the  tax  is  imposed  upon  goods  before  reaching  the   though  incidentally,  revenue  is  generated.  
consumer  who  ultimately  pays  for  it.  VAT  is  indirect  tax.  Advance  sales  tax   25. Angeles  University  Foundation  v.  City  of  Angeles  -­‐  Building  permit  fees  are  
has   attributes   of   indirect   tax.   Compensating   tax   takes   the   nature   of   an   not   impositions   on   property   but   on   the   activity   subject   of   government  
excise  tax.     regulation.   While   it   may   be   argued   that   the   fees   relate   to   particular  
22. Gerochi  v.  Dept.  Of  Energy  -­‐   properties,   i.e.,   buildings   and   structures,   they   are   actually   imposed   on  
Power  to  tax   Police  Power     certain  activities  the  owner  may  conduct  either  to  build  such  structures  or  
• an   incident   of   sovereignty   and   is   • the   power   of   the   state   to  
to   repair,   alter,   renovate   or   demolish   the   same.   A   charge   of   a   fixed   sum  
unlimited   in   its   range,   acknowledging   promote   public   welfare   by  
in   its   very   nature   no   limits,   so   that   restraining   and   regulating   which  bears  no  relation  at  all  to  the  cost  of  inspection  and  regulation  may  
security   against   its   abuse   is   to   be   the   use   of   liberty   and  
be  held  to  be  a  tax  rather  than  an  exercise  of  the  police  power.  
found  only  in  the  responsibility  of  the   property.    
legislature   which   imposes   the   tax   on   • the   power   to   "regulate"   26. Asia  International  Auctioneers  Inc.  CIR  -­‐  Indirect  taxes,  like  VAT  and  excise  
the  constituency  that  is  to  pay  it.   means   the   power   to   tax,  are  different  from  withholding  taxes.  To  distinguish,  in  indirect  taxes,  
• The  theory  behind  the  exercise  of  the   protect,   foster,   promote,  
power   to   tax   emanates   from   preserve,  and  control,  with   the  incidence  of  taxation  falls  on  one  person  but  the  burden  thereof  can  be  
necessity;   without   taxes,   government   due   regard   for   the   shifted  or  passed  on  to  another  person,  such  as  when  the  tax  is  imposed  
cannot   fulfill   its   mandate   of   interests,   first   and  
promoting   the   general   welfare   and   foremost,   of   the   public,   upon  goods  before  reaching  the  consumer  who  ultimately  pays  for  it.26  On  
well-­‐being  of  the  people.   then  of  the  utility  and  of  its   the  other  hand,  in  case  of  withholding  taxes,  the  incidence  and  burden  of  
patrons.  
  taxation   fall   on   the   same   entity,   the   statutory   taxpayer.   The   burden   of  

23. Planters  Products  v.  Fertphil  Corp.  -­‐  The  power  to  tax  exists  for  the  general   taxation   is   not   shifted   to   the   withholding   agent   who   merely   collects,   by  

welfare,   hence,   implicit   in   its   power   is   the   limitation   that   it   should   be   used   withholding,   the   tax   due   from   income   payments   to   entities   arising   from  

only   for   a   public   purpose—it   would   be   a   robbery   for   the   State   to   tax   its   certain   transactions   and   remits   the   same   to   the   government.   Due   to   this  

citizens  and  use  the  funds  generated  for  a  private  purpose.   difference,   the   deficiency   VAT   and   excise   tax   cannot   be   “deemed”   as  
withholding  taxes  merely  because  they  constitute  indirect  taxes.  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
  of   certain   kinds   of   taxes   notice   and   opportunity   for   hearing   are  
III. Limitations  of  the  Power  of  Taxation   provided  
A. Inherent  Limitations   29. MIAA  v.  City  of  Paranaque  -­‐  Section  133  of  the  Local  Government  Code  
27. Pascual   v.   Sec.   of   Public   Works   -­‐   Legislature   is   without   power   to   states   that   "unless   otherwise   provided"   in   the   Code,   local  
appropriate  public  revenue  for  anything  but  a  public  purpose.  It  is  the   governments   cannot   tax   national   government   instrumentalities,   such  
essential  character  of  the  direct  object  of  the  expenditure  which  must   as   MIAA.   The   real   properties   of   MIAA   are  owned   by   the   Republic  of  
determine  its  validity  as  justifying  a  tax,  and  not  the  magnitude  of  the   the  Philippines  and  thus  exempt  from  real  estate  tax.    Section  133  of  
interest   to   be   affected   nor   the   degree   to   which   the   general   advantage   the  Local  Government  Code  states  that  "unless  otherwise  provided"  in  
of   the   community,   and   thus   the   public   welfare,   may   be   ultimately   the   Code,   local   governments   cannot   tax   national   government  
benefited  by  their  promotion.  Incidental  to  the  public  or  to  the  state,   instrumentalities.  
which   results   from   the   promotion   of   private   interest   and   the   30. Sea-­‐Land   Services   v.   CA   -­‐   The   RP-­‐US   Military   Bases   Agreement  
prosperity  of  private  enterprises  or  business,  does  not  justify  their  aid   exempts   from   income   taxation   the   income   derive   by   its   corporations  
by  the  use  public  money.   or   nationals   and   residents   from   the   construction,   maintenance,  
28. Pepsi-­‐Cola   Bottling   Company   v.   Municipality   of   Tanuan   -­‐   it’s   purely   operation   and   defense   of   bases   or   any   tax   in   nature   of   a   license   in  
legislative  and  may  not  be  delegated  to  the  2  other  branches,  EXCEPT   respect   of   any   work   or   service   for   the   US   in   connection   with   the  
in   the   case   of   municipal   corporations.   Legislative   powers   may   be   construction,  maintenance,  operation  and  defense  of  bases.  
st
delegated   to   local   governments   in   respect   of   matters   of   local   concern.   31. 31   Infantry   Post   Exchange   v.   Posadas   -­‐   Only   those   agencies   through  
taking  of  the  property  is  in  the  lawful  exercise  of  the  taxing  power,  as   which  the  Federal  Government  immediately  and  directly  exercises  its  
when  (1)  the  tax  is  for  a  public  purpose;  (2)  the  rule  on  uniformity  of   sovereign   powers   are   immune   from   the   taxing   power   of   the   states.  
taxation  is  observed;  (3)  either  the  person  or  property  taxed  is  within   The  reason  upon  which  the  rule  rests  must  be  the  guiding  principle  to  
the   jurisdiction   of   the   government   levying   the   tax;   and   (4)   in   the   control   its   operation.   The   limitations   upon   the   taxing   power   of   the  
assessment   and   collection   of   certain   kinds   of   taxes   notice   and   state   must   receive   a   practical   construction   which   does   not   seriously  
opportunity  for  hearing  are  provided.  taking  of  the  property  is  in  the   impair   the   taxing   power   of   the   Government   imposing   the   tax.   The  
lawful  exercise  of  the  taxing  power,  as  when  (1)  the  tax  is  for  a  public   effect  of  the  tax  upon  the  functions  of  the  Government  and  the  nature  
purpose;  (2)  the  rule  on  uniformity  of  taxation  is  observed;  (3)  either   of   the   governmental   agency   determine   finally   the   extent   of   the  
the   person   or   property   taxed   is   within   the   jurisdiction   of   the   exemption.   We   would   consider   the   effects   of   the   sales   tax   upon   the  
government  levying  the  tax;  and  (4)  in  the  assessment  and  collection   United  States  Army,  and  the  nature  of  an  Army  Post  Exchange.  The  tax  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
laid  upon  Philippine  merchants  who  sell  to  Army  Post  Exchanges  does   was  definitely  no  agency  between  Mitsubishi  and  Eximbank.  The  loan  
not  interfere  with  the  supremacy  of  the  United  States  Government,  or   and   sales   agreement   between   Atlas   and   Mitsubishi   are   totally  
with  the  operations  of  its  instrumentality,  the  United  States  Army,  to   independent   from   the   loan   agreement   between   Mitsubishi   and  
such  an  extent  or  in  such  a  manner  as  to   render  the  tax  illegal.  The  tax   Eximbank.   It   is   also   well   settled   that   in   contracts   of   loan,   when   the  
does  not  deprive  the  Army  of  the  power  to  serve  the  Government  as  it   money   is   transferred   to   the   borrower,   the   money   becomes   the  
was  intended  to  serve  it,  or  hinder  the  efficient  exercise  of  its  power.     property   of   the   borrower   and   not   that   of   the   lender.   Therefore,   the  
32. Reagan   v.   CIR   -­‐   The   Philippines   being   independent   and   sovereign,   its   money  ceased  to  be  the  property  of  Eximbank.  
authority  may  be  exercised  over  its  entire  domain.  Any  state  may,  by   34. CIR   v.   Marubeni   Corp.   -­‐   Marubeni,   however,   was   able   to   sufficiently  
its  consent,  express  or  implied,  submit  to  a  restriction  of  its  sovereign   prove   in   trial   that   not   all   its   work   was   performed   in   the   Philippines  
rights.  It  is  not  precluded  from  allowing  another  power  to  participate   because   some   of   them   were   completed   in   Japan   (and   in   fact  
in   the   exercise   of   jurisdictional   right   over   certain   portions   of   its   subcontracted)  in  accordance  with  the  provisions  of  the  contracts.  All  
territory.  If  it  does  so,  it  by  no  means  follows  that  such  areas  become   services   for   the   design,   fabrication,   engineering   and   manufacture   of  
impressed   with   an   alien   character.   They   retain   their   status   as   native   the  materials  and  equipment  under  Japanese  Yen  Portion  I  were  made  
soil.  So  it  is  with  the  bases  under  lease  to  the  American  armed  forces   and   completed   in   Japan.   These   services   were   rendered   outside  
by   virtue   of   the   military   bases   agreement   of   1947.   They   are   not   and   Philippines’   taxing   jurisdiction   and   are   therefore   not   subject   to  
cannot   be   foreign   territory.   This   country's   jurisdictional   rights,   contractor’s  tax.  
certainly   not   excluding   the   power   to   tax,   have   been   preserved.   As   to    
certain   tax   matters,   an   appropriate   exemption   was   provided   for.   B. Constitutional  Limitations  
Reagan  relies  on  provision  which  states  that      a  "national  of  the  United   i. Uniformity  
States  serving  in  or  employed  in  the  Philippines  in  connection  with  the   35. Tiu  v.  CA  -­‐  The  fundamental  right  of  equal  protection  of  the  laws  is  
construction,   maintenance,   operation   or   defense   of   the   bases   and   not   absolute,   but   is   subject   to   reasonable  
residing  in  the  Philippines  only  by  reason  of  such  employment"  is  not   classification.  Classification,   to   be   valid,   must   (1)   rest   on  
to   be   taxed   on   his   income   unless   "derived   from   Philippine   source   or   substantial  distinctions,  (2)  be  germane  to  the  purpose  of  the  law,  
sources   other   than   the   United   States   sources."   Source   (transaction)   (3)  not  be  limited  to  existing  conditions  only,  and  (4)  apply  equally  
clearly  was  Philippine.   to   all   members   of   the   same   class.   The   objective   is   to   establish   a  
33. CIR  v.  Mitsubishi  Metal  Corp.  -­‐  There  was  no  mention  of  Eximbank  in   “self-­‐sustaining,   industrial,   commercial,   financial   and   investment  
the   loan   and   sales   agreement   between   Atlas   and   Mitsubishi.   There   center”   in   the   area.    There   will,   therefore,   be   a   long-­‐term  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
difference   between   such   investment   center   and   the   areas   outside   Consequently,   in   the   absence   of   any   express   grant   of   tax   and  
it.   duty-­‐free   privileges   to   the   CSEZ   in   Republic   Act   No.   7227,   there  
36. John   Hay   People’s   Alternative   Coalition   -­‐   While   the   grant   of   would  be  no  legal  basis  to  uphold  the  questioned  portions  of  two  
economic  incentives  may  be  essential  to  the  creation  and  success   issuances:   Section   5   of   Executive   Order   No.   80   and   Section   4   of  
of   SEZs,   free   trade   zones   and   the   like,   the   grant   thereof   to   the   BCDA  Board  Resolution  No.  93-­‐05-­‐034,  which  both  pertain  to  the  
John  Hay  SEZ  cannot  be  sustained.     The  incentives  under  R.A.  No.   CSEZ.  
7227  are  exclusive  only  to  the  Subic  SEZ,  hence,  the  extension  of   38. Tolentino  v.  Sec.  of  Finance  -­‐    As  to  the  question  of  whether  our  
the  same  to  the  John  Hay  SEZ  finds  no  support  therein.  The  claim   system   of   taxation   should   always   be   regressive,   the   Court  said  
of  statutory  exemption  of  the  John  Hay  SEZ  from  taxation  should   that   the   Constitution   does   not   really   prohibit   the   imposition   of  
be   manifest   and   unmistakable   from   the   language   of   the   law   on   indirect   taxes   which,   like   the   VAT,   are   regressive.   What   it   simply  
which  it  is  based;  it  must  be  expressly  granted  in  a  statute  stated   provides   is   that   Congress   shall   "evolve  a   progressive   system   of  
in  a  language  too  clear  to  be  mistaken.  Tax  exemption  cannot  be   taxation."   The   constitutional   provision   has   been   interpreted   to  
implied   as   it   must   be   categorically   and   unmistakably   expressed.   mean   simply   that   "direct   taxes   are   .   .   .   to   be   preferred   [and]   as  
The   challenged   grant   of   tax   exemption   would   circumvent   the   much   as   possible,   indirect   taxes   should   be   minimized."   Indeed,  
Constitution’s   imposition   that   a   law   granting   any   tax   exemption   the   mandate   to   Congress   is   not   to  prescribe,   but   to  evolve,   a  
must   have   the   concurrence   of   a   majority   of   all   the   members   of   progressive  tax  system.    
Congress.   In   the   same   vein,   the   other   kinds   of   privileges   extended   39. Abakada  Guro  Party  List  v.  Ermita  -­‐  the  Supreme  Court  ruled  that  
to   the   John   Hay   SEZ   are   by   tradition   and   usage   for   Congress   to   the   12%   VAT   imposition   was   equitable   as   it   imposes   safeguards  
legislate  upon.   and   limits   in   the   form   of   VAT   exemption   granted   to   gross   sales  
37. Coconut   Oil   Refiners   Association   Inc.   v.   BCDA   -­‐     (Should   tax   below  P1.5  million.    
incentives   be   uniform   for   all   special   economic   zones?   Not   40. Misamis   Oriental   Association   of   Coco   Traders   v.   Dep.   of   Finance     -­‐  
necessarily)   While   Section   12   of   Republic   Act   No.   7227   expressly   The   Constitution   does   not   forbid   the   differential   treatment   of  
provides   for   the   grant   of   incentives   to   the   SSEZ,   it   fails   to   make   persons  so  long  as  there  is  a  reasonable  basis  for  classifying  them  
any  similar  grant  in  favor  of  other  economic  zones,  including  the   differently.   In   this   case,   there   is   a   material   or   substantial  
CSEZ.   Tax   and   duty-­‐free   incentives   being   in   the   nature   of   tax   difference  between  coconut  farmers  and  copra  producers,  on  the  
exemptions,   the   basis   thereof   should   be   categorically   and   one   hand,   and   copra   traders   and   dealers,   on   the   other.   The  
unmistakably   expressed   from   the   language   of   the   statute.  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
farmers/   producers   PRODUCE   and   SELL   copra,   while   traders   and   2. Be  germane  to  the  purpose  of  the  law;  
dealers  merely  SELL  copra.     3. Not  be  limited  to  existing  conditions  only;  and  
41. CIR  v.  Lingayen  Gulf  Electric  Power  Co.  Inc.  -­‐  A  tax  is  uniform  when   4. Apply  equally  to  all  members  of  the  same  class.  
it   operates   with   the   same   force   and   effect   in   every   place   where   44. Villanueva  v.  City  Iloilo  -­‐    In  determining  whether  the  imposition  of  
the   subject   of   it   is   found.   Herein,   the   5%   franchise   tax   rate   a   municipal   license   tax   on   tenement   houses   violates   the   equal  
provided   in   Sec.   259   of   the   NIRC   was   never   intended   to   have   a   protection   clause   as   such   taxes   are   not   imposed   in   other   cities,  
universal   application.   Sec.   259   expressly   allows   the   payment   of   the   Supreme   Court   ruled   in   the   negative   as   the   rule   on   uniformity  
taxes   at   rates   lower   than   5%   when   the   charter   granting   the   does  not  require  taxes  for  the  same  purpose  should  be  imposed  in  
franchise   precludes   the   imposition   of   a   higher   tax.   RA   3843   (the   different   territorial   subdivisions   at   the   same   time.   It   is   enough  
charter)   did   not   only   fix   and   specify   a   franchise   tax   of   2%   on   its   that   the   tax   falls   equally   and   impartially   on   all   owners   or  
gross  receipts,  but  made  it  in  lieu  of  any  and  all  taxes,  all  laws  to   operations  of  tenement  houses  similarly  classified  or  situated.    
the  contrary  notwithstanding.   45. Pepsi-­‐Cola   Bottling   Co.   of   the   Phil.   v.   City   of   Butuan   -­‐   Under   the  
42. Kapatiran   ng   mga   Naglilingkod   sa   Pamahalaan   ng   Pilipinas   Inc.   v.   subject   municipal   ordinance,   sales   of   local   dealers   not   acting   for  
Tan   –   The   Supreme   Court   held   that   EO   278   (ie,   an   EO   that   or   on   behalf   of   merchants   established   outside   the   municipality  
imposed   a   10%   VAT   on   the   value   added   by   every   seller   with   would   be   exempt   from   the   tax   while   those   acting   as   agents   and  
aggregage   gross   annual   sales   of   articles   and/or   services   exceeding   consignees  of  dealers  outside  the  municipality  would  have  to  pay  
P200,000  to  his  purchase  of  goods  and  services)  is  equitable  as  it   the  tax.  The  Supreme  Court  ruled  that  this  was  a  violation  of  the  
is   imposed   only   on   sales   of   goods   and   services   by   persons   uniformity  required  by  the  Constitution.    
engaged   in   a   business   with   an   aggregate   gross   annual   sales   46. Ormoc   Sugar   Company   v.   Treasurer   of   Ormoc   -­‐   Supreme   Court  
exceeding   P200,000   while   small   corner   sari-­‐sari   stores   are   held   that   a   reasonable   classification   should   be   in   terms   applicable  
condquently   exempt,   as   well   as   sales   of   farm   and   marine   to  future  conditions.  The  taxing  ordinance  should  not  be  singular  
products.   and   exclusive   as   to   exclude   any   subsequently   established   entity  
43. Sison   v.   Ancheta   –   Uniformity   of   taxation   is   quite   similar   to   the   from  the  coverage  of  the  tax.    
standard  of  equal  protection.     47. Phil.   Trust   Co.   v.   Yatco   -­‐   The   rule   of   uniformity   does   not   call   for  
• Under   the   equal   protection   clause,   for   a   classification   to   be   perfect   uniformity   or   perfect   equality,   because   this   is   hardly  
valid,  it  must:  (SGNE)   attainable.   The   method   of   assessment   prescribed   in   section   1502,  
1. Rest  on  substantial  distinctions;   in   relation   to   section   1499,   of   the   Revised   Administrative   Code,  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
for   domestic   banks   while   different   from   that   prescribed   for   51. Bureau  of  Customs  Employees’  Association  v.  Teves  -­‐  With  respect  
foreign  banks  is  permissible.  A  state  may  impose  a  different  rate   to  RA  9335,   its   expressed   public   policy   is   the   optimization   of   the  
of  taxation  upon  a  foreign  corporation  (in  this  case,  the  National   revenue-­‐generation   capability   and   collection   of   the   BIR   and   the  
City  Bank  of  New  York)  for  the  privilege  of  doing  business  within   BOC.   Since   the   subject   of   the   law   is   the   revenue-­‐generation  
the   state   than   it   applies   to   its   own   corporations   upon   the   capability   and   collection   of   the   BIR   and   the   BOC,   the   incentives  
franchise,  which  the  state  grants  in  creating  them.   and/or   sanctions   provided   in   the   law   should   logically   pertain   to  
48. British   American   Tobacco   v.   Camacho   -­‐   The   Supreme   Court   held   the   said   agencies.   Moreover,   the   law   concerns   only   the   BIR   and  
that  the  classification  freeze  does  not  violate  the  equal  protection   the   BOC   because   they   have   the   common   distinct   primary   function  
clause  as  it  passes  the  rational  basis  test  and  is  meant  to  improve   of   generating   revenues   for   the   national   government   through   the  
the   efficiency   and   effectivity   of   the   tax   administration   over   sin   collection  of  taxes,  customs  duties,  fees  and  charges.  Indubitably,  
products  while  trying  to  balance  the  same  with  state  interests.  It   such   substantial   distinction   is   germane   and   intimately   related   to  
addresses  the  concerns  in  the  simplification  of  tax  administration   the   purpose   of   the   law.   Hence,   the   classification   and   treatment  
of   sin   products,   elimination   of   potential   areas   for   abuse   and   accorded   to   the   BIR   and   the   BOC   under   RA   [No.]   9335   fully   satisfy  
corruption   in   tax   collection,   buoyant   and   stable   revenue   the  demands  of  equal  protection.  
generation,  and  ease  of  projection  of  revenues.      
49. Abakada   Guro   Partylist   v.   Purisima   -­‐   The   equal   protection   clause   ii. Non-­‐impairment  
recognizes  a  valid  classification,  that  is,  a  classification  that  has  a   52. Meralco   v.   Province   of   Laguna   –   Tax   exemptions   granted   under  
reasonable   foundation   or   rational   basis   and   not   arbitrary.   The   franchises   are   not   contracts   (see   Art   XII,   Sec.   11   of   the  
subject   of   the   Attrition   Law   was   revenue   generation   and   Constitution).   A   franchise   partakes   of   the   nature   of   a   grant,   which  
collection  of  the  BIR  and  BOC,  thus,  the  incentives  and  sanctions   is   beyond   the   purview   of   the   non-­‐impairment   clause.   Also,   tax  
should   logically   pertain   to   them   and   not   to   other   government   exemptions   under   franchises   should   be   distinguished   from  
agencies.  The  EPC  is  not  violated.   contractual  tax  exemptions.  The  latter  are  those  agreed  to  by  the  
50. CIR   v.   Fortune   Tobacco   Corp.   -­‐   Supreme   Court   ruled   that   the   taxing   authority   in   contracts.   (Examples   are   government   bonds  
higher   tax   rule   only   applies   on   the   transition   period.   To   and   debentures)   In   such   cases,   the   government   acts   in   a   private  
implement   the   higher   tax   rule   on   the   January   1,   2000   increase   capacity   and   waives   its   governmental   immunity.   Contractual   tax  
would   violate   the   rule   of   uniformity   since   brands   belonging   to   the   exemptions  may  not  be  revoked  without  impairing  the  obligations  
same  category  would  be  imposed  with  different  tax  rates.     of  contracts.  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
53. Province  of  Misamis  Oriental  v.  Cagayan  Electric  Power  and  Light   enjoyment   of   its   religious   profession   and   worship,   as   well   as   its  
Co.  -­‐  the  Supreme  Court  held  that  the  non-­‐impairment  clause  may   rights  of  disseminiationa  of  religious  beliefs.  
be  rightly  invoked  against  contractual  tax  exemptions.  Contractual   58. CIR   v.   Bishop   of   the   Missionary   District   of   the   Phil.   –   The   Supreme  
tax   exemptions   are   those   agreed   by   the   taxing   authority   in   Court   held   that   the   admission   of   pay   patients   does   not   detract  
contracts,   such   as   those   contained   in   government   bonds   or   from  the  charitable  character  of  a  hospital  if  its  funds  are  devoted  
debentures,  lawfully  entered  into  by  them  under  enabling  laws  in   exclusively   to   the   maintenance   of   the   institution   as   a   public  
which   the   government,   acting   in   its   private   capacity,   sheds   its   charity.    
cloak  of  authority  and  waives  its  government  immunity     • Requisites  for  a  valid  claim  for  tax  exemption:  [DIU]  
54. Cagayan  Electric  Power  and  Light  Co.  v.  CIR  –  (similar  to  case  no.   1. The  imported  articles  have  been  donated  
53)     2. Donee   must   be   a   duly   incorporated   or   established  
55. Lealda  v.  CIR  -­‐  (similar  to  cases  no.  53  and  54)     international   civic   organization,   religious   or  
56. Casanovas   v.   Hord   –   The   concessions   granted   by   the   Gov’t   of   charitable  society,  or  institution  for  civic  or  religious  
Spain   to   the   plaintiff   constitute   contracts   between   the   parties   or  charitable  purposes.  
and,   thus,   was   infringed   by   Act   1189.   Power   to   grant   tax   3. The   articles   so   imported   must   have   been   donated  
exemption   is   vested   in   the   state.   If   it   grants   one,   we   must   for   the   use   of   the   organization   for   free   distribution  
determine  first  if  the  grant  is  a  contract  or  not.  If  it  is  a  contract   and  not  for  barter,  sale  or  hire.  
between   the   state   and   the   grantee,   then   the   tax   exemption   59. Llladoc   v.   CIR   -­‐   The   exemption   provided   for   under   Article   VI,  
cannot   just   be   removed   by   the   sate   through   subsequent   Section  28  pertains  only  to  real  property  taxes  
legislations  at  will.   • Article  VI,  §28  –  the  following  are  exempt  from  real  property  
  taxes:  
  1. Charitable  institutions  
  2. Churches  
iii. Taxation  of  Special  Entities   3. Parsonages  or  convents  appurtenant  thereto  
57. American   Bible   Society   v.   City   of   Manila   –   The   municipal   4. Mosques  
ordinances   imposing   a   tax   on   the   sale   of   bibles   were   declared   5. Non-­‐profit  cemeteries;  and  
unconstitutional   as   it   would   impair   the   free   exercise   and  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
6. All   lands,   buildings   and   improvements,   actually,   63. Lung  Center  of  the  Phils.  v.  Quezon  City  –  The  Supreme  Court  held  
directly  and  exclusively  used  for  religious,  charitable   that   the   hospital   was   not   exempt   from   real   property   tax   on   the  
or  educational  purposes.  [ADE]   portions   of   its   property   not   actually,   directly,   and   exclusively   used  
60. Herrera   v.   Quezon   City   Board   of   Assessment   Appeals   –   The   for   charitable   purposes.   Thus,   those   leased   out   for   commercial  
exemption   in   favor   of   property   used   exclusively   for   charitable   or   purposes   are   subject   to   real   property   tax.   Those   used   by   the  
educational   purposes   is   not   limited   to   property   actually   hospital   even   if   used   for   paying   patients   remain   exempt   from   real  
indispensable   but   extends   to   facilities   which   are   incidental   to   or   property  taxes.    
reasonably  necessary  for  the  accomplishment  of  its  purposes.    [IR]   64. CIR  v.  St.  Luke’s  Medical  Center  -­‐    St.  Luke’s  cannot  claim  full  tax  
61. Bishop  of  Nueva  Segovia  v.  Provincial  Board  of  Ilocos  Norte  –  The   exemption   under   Section   30   because   it   has   paying   patients   and  
exemption   from   the   payment   of   the   land   tax   in   favor   of   the   this  is  notwithstanding  the  fact  that  it  is  a  non-­‐profit  hostpital.  For  
convent   includes   not   only   the   land   actually   occupied   by   the   Section   27(B)   to   apply,   the   hospital   must   be   non-­‐profit   which  
building,   but   also   the   adjacent   ground   or   vegetable   garden   means   that   no   net   income   or   asset   accrues   to   or   benefits   any  
destined  to  the  incidental  use  of  the  parish  priest  in  his  ordinary   member  or  specific  person  and  all  the  activities  of  the  hospital  are  
life.   The   unused   cemetery   is   also   exempt   as   it   is   not   used   for   non-­‐profit.   On   the   other   hand,   Section   30(E)   and   (G),   while  
commercial  purposes  and  instead  is  used  as  a  place  for  those  who   providing   for   an   exemption,   is   qualified   by   the   last   paragraph  
participate  in  the  religious  festivities.     which,   in   turn,   provides   that   activities   conducted   for   profit   shall  
62. CIR  v.  CA  –  As  to  the  exemption  from  real  property  tax  of  exempt   be   taxable.   Section   30(E)   and   (G)   requires   that   an   institution   be  
organizations,  the  Supreme  Court  ruled  that  the  income  from  the   operated   exclusively   for   charitable   purposes   to   be   completely  
lease   and   parking   fees   were   not   exempt.   The   last   paragraph   of   exempt   from   income   tax.   In   this   case,   however,   St.   Luke’s   is   not  
Section   27   of   the   NIRC   clearly   provides   that   profits   realized   by   perated   exclusively   for   charitable   purposes   insofar   as   its   revenues  
exempt   organizations   (non-­‐profit   clubs)   from   real   property   from   from   paying   patiesnts   are   concerned.   Such   revenue   is   subject   to  
whatever   source   and   wherever   used   are   taxable.   The   Court   noted   income  tax  at  10%  under  Section  27(B).  
that   while   YMCA   is   exempt   from   real   property   taxes,   it   is   not    
exempt  from  income  tax  on  the  rentals  from  its  property.  Further,    
YMCA   failed   to   prove   that   it   was   a   non-­‐stock,   non-­‐profit    
educational  institution  un     IV. Situs  of  Taxation  and  Double  Taxation  
 

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
65. Republic  Bank  v.  CTA  –  Under  the  Tax  Code,  Bank  A  is  subject  to  1%  reserve   district,  during  the  same  taxing  period,  and  they  must  be  the  same  kind  or  
deficienty   tax   if   it   incurs   reserve   deficiencies.   Under   the   General   Banking   character   of   tax.”   It   has   been   shown   that   a   real   estate   tax   and   the  
Law,   Bank   A   must   pay   1/10   of   1%   for   incurring   reserve   deficiencies.   The   tenement   tax   imposed   by   the   ordinance,   although   imposed   by   the   same  
Court   said   that   there   is   no   double   taxation   in   this   case   because   one   is   a   taxing  authority,  are  not  of  the  same  kind  or  character.  Furthermore,  while  
penalty,  while  the  other  is  a  tax.  The  payment  of  1/10  of  1%  for  incurring   it   is   true   that   they   are   taxable   as   real   estate   dealers   and   still  taxable   under  
reserve   deficiencies   is   clearly   a   penalty   as   the   primary   purpose   is   the  ordinance,  the  argument  against  double  taxation  may  not  be  invoked.  
regulation;  while  the  payment  of  1%  for  the  same  violation  is  a  tax  for  the   The   same   tax   may   be   imposed   by   the   national   government   as   well   as   by  
generation  of  income  which  is  the  primary  purpose  for  this  instance.     the   local   government.   There   is   nothing   inherently   obnoxious   in   the  
66. P&G   v.   Municipality   of   Jagna   -­‐   The   Supreme   Court   stated   that   there   is   exaction   of   license   fees   or   taxes   with   respect   to   the   same   occupation,  
double   taxation   when   the   same   person   is   taxed   twice   by   the   same   calling  or  activity  by  both  the  State  and  a  political  subdivision  thereof.  
jurisdiction   for   the   same   thing.   A   tax   on   products   is   different   from   a   tax   on   69. Compania   General   de   Tabacos   de   Filipinas   v.   City   of   Manila   –   Two  
the   privilege   of   storing   copra   in   a   bodega   situated   within   the   territorial   ordinances   were   passed.   One   taxed   the   privilege   to   sell   liquor   while   the  
jurisdiction   of   the   municipality.   Furthermore,   in   the   former,   the   taxing   other  taxed  the  sale  of  liquor.  The  Supreme  Court  held  that  both  a  license  
authority   is   the   national   government   while   in   the   latter;   the   taxing   fee  and  a  tax  may  be  imposed  on  the  same  business  and  occupation  and  
authority  is  the  local  government.     such   as   not   a   violation   of   the   rule   against   double   taxation.   The   impositions  
67. Pepsi-­‐Cola   Bottling   Co.   v.   Municipality   of   Tanauan   -­‐   A   municipality   enacted   are   of   a   different   character.   The   first   is   a   license   fee   for   the   privilege   of  
two  ordinances  (Ord.  Nos.  23  and  27).  The  first  levies  and  collects  from  soft   engaging   in   the   sale   of   liquor   in   the   exercise   of   police   power   while   the  
drinks  producers  a  tax  for  every  bottle  corked  while  the  second  levies  and   other  is  imposed  for  revenue  purposes  based  on  the  sales  made.    
collects   on   soft   drinks   produced   and   manufactured   within   its   territorial   70. Province   of   Bulacan   v.   CA   -­‐   The   local   government   unit   may   levy   a   tax   on  
jurisdiction.   The   SC   said   that,   while   all   the   elements   of   double   taxation   are   quarry  resources  extracted  from  public  lands  but  not  from  private  lands.  In  
present,  there  is  still  no  double  taxation  because  Ord.  27  repealed  Ord.  23.   this   case,   the   Supreme   Court   stated   that   the   NIRC   levies   a   tax   on   all   quarry  
Otherwise,  there  would  have  been  double  taxation.   resources   whether   extracted   from   public   or   private   land.   Thus,   the   local  
68. Villanueva   v.   City   of   Iloilo   -­‐   In   order   to   constitute   double   taxation   in   the   government   unit   cannot   impose   taxes   on   quarry   resources   as   they   are  
objectionable  or  prohibited  sense  the  same  property  must  be  taxed  twice   already  taxed  under  the  NIRC.  However,  by  express  provision  in  the  Local  
when   it   should   be   taxed   but   once;   both   taxes   must   be   imposed   on   the   Government  Code,  the  LGU  may  levy  on  quarry  resources  extracted  from  
same  property  or  subject-­‐matter,  for  the  same  purpose,  by  the  same  State,   public  land.    
Government,   or   taxing   authority,   within   the   same   jurisdiction   or   taxing    

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
V. Forms  of  Escape  from  Taxation   • 3  Factors  of  Tax  Evasion:  (E-­‐S-­‐C)  
  1. The  end  to  be  achieved    
71. Delpher   Trades   Corp.   v.   IAC   –   Spouses,   who   own   real   estate   and   upon   2. An   accompanying   state   of   mind   which   is   described   as   being  
advice   of   their   lawyer,   decided   to   organize   a   corporation   to   take   control   evil,  in  bad  faith,  willfull  or  deliberate  and  not  accidental  
over  their  properties.  The  SC  said  that  this  is  a  case  of  tax  avoidance.  The   3. A  course  of  action  or  failure  of  action  which  is  unlawful  
SC   said   that   there   was   nothing   wrong   or   objectionable   about   the   "estate    
planning"   scheme   resorted   to   by   the   taxpayers.   The   legal   right   of   a   VI. Exemption  from  Taxation  
taxpayer  to  decrease  the  amount  of  what  otherwise  could  be  his  taxes  or    
altogether   avoid   them,   by   means   which   the   law   permits,   cannot   be   74. Luzon  Stevedoring  Corp.  v.  CTA  -­‐-­‐-­‐  “Tugboats”  are  not  the  same  as  “cargo  
doubted.   In   the   said   case,   the   taxpayers   acquired   2,500   original   unissued   vessels.”   The   general   rule   is   that   any   claim   for   exemption   from   the   tax  
no   par   value   shares   of   stocks   of   the   corporation   in   exchange   for   their   statute  should  be  strictly  construed  against  the  taxpayer.  
properties.  By  virtue  of  this  exchange,  the  taxpayers  became  stockholders   75. Manila   Electric   v.   Vera   -­‐-­‐-­‐   The   provision   in   Meralco's   franchise   that   the  
of   the   corporation   by   subscription.   In   effect,   they   changed   the   nature   of   payment   of   the   percentage   tax   on   the   gross   earnings   shall   be   "in   lieu   of   all  
their  ownership  from  unincorporated  to  incorporated  for  by  organizing  the   taxes   and   assessments   of   whatsoever   nature,   and   whatsoever   authority"  
corporation   to   take   control   of   properties   and   at   the   same   time   save   on   is  not  to   be   given   a   literal   meaning   as   to   preclude   the   imposition   of   the  
inheritance  taxes.   compensating   tax.   What   the   above   provision   exempts   petitioner   from,   is  
72. Heng   Tong   Textiles   v.   CIR   -­‐-­‐-­‐   Tax   was   minimized   by   the   advance   sales   tax   the   payment   of   property,   tax   on   its   poles,   wires,   transformers,   and  
paid   by   Pan   Asiatic   upon   removal   of   the   goods   from   Customs)   being   insulators;   it   does   not   exempt   it   from   payment   of   taxes   which,   by   mere  
credited   against   the   tax   on   the   actual   gross   selling   price   paid   by   the   necessity  or  consequence  alone,  fall  upon  property.    
importer   Heng   Tong.   An   attempt   to   minimize   one's   tax   does   not   76. Davao   Gulf   Lumber   Corp.   v.   CIR   -­‐-­‐-­‐   A   tax   cannot   be   imposed   unless   it   is  
necessarily   constitute   fraud.   A   taxpayer   may   diminish   his   liability   by   any   supported  by  the  clear  and  express  language  of  a  statute.  Once  the  tax  is  
means  which  the  law  permits.     unquestionably  imposed,  a  claim  of  exemption  from  tax  payments  must  be  
73. CIR  v.  Toda  -­‐-­‐-­‐  CIC  sold  a  property  for  P100M  to  Altonaga,  who  sold  it  on   clearly  shown  and  based  on  language  in  the  law  too  plain  to  be  mistaken.  A  
the   same   day   to   RMI   for   P200M.   The   execution   of   the   two   sales   was   partial   refund,   is   in   the   nature   of   a   tax   exemption,  and   hence   it   must   be  
calculated   to   mislead   the   BIR   with   the   end   in   view   of   reducing   the   construed  strictissimi  juris  against  the  grantee.  There  is  no  tax  exemption  
consequent   income   tax   liability   from   35%   corporate   tax   to   5%   capital   gains   solely  on  the  ground  of  equity.  
tax.    

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
77. CIR   v.   CA   and   ADMU   -­‐-­‐-­‐   It   is   obviously   both   illogical   and   impractical   to   81. Smart  Communications  v.  City  of  Davao  -­‐-­‐-­‐  The  "in  lieu  of  all  taxes"  clause  
determine   who   are   exempted   without   first   determining   who   are   covered   in   a   legislative   franchise   should   categorically   state   that   the   exemption  
by  the  aforesaid  provision.  CIR  should  have  determined  first  if  Ateneo  was   applies   to   both   local   and   national   taxes;   otherwise,   the   exemption   claimed  
an   independent   contractor,   applying   the   rule   of   strict   interpretation   of   should   be   strictly   construed   against   the   taxpayer   and   liberally   in   favor   of  
laws   imposing   taxes   and   other   burdens   on   the   populace,   before   asking   the   taxing   authority.   The   imposition   of   local   franchise   tax   is   not  
Ateneo  to  prove  its  exemption.   inconsistent   with   the   advent   of   the   Expanded   VAT   Law,   which   renders  
78. Caltex   Phils.   v.   COA   -­‐-­‐-­‐   The   rule   of  ejusdem   generis  states   that   where   functus  officio  the  franchise  tax  paid  to  the  national  government.  
general  words  follow  an  enumeration  of  persons  or  things,  by  words  of  a   82. Nitafan   v.   CIR   -­‐-­‐-­‐   The   intent   of   the   framers   of   the   Constitution   (citing   a  
particular   and   specific   meaning,   such   general   words   are   not   to   be   Father   Bernas   reference)   was   to   make   the   salaries   of   members   of   the  
construed   in   their   widest   extent,   but   are   held   to   be   as   applying   only   to   Judiciary   taxable.   The   imposition   of   income   tax   upon   the   salary   of   judges  
persons  or  things  of  the  same  kind  or  class  as  those  specifically  mentioned.   does  not  constitute  a  diminution  prohibited  by  the  Constitution.    
“Other   factors”   in   accordance   with   the   enumeration   must   relate   to   cost   83. CIR   v.   Mitsubishi   Metal   Corp.   -­‐-­‐-­‐   Mitsubishi   is   not   a   mere   conduit   of  
underrecovery   incurred   as   a   result   of   the   reduction   of   domestic   prices   of   Eximbank  whose  investments  in  the  Philippines  on  loans  are  exempt  from  
petroleum  products.   taxes   under   the   Tax   Code.   Taxation   is   the   rule   and   exemption   is   the  
79. National   Development   Co.   v.   CIR   -­‐-­‐-­‐   There   is   nothing   in   the   Secretary   of   exception.  The  burden  of  proof  rests  upon  the  party  claiming  exemption  to  
Finance’s  undertaking  that  exempts  the  interests  from  taxes.  NDC  has  not   prove  that  it  is  in  fact  covered  by  the  exemption  so  claimed.  
established   a   clear   waiver   therein   of   the   right   to   tax   interests.   Tax   84. PLDT  v.  City  of  Davao  -­‐-­‐-­‐  The  fact  that  PLDT’s  existing  franchises  contain  “in  
exemptions   cannot   be   merely   implied   but   must   be   categorically   and   lieu   of   all   taxes”   clauses,   does   not   mean   that   the   same   grant   of   tax  
unmistakably   expressed.  Any   doubt   concerning   this   question   must   be   exemption   must   be   deemed   to   have   become   ipso   facto   part   of   its  
resolved  in  favor  of  the  taxing  power.       previously   granted   telecommunications   franchise.   Tax   exemptions   are  
80. Republic   v.   Caguioa   -­‐-­‐-­‐   An   exemption   granted   on   imporatations   of   cigars,   highly   disfavored.  The   right   of   taxation   will   not   be   held   to   have   been  
cigarettes,   distilled   spirits,   fermented   liquors   and   wines   within   the   Subic   surrendered,  unless  the  intention  to  surrender  is  manifested  by  words  too  
SEZ  can  be  withdrawn.  There  is  no  vested  right  in  a  tax  exemption,  more  so   plain  to  be  mistaken.  
when   the   latest   expression   of   legislative   intent   renders   its   continuance   85. Mactan  Cebu  Internation  Airport  Authority  v.  Marcos  -­‐-­‐-­‐  As  a  general  rule,  
doubtful.   Being   a   mere   statutory   privilege,   a   tax   exemption   may   be   the   power   to   tax   is   an   incident   of   sovereignty   and   is   unlimited   in   its   range,  
modified  or  withdrawn  at  will  by  the  granting  authority.   acknowledging  in  its  very  nature  no  limits,  so  that  security  against  its  abuse  
is   to   be   found   only   in   the   responsibility   of   the   legislature   which   imposes  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
the   tax   on   the   constituency   who   are   to   pay   it.   Nevertheless,   effective   of  its  right  to  collect  what  otherwise  would  be  due  it,  and  in  this  
limitations   thereon   may   be   imposed   by   the   people   through   their   sense,   prejudicial   thereto,   particularly   to   give   tax   evaders,   who  
Constitutions.   wish   to   relent   and   are   willing   to   reform   a   chance   to   do   so   and  
• Under  an  earlier  law,  MCIAA  is  exempt  from  the  payment  of  realty   thereby  become  a  part  of  the  new  society  with  a  clean  slate.  
taxes.   Since   taxation   is   the   rule   and   exemption   therefrom   the   • The  rule  is  that  in  case  of  doubt,  tax  statutes  are  to  be  construed  
exception,  the  exemption  may  thus  be  withdrawn  at  the  pleasure   strictly   against   the   Government   and   liberally   in   favor   of   the  
of  the  taxing  authority.     taxpayer,   for   taxes,   being   burdens,   are   not   to   be   presumed  
• Exception   –   where   the   exemption   was   granted   to   private   parties   beyond  what  the  applicable  statute  expressly  and  clearly  declares.  
based   on   material   consideration   of   a   mutual   nature,   which   then   88. Phil.   Acetylene   Co.   Inc.   v.   CIR   -­‐-­‐-­‐   Sales   tax   must   be   paid   by   the  
becomes  contractual  and  is  thus  covered  by  the  non-­‐impairment   manufacturer  or  producer  (Phil.  Aceylene)  even  if  the  sale  is  made  to  tax-­‐
clause  of  the  Constitution.     exempt   entities   like   the   National   Power   Corporation,   an   agency   of   the  
86. CIR   v.   Robertson   -­‐-­‐-­‐   An   examination   of   the   words   used   and   the   Philippine   Government,   and   to   the   Voice   of   America,   an   agency   of   the  
circumstances  in  which  they  were  used,  shows  the  basic  intendment  in  the   United  States  Government.  
RP-­‐US   Military   Bases   Agreement   to   exempt   all   US   citizens   working   in   the   • It  may  indeed  be  that  the  economic  burden  of  the  tax  finally  falls  
Military   Bases   from   the   burden   of   paying   Philippine   Income   Tax   without   on   the   purchaser;   when   it   does   the   tax   becomes   a   part   of   the  
distinction  as  to  whether  born  locally  or  born  in  their  country  of  origin.  Ubi   price   which   the   purchaser   must   pay.   The   method   of   listing   the  
lex   non   distinguit   nec   nos   distinguere   debemos  (one   must   not   distinguish   price   and   the   tax   separately   and   defining   taxable   gross   receipts   as  
where  the  law  does  not  distinguish).   the   amount   received   less   the   amount   of   the   tax   added,   merely  
87. Republic   v.   IAC   (April   26,   1991)   -­‐-­‐-­‐   The   Pastor   spouses   were   granted   not   avoids  payment  by  the  seller  of  a  tax  on  the  amount  of  the  tax.    
merely   an   exemption,   but   an   amnesty   for   their   past   tax   failings.   The   • But   the   tax   burden   may   not   even   be   shifted   to   the   purchaser   at  
Government   is   estopped   from   colleting   the   difference   between   the   all.  A  decision  to  absorb  the  burden  of  the  tax  is  largely  a  matter  
deficiency   tax   assessment   and   the   amount   already   paid   by   them   as   of   economics.   Then   it   can   no   longer   be   contended   that   a   sales   tax  
amnesty  tax.     is  a  tax  on  the  purchaser.  
• A  tax  amnesty,  being  a  general  pardon  or  intentional  overlooking   89. CIR   v.   Gotamco   &   Sons.   Inc.   -­‐-­‐-­‐   Gotamco   is   not   liable   to   pay   for   3%  
by   the   State   of   its   authority   to   impose   penalties   on   persons   contractors  tax  as  there  was  a  specific  exemption  from  “indirect  taxes”  in  
otherwise   guilty   of   evasion   or   violation   of   a   revenue   or   tax   law,   the  World  Health  Organization’s  Host  Agreement  with  the  Philippines.  The  
partakes  of  an  absolute  forgiveness  or  waiver  by  the  Government   3%   contractor's   tax   would   be   within   this   category   and   should   be   viewed   as  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
a   form   of   an   "indirect   tax"   On   the   Organization,   as   the   payment   thereof   or   exemption   from   excise   tax   payment   on   petroleum   products   under   Sec.  
its   inclusion   in   the   bid   price   would   have   meant   an   increase   in   the   135(a)   is   conferred   on   international   carriers   who   purchased   the   same   for  
construction  cost  of  the  building.   their   use   or   consumption   outside   the   Philippines.  Pilipinas   Shell   cannot  
90. Maceda   v.   Macaraig   (main   and   MR)   -­‐-­‐-­‐   By   the   very   nature   of   indirect   shift  the  tax  burden  to  international  carriers  who  are  allowed  to  purchase  
taxation,   the   economic   burden   of   such   taxation   is   expected   to   be   passed   its  petroleum  products  without  having  to  pay  the  added  cost  of  the  excise  
on   through   the   channels   of   commerce   to   the   user   or   consumer   of   the   tax.  
goods   sold.   However,   because   NPC   has   been   exempted   from   both   direct    
and  indirect  taxation,  the  NPC  must  be  held  exempted  from  absorbing  the   VII. Nature,  Construction,  Application,  and  Sources  of  Tax  Laws  
economic  burden  of  indirect  taxation.  ·∙  This  means,  on  the  one  hand,  that    
the   oil   companies   which   wish   to   sell   to   NPC   absorb   all   or   part   of   the   93. Hilado  v.  CIR  -­‐-­‐-­‐  Our  internal  revenue  laws  are  not  political  in  nature  and  as  
economic  burden  of  the  taxes  previously  paid  to  BIR,  which  they  could  shift   such  were  continued  in  force  during  the  period  of  enemy  occupation  and  
to   NPC   if   NPC   did   not   enjoy   exemption   from   indirect   taxes.   If   NPC   in  effect  were  actually  enforced  by  the  occupation  government.    
nonetheless  purchases  such  oil  from  the  oil  companies  —  because  to  do  so   94. CIR   v.   CA,   Alhambra   -­‐-­‐-­‐   Rulings   and   circulars,   rules   and   regulations  
may  be  more  convenient  and  ultimately  less  costly  for  NPC  than  NPC  itself   promulgated   by   the   Commissioner   of   Internal   Revenue   would   have   no  
importing  and  hauling  and  storing  the  oil  from  overseas  —  NPC  is  entitled   retroactive   application   if   to   so   apply   them   would   be   prejudicial   to   the  
to   be   reimbursed   by   the   BIR   for   that   part   of   the   buying   price   of   NPC   which   taxpayers.  
verifiably  represents  the  tax  already  paid  by  the  oil  company-­‐vendor  to  the   • Exceptions:  
BIR.   1. Taxpayer  deliberately  omits/misstates  facts  in  his  return  
91. Silkair  (Singapore)  v.  CIR  -­‐-­‐-­‐  The  proper  party  to  question,  or  seek  a  refund   2. Facts   subsequently   gathered   by   the   BIR   are   materially  
of,   an   indirect   tax   is   the   statutory   taxpayer,   the   person   on   whom   the   tax   is   different  from  the  facts  on  which  the  ruling  is  based  
imposed   by   law   and   who   paid   the   same   even   if   he   shifts   the   burden   3. Taxpayer  acted  in  bad  faith  
thereof   to   another.   Even   if   Petron   Corporation   passed   on   to   Silkair   the   95. ABS-­‐CBN   v.   CTA     -­‐-­‐-­‐   Sec.   27   of   the   Tax   Code   provides   that   ny   revocation,  
burden  of  the  tax,  the  additional  amount  billed  to  Silkair  for  jet  fuel  is  not  a   modification,  or  reversal  of  and  of  the  rules  and  regulations  promulgated  
tax  but  part  of  the  price  which  Silkair  had  to  pay  as  a  purchaser.   in  accordance  with  the  preceding  section  or  any  of  the  rulings  or  circulars  
92. CIR   v.   Pilipinas   Shell   Petroleum   Corp.   -­‐-­‐-­‐   Excise   taxes   levied   on   locally   promulgated   by   the   Commissioner   of   Internal   Revenue  shall   not   be   given  
manufactured  petroleum  products  and  indigenous  petroleum  are  required   retroactive   application   if   the   relocation,   modification,   or   reversal   will   be  
to   be   paid   before   their   removal   from   the   place   of   production.   The   prejudicial  to  the  taxpayers  (with  certain  exceptions).  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
th
96. Philippine   Bank   of   Communications   v.   CIR   -­‐-­‐-­‐   Adds   a   4   exception:   non-­‐ public's  trust  and  confidence  in  the  Government  this  power  must  be  
retroactivity   of   rulings   by   the   Commissioner   of   Internal   Revenue   is   not   used  justly  and  not  treacherously.  
applicable  in  this  case  because  the  nullity  of  RMC  No.  7-­‐85  was  declared  by    
court  and  not  the  CIR.   b. Set-­‐off  of  Taxes  
• It  is  widely  accepted  that  the  interpretation  placed  upon  a  statute   100. Philex   Mining   Corp.   v.   CIR   -­‐-­‐-­‐   Taxes   cannot   be   subject   to  
by  the  executive  officers,  whose  duty  is  to  enforce  it,  is  entitled  to   compensation   for   the   simple   reason   that   the   government   and   the  
great   respect   by   the   courts.   Nevertheless,   such   interpretation   is   taxpayer  are  not  creditors  and  debtors  of  each  other.  
not   conclusive   and   will   be   ignored   if   judicially   found   to   be   101. Francia  v.  IAC    -­‐-­‐-­‐    A  person  cannot  refuse  to  pay  a  tax  on  the  ground  
erroneous.   that   the   government   owes   him   an   amount   equal   to   or   greater   than  
97. BIR   Ruling   No.   370-­‐2011   -­‐-­‐-­‐   Non-­‐retroactivity   shall   not   apply   where   the   the   tax   being   collected.   The   collection   of   a   tax   cannot   await   the  
ruling   involved   is   null   and   void   for   being   contrary   to   law,   such   as   the   results  of  a  lawsuit  against  the  government.  
previous  rulings  on  the  PEACe  bonds.   102. Republic  v.  Mambulao  Lumber  Co.  -­‐-­‐-­‐  A  claim  for  taxes  is  not  such  a  
  debt,  demand,  contract  or  judgment  as  is  allowed  to  be  set-­‐off  under  
VIII. Certain  Doctrines  in  Taxation   the  statutes  of  set-­‐off,  which  are  construed  uniformly,  in  the  light  of  
a. Power  to  Tax  Involves  Power  to  Destroy   public  policy,  to  exclude  the  remedy  in  an  action  or  any  indebtedness  
98. CIR  v.  Tokyo  Shipping  Co.  -­‐-­‐-­‐  The  tax  was  paid  way  back  in  1980  and   of   the   state   or   municipality   to   one   who   is   liable   to   the   state   or  
despite   the   clear   showing   that   it   was   erroneously   paid,   the   municipality   for   taxes.   Neither   are   they   a   proper   subject   of  
government   succeeded   in   delaying   its   refund   for   fifteen   (15)   years.   recoupment  since  they  do  not  arise  out  of  the  contract  or  transaction  
Fair   deal   is   expected   by   our   taxpayers   from   the   BIR   and   the   duty   sued  on.  
demands   that   BIR   should   refund   without   any   unreasonable   delay    
what  it  has  erroneously  collected.   c. Taxpayer  Suit  
99. Reyes  v.  Almanzor  -­‐-­‐-­‐  The  power  of  taxation  is  sometimes  called  also   103. Anti-­‐Graft   League   of   the   Phil.   v.   San   Juan   -­‐-­‐-­‐   To   constitute   a  
the  power  to  destroy.  Therefore  it  should  be  exercised  with  caution   taxpayer’s  suit,  two  requisites  must  be  met:    
to  minimize  injury  to  the  proprietary  rights  of  a  taxpayer.  It  must  be   1.  public   funds   are   disbursed   by   a   political   subdivision   or  
exercised   fairly,   equally   and   uniformly,   lest   the   tax   collector   kill   the   instrumentality   and   in   doing   so,   a   law   is   violated   or   some  
"hen  that  lays  the  golden  egg."  And,  in  order  to  maintain  the  general   irregularity  is  committed,  and  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
2. that   the   petitioner   is   directly   affected   by   the   alleged   ultra  
vires  act  
104. Joya  v.  PCGG  -­‐-­‐-­‐  No  question  involving  the  constitutionality  or  validity  
of   a   law   or   governmental   act   may   be   heard   and   decided   by   the   court  
unless   there   is   compliance   with   the   legal   requisites   for   judicial  
inquiry,   namely:   that   the   question   must   be   raised   by   the   proper  
party;  that  there  must  be  an  actual  case  or  controversy.  
105. Lozada  v.  COMELEC  -­‐-­‐-­‐  It  is  only  when  an  act  complained  of  involves  
the   illegal   expenditure   of   public   money   that   the   so-­‐called   taxpayer  
suit  may  be  allowed.  
106. Abaya   v.   Ebdane   -­‐-­‐-­‐   The   prevailing   doctrine   in   taxpayer’s   suits   is   to  
allow   taxpayers   to   question   contracts   entered   into   by   the   national  
government  or  GOCC’s  allegedly  in  contravention  of  law.  
 

   

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
INCOME  TAX   110. BIR   Ruling   33-­‐00   –   Technoserve   International   Company   provides  

I. Definitions   technical   services   for   overseas   and   domestic   projects.   It   sends   some  

A. Resident  citizens  and  resident  aliens   of   its   employees   to   Japan   for   a   certain   period   to   work   with   its  

107. Garrison   vs.   Court   of   Appeals   -­‐   Petitioners   are   American   citizens   mother   company,   JGC   Corp.   Their   contracts   pass   thru   the   POEA.  

who  were  employed  at  the  US  Naval  Base  in  Subic.  They  claim  that   While   in   Japan,   they   are   paid   in   US   dollars   by   TIC.   In   ruling   for   the  

they   are   not   resident   aliens   because   they   do   not   intend   to   stay   in   proper   tax   treatment,   the   BIR   made   a   distinction   between   non-­‐

the   Philippines.   Thus,   they   refused   to   file   their   income   tax   returns,   resident   citizens   and   overseas   contract   workers   (OCWs).   Non-­‐

claiming  that  they  are  exempt  from  income  tax.  The  SC  ruled  that  a   resident   citizens   are   exempt   from   taxation   of   their   foreign-­‐based  

foreigner   whose   purpose   for   coming   here   is   of   a   nature   that   income  if  they  have  stayed  abroad  for  at  least  183  days  in  a  taxable  

requires   his   prolonged   stay   for   its   accomplishment,   then   he   is   a   year.   For   OCWs,   their   foreign-­‐based   income   are   tax   exempt  

resident  alien;  intention  to  go  back  to  his  country  is  irrelevant.  Thus,   regardless   of   length   of   time,   the   only   requirement   being   that   their  

they   are   not   transients   but   are   actually   resident   aliens.   The   Bases   contracts  pass  thru  and  are  registered  with  the  POEA.    

Agreement   only   exempts   them   for   income   derived   from   US   sources.   111. BIR  Ruling  DA  095-­‐05  –  Borromeo  is  a  US  citizen  who  was  applying  

They   must   still   file   their   ITRs   to   prove   that   they   did   not   receive   for  dual  citizenship.  He  asked  BIR  whether  he  will  be  required  to  pay  

Philippine-­‐sourced  income  which  is  taxable.   income   tax   for   income   earned   in   the   US.   The   BIR   said   that   when   the  

  dual   citizenship   is   granted,   he   will   be   considered   as   a   non-­‐resident  

B. Non-­‐resident  citizens     citizen   and   as   such,   only   his   Philippine-­‐sourced   income   is   taxable.  

108. RR   1-­‐79   -­‐   The   phrase   “requires   him   to   physically   present   abroad   His  US-­‐sourced  income  will  be  tax  exempt.  Only  resident  citizens  are  

most   of   the   time”   under   sec.   22(e)   Tax   Code   means   the   contract   taxable  for  income  sourced  within  or  outside  of  the  Philippines.  

worker   must   have   been   outside   the   Philippines   for   a   period   of   not    

less   than   183   days   during   the   taxable   year.   The   proof   of   intention   of   C. Non-­‐resident  aliens  engaged  in  business  in  the  Philippines  

leaving   or   return   shall   be   attached   to   his   ITR.   It   also   provides   for   the   112. Sec.   5   &   6,   RR   2     -­‐   An   alien   actually   present   in   the   Philippines   who   is  

manner  of  computing  his  income  tax  (beyond  scope).       not   a   mere   transient   or   sojourner   is   a   resident   of   the   Philippines   for  

109. RR  5-­‐01  –  Non-­‐resident  citizens  are  no  longer  required  to  file  income   purposes   of   the   income   tax.   Whether   he   is   a   transient   or   not   is  

tax  returns  for  income  derived  from  sources  outside  the  Philippines   determined  by  his  intentions  with  regard  to  the  length  and  nature  of  

beginning  the  taxable  year  2001.     his  stay.  A  mere  floating  intention  indefinite  as  to  time,  to  return  to  
another  country  is  not  sufficient  to  constitute  him  a  transient.  If  he  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
lives   in   the   Philippines   and   has   no   definite   intention   as   to   his   stay,   that   they   are   NOT   liable   for   corporate   income   tax.   They   were   co-­‐
he   is   a   resident.   One   who   comes   to   the   Philippines   for   a   definite   owners   of   the   properties,   but   that   did   not   make   them   an  
purpose   which   in   its   nature   may   be   promptly   accomplished   is   a   unregistered   partnership   which   is   taxable   as   a   corporation.   There  
transient.   But   if   his   purpose   is   of   such   a   nature   that   an   extended   were  only  2  isolated  transactions,  thus,  there  was  no  habituality  to  
stay  may  be  necessary  for  its  accomplishment,  and  to  that  end  the   engage   in   business   and   earn   profit   which   would   indicate   that   a  
alien  makes  his  home  temporarily  in  the  Philippines,  he  becomes  a   partnership  existed.  
resident,  though  it  may  be  his  intention  at  all  times  to  return  to  his   115. Obillos  vs.  CIR    -­‐  Petitioners  in  this  case  are  siblings  who  were  given  
domicile   abroad   when   the   purpose   for   which   he   came   has   been   two  lots  in  Greenhills  by  their  father.  Their  father  gave  them  these  
consummated   or   abandoned.   He   retains   resident   status   until   he   lots  for  them  to  build  their  houses  but  since  they  were  not  able  to  
abandons   residence   and   actually   departs.   A   mere   intention   to   build  their  house  after  a  year,  petitioners  sold  the  land  and  earned  
change   his   status   does   not   automatically   convert   him   into   a   non-­‐ profit   which   they   reported   for   purposes   of   capital   gains   tax.   They  
resident  alien.       were   assessed   by   the   CIR   with   corporate   income   tax.   The   SC   ruled  
  that   they   cannot   be   considered   to   have   formed   a   partnership  
D. Corporations   because  there  was  only  one  transaction.  Furthermore,  they  did  not  
113. AFISCO   Insurance   Corporation   vs.   CA   -­‐   The   41   non-­‐life   insurance   contribute   anything   to   a   common   fund.   The   distribution   of   profits  
companies   formed   themselves   into   a   pool   or   clearing   house   to   from  that  transaction  was  merely  incidental  to  the  dissolution  of  the  
facilitate   their   dealings   with   a   foreign   insurance   company.   This   co-­‐ownership  they  had  over  the  lots.    
group  of  companies  had  its  own  executive  board  which  resembled  a   116. Oña   vs.   CIR     -­‐   Lorenzo   Oña   and   his   children   are   the   heirs   and   co-­‐
board   of   directors.   It   also   has   a   common   fund.   Thus,   the   SC   ruled   owners  of  an  estate  which  they  inherited  from  Oña’s  deceased  wife.  
that   it   is   liable   for   corporate   income   tax.   It   is   actually   an   Despite  a  partition  plan  approved  by  the  court,  the  properties  were  
unregistered   partnership   which   is   included   in   the   concept   of   a   not  really  divided  but  remained  under  the  management  of  Lorenzo.  
taxable  corporation  in  the  NIRC.   Lorenzo  sold  and  leased  some  of  these  lots  and  then  reinvested  the  
114. Pascual   vs.   CIR     -­‐   Petitioners   bought   a   total   of   5   parcels   of   land   in   income   in   other   real   property   and   securities.   Petitioners   thus  
1966.  They  sold  2  parcels  to  Marenir  Dev’t.  Corp  in  1968.  They  sold   derived  income  from  these  investments.  The  SC  ruled  that  they  are  
the  3  to  Reyes  and  Samson  in  1970.  They  realized  profits  from  both   liable   for   corporate   income   tax   because   they   have   formed   an  
sales  and  thus  paid  the  corresponding  capital  gains  taxes.  They  were   unregistered   partnership   which   is   within   the   contemplation   of   a  
however   assessed   a   deficiency   corporate   income   tax.   The   SC   ruled   taxable  corporation.  For  tax  purposes,  the  co-­‐ownership  of  inherited  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
properties   is   automatically   converted   into   an   unregistered    
partnership   the   moment   the   said   common   properties   and   income   II. Income  
derived   therefrom   are   used   as   a   common   fund   with   intent   to   A. In  general  
produce   profits.   There   was   also   habituality   in   the   business   119. Madrigal   vs.   Rafferty     -­‐   Vicente   Madrigal   filed   his   net   income  
conducted  by  Lorenzo  Oña.   (P296,302.73)   for   the   year   1914   but   claimed   that   this   was   actually  
117. RR  10-­‐2012  -­‐  Joint  ventures  are  not  taxable  as  corporations.  In  order   the   income   of   the   conjugal   partnership   with   his   spouse,   Susana  
to   be   taxed   as   such   certain   requirements   enumerated   must   be   Paterno.  He  claims  that  the  total  income  of  the  conjugal  partnership  
fulfilled.   Joint   ventures   involving   foreign   contractors   may   also   be   should  be  divided  into  two,  and  that  smaller  amount  should  be  the  
treated   as   a   non-­‐taxable   corporation   only   if   the   member   foreign   tax   base   of   the   income   tax.   The   SC   disagreed.   Our   tax   law   is  
contractor   is   covered   by   a   special   license   as   contractor   by   the   patterned  after  the  US  tax  law.  US  Treasury  regulations  provide  that  
Philippine   Contractors   Accreditation   Board   (PCAB)   of   the   the  husband  must  report  the  aggregate  income  of  him  and  his  wife,  
Department   of   Trade   and   Industry   (DTI);   and   the   construction   subject  to  certain  conditions.  Thus,  their  income  is  considered  only  
project   is   certified   by   the   appropriate   Tendering   Agency   as  one.  They  cannot  be  split  between  the  spouses.    
(government   office)   that   the   project   is   a   foreign   financed/   120. Fisher   vs.   Trinidad     -­‐   Frederick   Fisher   is   a   stockholder   of   Philippine  
internationally-­‐funded   project   and   that   international   bidding   is   American   Drug   Company.   The   company   issued   stock   dividends   and  
allowed  under  the  Bilateral  Agreement  entered  into  by  and  between   Fisher   was   assessed   an   income   tax   deficiency   for   the   stock  
the  Philippine  Government  and  the  foreign  /  international  financing   dividends.   The   SC   ruled   that   such   stock   dividends   are   not   income,  
institution   pursuant   to   the   implementing   rules   and   regulations   of   and  are  thus  not  taxable  income.  Stock  dividends  are  undistributed  
Republic  Act  No.  4566  otherwise  known  as  Contractor’s  License  Law.   increases  in  the  capital  of  the  corporation.  The  stockholder  doesn’t  
118. BIR  Ruling  108-­‐2010    -­‐  The  joint  venture  between  Aurora  Properties   really  receive  any  gain  or  income.  What  he  gets  is  only  an  increased  
Inc.  and  Avida  Land  Corp.  to  develop  a  subdivision  in  Laguna  is  not   interest   in   the   capital   of   the   corporation.   An   income   subject   to  
subject   to   income   tax   because   a   joint   venture   does   not   fall   under   taxation   under   the   law   must   be   an   actual   income   and   not   a  
the   definition   of   a   taxable   corporation.   They   will   only   be   liable   for   promised  or  prospective  income.  
income   tax   when   they   actually   receive   income.   Avida   will   be   taxed   121. Limpan  Investment  Corporation  vs.  CIR      -­‐  Limpan  Investment  Corp.  
on   the   marketing   fees   paid   to   it   by   Aurora   for   marketing   services.   is  engaged  in  the  business  of  leasing  out  real  properties.  They  were  
Avida  and  Aurora  will  be  taxed  on  the  income  they  derive  from  the   assessed  deficiency  taxes  for  underdeclared  rental  incomes.  During  
sale  of  the  properties.   trial,  their  witness  admitted  to  underdeclaring  income,  but  reasoned  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
out   that   such   was   caused   by   them   not   being   able   to   collect   rent   124. Murphy  vs.  Internal  Revenue  Service    -­‐  Murphy  won  a  case  against  
from   the   tenants.   Their   claim   that   they   were   unable   to   collect   was   her  former  employer,  stating  that  she  suffered  mental  and  physical  
not  sufficiently  proven  by  clear  and  convincing  evidence,  thus,  they   injuries  (bruxism)  when  she  was  blacklisted  by  her  former  employer.  
are   liable.   The   Court   also   ruled   that   the   payment   by   a   sub-­‐tenant   She   was   awarded   moral   damages.   The   Court   ruled   that   moral  
still  ought  to  be  declared  because  it  is  still  income,  regardless  of  its   damages  cannot  be  considered  as  income  because  they  are  paid  to  
source.   make   her   “emotionally   and   reputationally   whole”   and   not   to  
122. Conwi  vs.  Court  of  Tax  Appeals  -­‐  Petitioners  are  Filipino  employees   compensate   for   lost   wages.   It   is   more   in   the   nature   of   a   return   on  
of   P&G   who   were   assigned   to   subsidiaries   outside   of   the   Philippines   capital   (i.e.   human   capital),   which   is   not   an   income.   (This   case   was  
and   were   being   paid   in   US   dollars   as   compensation   for   services   reheard   by   the   same   court   in   a   later   year   and   was   overturned.)  
rendered.   In   their   income   tax   return,   they   used   the   dollar-­‐to-­‐peso   [“The   hardest   thing   in   the   world   to   understand   is   the   income   tax.”   –  
conversion   rate   in   BIR   Ruling   No.   70-­‐027   (P3.90:$1   from   Jan.   1   to   Albert  Einstein]  
Feb   20,   1970;   P6.25:$1   from   Feb.   21   to   Dec.   31,   1970).   They   filed   an    
amended  ITR  using  the  par  value  of  the  peso  in  Sec.  48,  RA  265  (this   B. Statutory  “inclusions”  
was   a   lower   peso-­‐to-­‐dollar   ratio).   Their   claim   for   tax   refund   was   i. Compensation  for  services  
denied.  The  proper  conversion  rate  should  be  the  free  market  rate   125. Old   Colony   Trust   Co.   vs.   CIR   -­‐   Through   a   board   resolution,  
since   the   par   value   only   applies   to   foreign   exchange   transactions,   American  Woolen  Company  resolved  to  shoulder  the  burden  of  
not  income  tax  payments.  There  were  no  forex  transactions  by  the   paying   the   taxes   due   on   the   incomes   of   its   officers,   with   the  
petitioners   because   while   they   were   earning   in   dollars,   they   were   effect   that   such   officers   will   receive   their   salaries   without   any  
also  spending  in  dollars,  thus,  no  conversion  occurs.       deductions   from   withheld   taxes.   The   Court   ruled   that   the  
123. CIR   v.   Glenshaw   Glass   Co.   -­‐   Respondents   in   these   cases   previously   amounts  paid  by  the  company  were  actually  additional  taxable  
won   in   their   respective   anti-­‐trust   cases   and   were   awarded   income   of   the   officers.   These   were   additional   compensation   for  
exemplary   and   treble   (triple   of   actual/compensatory)   damages   by   their   services   which   were   included   in   their   gross   income.   (Sir’s  
the  courts.  The  Court  ruled  that  such  damages  were  still  included  in   comment:  Income  tax  is  a  direct  tax  which  cannot  be  passed  to  
gross  income  and  were  thus  taxable.  The  law  defines  gross  income   another.)  
to   include   “gains   or   profits   and   income   derived   from   any   source    
whatever.”   (Sec.   32(A)   of   the   1997   NIRC   uses   the   term,   “from   ii. Rents  
whatever  source.”)  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
126. Helvering   vs.   Bruun   -­‐   Bruun   is   a   landowner   who   leased   his   land.   due   to   causes   other   than   the   premature   termination   of   the  
Pursuant   to   the   lease   agreement,   the   lessee   tore   down   an   old   lease   shall   be   included.   Conversely,   if   the   building   or  
building  and  built  a  new  one  which  had  a  higher  value  than  the   improvements   are   destroyed   prior   to   the   expiration   of   the  
old  building.  The  lessee  then  defaulted  on  the  rental  payments   lease,  the  lessor  is  entitled  to  deduct  as  a  loss  for  the  year  when  
and   the   land   was   returned   to   Bruun   after   the   lease   was   such   destruction   takes   place   the   amount   previously   reported   as  
cancelled.   The   Court   ruled   that   the   difference   in   value   of   the   income   because   of   the   erection   of   such   buildings   or  
new   building   and   the   old   building   (about   $51,000)   was   a   improvements,  less  any  salvage  value  subject  to  the  lease  to  the  
realized   gain   and   was   thus   taxable.   Realization   of   gain   need   not   extent  that  such  loss  was  not  compensated  for  by  insurance.  
be  cash  derived  from  the  sale  of  an  asset.  Gain  may  occur  as  a    
result   of   exchange   of   property,   payment   of   the   taxpayer’s   iii. Dividends  
indebtedness,  relief  from  liability  (as  was  the  case  in  Old  Colony   128. CIR  vs.  Court  of  Appeals    -­‐  ANSCOR  redeemed  common  shares  
v.  CIR,  supra),  or  other  profit  realized  from  the  completion  of  a   from   Andres   Soriano’s   estate   in   1968   and   1969.   The   CIR   then  
transaction  (as  was  the  case  here).   assessed   ANSCOR   with   deficiency   withholding   tax-­‐at-­‐source.  
127. Section   49,   RR   2   -­‐   improvements   erected   by   lessee   and   not   The   SC   agreed   with   the   CIR.   Normally,   stock   dividends   are   not  
subject  to  removal  by  them  are  reportable  income  for  the  lessor   taxable.  The  exception  is  when  the  corporation  “redeems  stock  
in   the   either   of   the   following   manners:   (1)   income   at   the   time   issued   as   a   dividend   at   such   time   and   in   such   manner   as   to  
when   such   buildings   or   improvements   are   completed   the   fair   make  the  distribution  and  cancellation  or  redemption,  in  whole  
market  value  or  (2)  lessor  may  spread  over  the  life  of  the  lease   or  in  part,  essentially  equivalent  to  the  distribution  of  a  taxable  
the   estimated   depreciated   value   of   such   buildings   or   dividend,   the   amount   distributed   in   redemption   shall   be  
improvements   at   the   termination   of   the   lease   and   report   as   considered   as   taxable   income.”   Redeemed   stocks   can   be   from  
income  for  each  year  of  the  lease  an  aliquot  part.  If  the  lessor   two   different   sources:   stock   representing   original   capital,   and  
comes   into   possession   or   control   of   the   property   prior   to   the   stock  issued  as  dividends.  Those  of  the  first  kind  are  just  return  
time  originally  fixed  for  the  termination  of  the  lease,  the  lessor   on  capital  and  are  not  taxable  as  income.  Those  of  the  second  
receives  additional  income  for  the  year  in  which  the  lease  is  so   kind   represents   a   gain   which   is   thus   taxable.   (Sir’s   comment:  
terminated   to   the   extent   that   the   value   of   such   buildings   or   Some   people   actually   use   stock   dividends   to   circumvent   the  
improvements   when   he   became   entitled   to   such   possession   law.   That’s   why   it’s   important   to   take   note   of   the   time   and  
exceeds  the  amount  already  reported.  No  appreciation  in  value  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
manner   by   which   these   stocks   are   redeemed   to   determine   reversing.  Is  it  that  liquidating  corporation  is  already  subject  to  
whether  these  are  really  legit  non-­‐taxable  dividends.)     income   tax?   Sir   said   that   cannot   be   as   it’s   prohibited   by   the  
129. Wise  &  Co.,  Inc.  vs.  Meer    -­‐  Manila  Wine  Merchants,  Ltd.  (Hong   NIRC.  So  by  implication  it  is  probably  abandoning  the  32%  and  
Kong   company)   decided   to   sell   all   its   assets   to   Manila   Wine   applying  the  5/10%  tax  rate  for  liquidating  dividends  given  to  a  
Merchants,   Inc.   (Manila   company).   From   the   sale   of   such,   it   shareholder  who  is  a  corporation.  
earned   income   which   were   distributed   as   dividends   to   its   133. BIR  Ruling  039-­‐02  -­‐  In  simple  terms,  the  dissolving  corporation,  
stockholders   which   included   Wise   &   Co.   Inc.   The   Court   ruled   who  exchanges  stocks  for  real  property  as  liquidating  dividends,  
that   these   dividends   were   actually   liquidating   dividends   since   is   not   liable   for   tax   on   such   dividends   –   because   said  
the   HK   company   was   actually   closing   down.   The   stockholders   corporation   has   no   gain.   For   a   shareholder   receiving   the  
are   liable   for   income   tax   from   the   liquidating   dividends   they   liquidating   dividends,   he   is   subject   to   25   %     or   32%   (if  
received.   These   are   gains   to   the   stockholders.   Liquidating   corporation)  ordinary  income  tax  rate  on  his  gains,  and  not  the  
dividends   are   composed   of   two   parts:   a   return   OF   the   5%/10%  final  tax  rates.  
investment   initially   paid   by   the   stockholder,   and   a   return   ON    
this   investment   in   the   form   of   retained   earnings   by   the   iv. “From  whatever  source”  
company.   134. James   vs.   United   States   –   A   gain   constitutes   taxable   income  
130. Section   250-­‐256,   RR   2   -­‐   if   forgiveness   of   indebtedness   was   when   its   recipient   has   such   control   over   it   that,   as   a   practical  
granted   as   compensation   for   services,   then   it   is   reportable   matter,   he   derives   readily   realizable   economic   value   from   it  
income  for  the  individual.  If  it  was  done  without  consideration,   even  if  it  came  from  an  unlawful  source,  even  embezzlement.  
it  is  a  gift  and  need  not  be  included  in  the  gross  income.  If  it  was   135. Section   50,   RR   2   –   Cancellation   or   forgiveness   of   debt   may  
a   corporation   that   forgave   a   stockholder,   the   transaction   has   amount  to  :  
the  effect  of  payment  of  dividend.   • Payment   of   income   –   that’s   taxable.   A   person   performs  
131. BIR   Ruling   322-­‐87   -­‐   Liquidating   dividends   received   by   service  for  a  creditor  who  cancels  his  debt.  
stockholders,  in  excess  of  their  investment,  are  taxable.  Gain  =   • A   capital   transaction   –   that’s   taxable.   A   corporation   forgives  
fair  market  value  of  liquidating  dividends  –  adjusted  cost  of  the   the  debt  of  a  stockholder,  that’s  like  paying  a  dividend.  
share.   • A   gift   –   that’s   exempt.   A   creditor   merely   wants   to   benefit   a  
132. BIR  Ruling  479-­‐11  -­‐  CIR:  BIR  Ruling  39-­‐02  is  now  reversed.  Class   debtor  by  cancelling  the  debt  without  any  consideration.  
notes:   479-­‐11   is   vague,   did   not   specifically   say   what   it   is  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
136. RMC   13-­‐80   –   Treatment   of   tax   refunds/tax   credits   when   is   applied   for   by   someone   who   has   already   severed   his  
received.   Atty.   Montero   said   that   tax   credits   are   not   income   connection   with   his   employer,   it   follows   that   the   terminal   leave  
even   if   successfully   refunded.   Being   previously   part   of   the   pay   (which   is   its   cash   value)   is   not   longer   compensation   for  
deductions,   a   refund   removes   them   from   being   deemed   as   part   services  rendered.  Hence,  it  cannot  be  viewed  as  salary  –  thus,  
of  such.   exempted  from  withholding  (income)  tax.  
  141. Intercontinental   Broadcasting   vs.   Amarilla   -­‐   the   retirement  
v. Inventories   benefits   to   be   exempt   from   the   withholding   tax,   the   taxpayer   is  
137. BIR  Ruling  DA  128-­‐08  -­‐  CIR  granted  Shell’s  request  to  change  its   burdened  to  prove  the  concurrence  of  the  following  elements:  
inventory  system  so  that  the  latter  may  be  consistent  with  the   [P-­‐10-­‐50-­‐1]  
inventory   system   used   by   its   parent   company   and   other   sister   • A   reasonable   private   benefit   plan   (approved   by   the  
companies   around   the   world.   Basically,   when   you   want   to   BIR)  is  maintained  by  the  employer  
change   your   inventory   system   ask   permission   first   from   BIR   and   • The   retiring   official   or   employee   has   been   in   the  
give  valid  reasons.   service  of  the  same  employer  for  at  least  10  years  
  • The   retiring   official   or   employee   is   not   less   than   50  
C. Exclusions   years  of  age  at  the  time  of  his  retirement,  and  
i. Retirement  benefits,  etc.     • The  benefit  can  be  availed  of  only  once.  
138. CIR   vs.   CA,   GCL   -­‐   Interest   Income   earned   by   a   retirement   fund   142. RMC   27-­‐2011   –   Contributions   to   Pag-­‐ibig,   GSIS,   SSS,   Life  
from   its   investments   are   exempted   from   final   Insurance,   Pre-­‐Need   Plan   in   excess   of   the   mandatory   monthly  
withholding/income  tax.   contributions   (ie,   voluntary   contributions)   are   now   part   of   the  
139. CIR  vs.  CA,  Castaneda  -­‐  Terminal  leave  pay  (payment  for  unused   gross   income   and   are,   therefore,   taxable.   Only  
leaves   after   retirement   -­‐   a   retirement   benefit),   received   by   a   mandatory/compulsory   contributions   are   exempt   from  
government   official   or   employee   is   not   subject   to   withholding   withholding  tax  on  compensation.  
(income)  tax  as  it  is  not  part  of  his/her  salary.    
140. Re:   Request   of   Atty.   Bernardo   Zialcita   -­‐   The   commutation   of   ii. Income  derived  by  foreign  government  
leave   credits   is   commonly   known   as   terminal   leave,   which   is   143. CIR   vs.   Mitsubishi   Metal   Corporation   -­‐   Income   derived   by   a  
applied   for   by   an   officer   or   employee   who   retires,   resigns   or   foreign   government   is   exempted   from   tax   but   that   does   not  
separated  from  the  service  through  no  fault  of  his  own.  Since  it   include  the  situation  where  a  corporation  registered  under  the  

25  
TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
law  of  a  foreign  government  got  a  loan  from  such  government   • Medical   cash   allowance   to   dependents   of   employees,  
and   lent   the   money   obtain   from   such   loan   to   a   domestic   not   exceeding   P750   per   employee   per  semester   of  
corporation  and  thus  derived  interest  income  from  it.  In  such  a   P125  per  month;  
case,  it  is  the  foreign  corporation  who  earns  the  interest  income   •  Rice  Subsidy  of  P1,  500  or  one  (1)  sack  of  50kg  of  rice  
in   the   Philippines   and   not   the   foreign   government.   Being   so,   per  month  amounting  to  not  more  than  P1,500;  
such  income  is  not  exempt.   • Uniform   and   clothing   allowance   not   exceeding   P4,000  
  per  annum;  
iii. De  minimis/  PERA   • Actual   medical   expenses   not   exceeding   P10,000   per  
144. Republic   Act   9505   –   Personal   Equity   and   Retirement   Account   annum;  
(PERA).     • Laundry  allowance  not  exceeding  P300  per  month;  
• Tax  treatment  of  contributions:   • Annual  achievement  awards  with  an  annual  monetary  
o Contributor   shall   be   given   an   income   tax   value  not  exceeding  P10,000;  
credit   equivalent   to   5%   of   the   total   PERA   • Gifts   during   Christmas   and   major   anniversaries   not  
contribution,   provided   that   there   can   be   no   exceeding  P5,000  per  annum;  
instance   of   a   refund   of   said   tax   credit   arising   • Daily   meal   allowance   for   overtime   work   and   night   shift  
from   PERA   contributions.   If   contributor   is   an   not  exceeding  25%  of  the  basic  minimum  wage.  
OFW,   he   shall   be   entitled   to   claim   tax   credit   146. RR  17-­‐2011  –  Implements  the  tax  provisions  of  RA  9505  or  PERA  
from   any   tax   payable   to   the   national   Act   of   2008.   A   Qualified   Contributor   shall   be   entitled   to   a   tax  
government  under  the  NIRC.   credit   in   the   amount   of   5%   of   the   aggregate   Qualified   PERA  
145. RR   5-­‐2011   –   The   following   is   an   exclusive   list   of   de   minimis   Contributions   made   in   one   calendar   year.   An   employee  
benefits  that  are  exempt  from  fringe  benefit  tax  (FBT),  income   qualified   contributor   shall   be   issued   a   Certificate   of  
tax   (IT)   and   withholding   tax   (WT)   on   Compensation   Income   of   Entitledment   to   5%   tax   credit   while   a   self-­‐employee   shall   be  
both  managerial  and  rank  &  file  employees:     issued  a  PERA  TCC  by  the  Bureau.  However,  if  the  Contributor  is  
• Monetized   unused   vacation   leave   credits   of   private   an  OFW,  he  shall  be  entitled  to  claim  the  5%  tax  credit  against  
employees  not  exceeding  ten  days;   any  national  revenue  tax  liabilities.    
• Monetized  value  of  vacation  and  sick  leave  credits  paid  
to  government  employees;  

26  
TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
147. RR   8-­‐2012   –   Amended   regulation   on   de   minimis   benefits.   151. Philippine  Guaranty  Co.,  Inc.  vs.  CIR    -­‐  Reinsurance  contracts  entered  
Uniform   and   clothing   allowance   is   increased   to   P5,000   into   by   a   Domestic   insurance   company   with   a   foreign   insurance  
(previously  at  P4,000).   company   where   in   the   latter   will   assume   risk   of   the   former   for   its  
  losses   in   the   Philippines,   is   still   subject   to   withholding   tax   as   the  
III.  General  Principles   transactions   or   activities   that   constituted   the   undertaking   to  
  reinsure   The   domestic   corporation   against   losses   arising   from   the  
IV. Source  of  Income  Rules   original   insurances   in   the   Philippines   were   performed   in   the  
A. Gross  income  from  sources  within  Phils.     Philippines.  What  is  controlling  is  not  the  place  of  business,  but  the  
148. CIR   vs.   Marubeni   Corporation   -­‐     If   a   project   in   the   Philippines   is   place  of  activity  that  created  the  income.  
divisible,   one   performed   abroad   and   the   other   performed   in   the   152. Howden   &   Co.,   Ltd.   vs.   CIR   -­‐   The   source   of   an   income   is   the  
 
country,   only   the   latter   part   will   be   taxable.   Otherwise,   if   indivisible,   property,   activity   or   service   that   produced   the   income. The  
then  everything  is  taxable.  In  this  case  SC  said  it  was  divisibleT   reinsurance   premiums   by   virtue   of   contracts,   had   for   their   source  
149. CIR   vs.   BOAC   -­‐   he   absence   of   flight   operations   to   and   from   the   the   undertaking   to   indemnify   the   domestic   corporation   against  
Philippines  is  not  determinative  of  the  source  of  income  or  the  site   liability.   Said   undertaking   is   the   activity   that   produced   the  
of   income   taxation.   For   the   source   of   income   to   be   considered   as   reinsurance   premiums,   and   the   same   took   place   in   the   Philippines.  
coming   from   the   Philippines,   it   is   sufficient   that   the   income   is   Thus,  taxable  by  the  BIR.  
derived   from   activity   within   the   Philippines.   In   BOAC's   case,   the   sale   153. Philippine   American   Life   Insurance   Company,   Inc.   vs.   CTA   -­‐  
of   tickets   in   the   Philippines   is   the   activity   that   produces   the   income.   Compensation   for   advisory   services   (rendered   by   a   non-­‐resident  
The   tickets   exchanged   hands   here   and   payments   for   fares   were   also   foreign   corporation   not   doing   business   in   the   Philippines   to   a  
made   here   in   Philippine   currency.   The   site   of   the   source   of   domestic   corporation)   is   taxable   since   it   is   considered   “rentals   and  
payments   is   the   Philippines.   The   flow   of   wealth   proceeded   from,   royalties  from  properties  located  in  the  Philippines”  
and   occurred   within,   Philippine   territory,   enjoying   the   protection   154. CIR   vs.   Baier-­‐Nickel   -­‐   The   source   of   an   income   is   the   property,  
accorded  by  the  Philippine  government  –  thus,  taxable.   activity   or   service   that   produced   the   income.   With   respect   of  
150. CIR  v.  CTA  and  Smith  Kline  &  French  Overseas    -­‐  Share  by  a  domestic   rendition   of   labor   or   personal   service,   as   in   the   instant   case,   it   is   the  
corporation   for   the   operating   expenses   of   its   main   office/parent   place   where   the   labor   or   service   is   performed   that   determines   the  
company   are   deductible   since   such   domestic   corporation   also   source  of  income.  
benefits  from  the  operation  of  said  office/company.  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
155. Quill   Corp.   vs.   North   Dakota   -­‐-­‐-­‐   applied   the   Bellas   Hess   case   bright   158. RAMO   1-­‐95   -­‐-­‐-­‐   Amended   and   superceded   RAMO   1-­‐86   to   further  
line   rule   which   held   that   a   seller   whose   only   connection   with   determine   taxable   income   of   multinational   entities   to   include  
customers   in   the   State   is   by   common   carrier   or   by   mail   lacks   the   Philippine   branches   and   liaison   offices   engaged   in   soliciting   orders,  
substantial  nexus  required  of  the  Commerce  Clause  to  allow  a  State   purchaser,   service   contracts,   trading,   construction   and   other  
to   impose   the   duty   of   use   tax   collection.   Hence,   there   must   be   activities  in  the  Philippines.  
physical   presence   in   a   state   for   a   corporation   to   be   liable   for   sales   159. RAMO   4-­‐86   -­‐-­‐-­‐   Guidelines   in   auditing   home   office   overhead  
and  use  taxes.   expenses:  
156. Vodafone   International   Holdings   B.V.   vs.   Union   of   India   &   Anr.   -­‐-­‐-­‐   1. Functional   analysis   –   determine   which   functions   are  
Vodafone   is   not   liable   to   pay   capital   gains   tax   to   the   Indian   performed   by   the   home   office   and   that   which   is   by   the  
authorities   the   indirect   transfer   of   capital   assets   situated   in   India.   local  branch.  
The   transaction   between   between   Vodafone   (Netherlands)   and   CGP   2. On  the  basis  of  the  functional  analysis,  determine  whether  
(Cayman  Islands)  is  one  between  two  non-­‐residents  with  no  taxable   the   expense   is   (a)   relevant/necessary   to   the   local   branch  
presence  in  India.     and  (b)  reasonable  and  ordinary.  
• The   Indian   Tax   Code   states   that   “all   income   accruing   or   3. If   the   deductions   cannot   be   definitely   allocated,   a  
arising,   whether   directly   or   indirectly,   through   or   from   any   breakdown  or  schedule  of  home  or  foreign  office  expenses  
business  connection  in  India,  or  through  or  from  any  property   being  pro-­‐rated  together  with  an  explanation  of  the  nature  
in  India,  or  through  or  from  any  asset  or  source  of  income  in   of  each  expense  is  required.  
India,   or   through   the   transfer   of   a   capital   asset   situated   in    
India  shall  be  deemed  to  accrue  in  India.”     V. Deductions  
• The   terms   “directly   or   indirectly”   must   be   construed   to   A. Business  Expenses  -­‐-­‐-­‐  Allowable  deductions  may  be  claimed  provided  that  
qualify  income  and  is  not  meant  to  expand  to  the  transfer  of   that   business   entity   complied   with   its   duty   to   withhold   taxes   paid   to   the  
capital  assets.  The  section  does  not  apply  to  indirect  transfers   government.    
of  capital  assets  in  India.   160. RA   10028:   Expanded   Breastfeeding   Promotion   Act   -­‐-­‐-­‐   Expenses  
157. RAMO   1-­‐86   -­‐-­‐-­‐   Imposes   tax   on   the   gross   income   generated   from   incurred  by  a  private  health  and  non-­‐health  facility  establishment  
constructive  trading  and  commission  income  derived  from  brokering   or   institution   pursuant   to   this   act   shall   be   deductible   expenses   for  
activities  of  Philippine  branches  of  multinational  entities  engaged  in   income   tax   purposes   up   to   twice   the   actual   amount   incurred  
trading  activities.   provided:  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
1. That   the   deduction   shall   apply   for   the   taxable   period   have   reasonably   known   the   retainer   fees   charged   by   the   firm   as  
when  the  expenses  were  incurred   well  as  the  compensation  for  its  legal  services.  The  expenses  could  
2. That   the   facilities   shall   comply   with   this   Act   within   6   be  determined  and  were  already  incurred.  
months  after  its  approval   165. CIR  v.  General  Foods  Phils.  Inc.  -­‐-­‐-­‐  2  kinds  of  advertising:  
3. That   such   facilities   shall   secure   a   "Working   Mother-­‐Baby-­‐ 1. To  stimulate  the  current  sale  -­‐-­‐-­‐  except  as  to  the  question  of  
Friendly   Certificate"   from   the   DOH   to   be   filed   with   the   the   reasonableness   of   amount,   there   is   no   doubt   such  
BIR.   expenditures   are   deductible   as   business   expenses.   (Eg.  
161. RA   8502:   Jewelry   Industry   Development   Act   -­‐-­‐-­‐   Deduction   from   Samsung  promo  for  a  limited  period  of  time)  
taxable   income   of   fifty   percent   (50%)   of   expenses   incurred   in   2. To   stimulate   the   future   sale   -­‐-­‐-­‐   involves   expenditures  
training   schemes   in   connection   with   the   Act   and   which   shall   be   incurred,  in  whole  or  in  part,  to  create  or  maintain  some  form  
deductible  during  the  financial  year  the  expenses  were  incurred.   of   goodwill   for   the   taxpayer’s   trade   or   business   or   for   the  
162. RA  8525:  Adopt  a  School  Act  -­‐-­‐-­‐  deduction  from  the  gross  income   industry   or   profession   of   which   the   taxpayer   is   a   member.        
equivalent   to   fifty   percent   (50%)   of   expenses   incurred   in   The   protection   of   brand   franchise   is   a   capital   expenditure  
connection  with  the  said  act.   which  should  be  spread  out  over  a  reasonable  period  of  time.  
163. RA   999:   Free   Legal   Assistance   Act     -­‐-­‐-­‐   A   lawyer   or   professional   (Eg.  Globe’s  general  advertisement)  
partnerships  rendering  actual  free  legal  services,  as  defined  by  the   166. Aguinaldo   Industries   Corp.   v.   CIR   -­‐-­‐-­‐   The   bonus   given   to   the  
Supreme   Court,   shall   be   entitled   to   an   allowable   deduction   from   officers  as  profit  realized  from  the  sale  of  land  cannot  be  deemed  
the  gross  income,  the  amount  that  could  have  been  collected  for   a  deductible  expense.  The  sale  was  effected  through  a  broker  who  
the  actual  free  legal  services  rendered  or  up  to  ten  percent  (10%)   was   paid   a   commission   for   his   services.   There   is   no   evidence   of  
of   the   gross   income   derived   from   the   actual   performance   of   the   any   service   actually   rendered   by   the   officers   which   could   be   the  
legal  profession,  whichever  is  lower.   basis  of  a  selling  expense.  
164. CIR   v.   Isabela   Cultural   Corp.   -­‐-­‐-­‐   The   professional   fees   incurred   in   • Distribution   of   profits   –   BIR   would   normally   treat   it   as  
1984   and   1985   cannot   be   claimed   as   deductions   in   1986.   The   “dividends”  in  order  for  it  not  to  be  deductible.  Business  
failure  to  determine  the  exact  amount  of  the  expense  during  the   entities   on   the   other   hand   treat   it   as   “salaries”   in   order  
taxable   year   cannot   be   attributed   solely   to   the   firm’s   delayed   to  make  it  deductible  from  their  gross  income.  
billing.  From  the  nature  of  the  claimed  deductions  and  the  span  of   167. Atlas  Consolidated  Mining  v.  CIR  -­‐-­‐-­‐  Expenses  paid  P.K.  Macker  &  
time  during  which  the  firm  was  retained,  ICC  can  be  expected  to   Co.   (public   relations   firm)   as   compensation   for   services   carrying  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
on   the   selling   campaign   is   not   deductible   because   expenses   170. Calanoc   v.   CIR   -­‐-­‐-­‐   Expenses   paid   for   police   protection   is   illegal   as   it  
relating  to  recapitalization  and  reorganization  of  the  corporation,   is  a  consideration  given  for  the  performance  by  the  police  of  the  
promotion  expenses,  and  commission  or  fees  paid  for  the  sale  of   functions  required  of  them  to  be  rendered  by  law.  
stock   reorganization   are   capital   expenditures.   Likewise,   litigation   171. Kuenzie  &  Streiff  Inc.  v.  CIR  -­‐-­‐-­‐  the  bonuses  to  resident  officers  and  
expenses   incurred   in   defense   or   protection   of   title   are   capital   in   employees   were   reasonable   taking   into   account   the   situation   at  
nature   and   not   deductible.   Stock   listing   expenses   are   deductible   the  time  when  the  services  were  rendered:  unsettling  conditions  
because   these   are   usually   paid   annually   and   deducted   from   the   after  the  war,  the  imposition  of  controls  on  exports  and  imports,  
year  incurred.   and   the   use   of   foreign   exchange   which   resulted   in   diminution   of  
168. Zamora  v.  CIR  -­‐-­‐-­‐  Promotion  expenses  are  allowed  as  deductions,   the  amount  of  business.  
but   that   the   same   must   be   substantiated.   Since   the   aggregate   172. RR   10-­‐2002   -­‐-­‐-­‐   Authorizes   the   imposition   of   a   ceiling   on  
expense  was  not  substantiated,  50%  was  considered  as  promotion   entertainment,   amusement,   and   recreational   expenses.     Sellers   of  
expenses   and   50%   as   Esperanza’s   personal   expenses.   This   is   fair   goods  or  properties  are  allowed  to  deduct  0.5%  of  their  net  sales  
and   reasonable   because   where   absolute   certainty   is   impossible,   as   representation   expenses   while   sellers   of   services   are   granted  
courts  should  make  as  close  an  approximation  as  it  can.   1%  of  their  net  revenues  as  representation  expenses.  
• Compare  this  with  the  “Cohan  Rule”  in  the  US  which  is  an   173. RR   1-­‐2009   -­‐-­‐-­‐   Sales   discounts   given   to   persons   with   disabilities  
exception   to   stringent   recordkeeping   requirements,   shall   be   deductible   from   gross   income   subject   to   certain  
allowing  taxpayers  to  prove  by  "other  credible  evidence"   conditions.  
that   they   actually   incurred   the   expenses   for   deductible   174. RR   7-­‐2010   -­‐-­‐-­‐   Discounts   given   to   senior   citizens   on   certain   goods  
purposes.  This  is  not  allowed  in  the  Philippines.   and  services  shall  be  deductible  from  gross  income.  Also,  private  
169. CM  Hoskins  &  Co.  v.  CIR  -­‐-­‐-­‐  Hoskins  &  Co.  may  not  be  allowed  to   establishments   employing   senior   citizens   shall   be   entitled   to  
deduct   the   payment   of   P100,000   to   its   founder   and   controlling   additional   deductions   from   gross   income   equivalent   to   fifteen  
stockholder,  Hoskins  representing  50%  of  the  8%  supervision  fees   (15%)   of   the   total   amount   paid   as   salaries   and   wages   to   senior  
the   company   received   as   managing   agent   for   Paradise   Farms.   It   citizens.  
failed   to   satisfy   the   reasonableness   requirement   because   this    
would   total   an   amount   double   the   company’s   reported   net    
income.   B. Interest  

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TAX  1  MEMORY  AID   ATTY.  MONTERO   CROMBONDS  2012-­‐2013  
 
175. Paper   Industries   Corp.   v.   CA   -­‐-­‐-­‐   General   rule   is   that   interest   178. BIR   Ruling   No.   006-­‐00   -­‐-­‐-­‐   PNB   may   not   claim   a   deduction   of  
expenses   are   deductible   against   gross   income   and   this   certainly   interest   expense   from   treasury   bonds   as   payment   for   the  
includes   interest   paid   under   loans   incurred   in   connection   with   the   government’s   liability.   Generally,   the   amount   of   interest   paid   or  
carrying  on  of  the  business  of  the  taxpayer.   incurred   on   indebtedness   in   connection   with,   business,   trade,   or  

176. CIR   v.   Vda.   De   Prieto   -­‐-­‐-­‐   Although   interest   payment   for   delinquent   profession   is   allowed   as   deduction   from   gross   income.   The   allowable  

taxes   is   not   deductible   as   tax   under   Section   30(c)   of   the   Tax   Code   and   deduction  is  reduced  if  the  taxpayer  has  derived  certain  income  interest  

section  80  of  the  Income  Tax  Regulations,  the  taxpayer  is  not  precluded   which   had   been   subjected   to   final   withholding   tax.   This   limitation   on  

thereby  from  claiming  said  interest  payment  as  deduction  under  section   the  deductibility  of  interest  expenses  applies  whether  or  not  a  tax  
30(b)  of  the  same  Code  (now  34C  and  34B).   Tax  obligations  constitute   arbitrage  scheme  was  entered  into  by  the  taxpayer.  
indebtedness   for   purposes   of   deduction   from   gross   income   of   the    
amount  of  interest  paid  on  indebtedness   C. Taxes  
177. RR  13-­‐2000  -­‐-­‐-­‐  In  allowing  deductability  of  interest  expenses,  the   179. CIR  v.  Lednicky  -­‐-­‐-­‐  The  right  to  deduct  income  taxes  paid  to  foreign  
following  are  required:   government  from  the  taxpayer's  gross  income  is  given  only  as  an  
1. the  interest  payment  arrangement  must  not  be  between   alternative  or  substitute  to  his  right  to  claim  a  tax  credit  for  such  
related  taxpayers   foreign   income   taxes   under   section   30   (c)   (3)   and   (4).   In   effect,  
2. the   interest   must   not   be   incurred   to   finance   petroleum   unless  the  alien  resident  has  a  right  to  claim  such  tax  credit  if  he  
operations   so   chooses,   he   is   precluded   from   deducting   the   foreign   income  
3. in   case   of   interest   incurred   to   acquire   property   used   in   taxes  from  his  gross  income.  This  is  to  prevent  the  taxpayer  from  
trade,   business,   or   exercise   of   profession,   the   same   was   claiming   twice   the   benefits   of   his   payment   of   foreign   taxes,   by  
not  treated  as  a  capital  expenditure   deduction  from  gross  income  (subs.  c-­‐1)  and  by  tax  credit  (subs.  c-­‐
Provided,   that   limitation   in   that   the   amount   of   interest   expense   3).  
paid   or   incurred   by   a   taxpayer   in   connection   with   his   trade,    
business,   or   exercise   of   a   profession   from   an   existing  
 
indebtedness  shall  be  reduced  by  an  amount  equal  to  38%  of  the  
interest   income   earned   which   had   been   subject   to   final  
withholding  taxes.  

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