TAX NOTES – 08 February 2024

1) Republic v. COCOFED

 Textbook definition of tax

 Does not matter on just one industry being taxed, but the magnitude of the effect/ripple
effect – creates jobs and really is for the general welfare
 One of the pillars
 Elements
 Badges that it is public funds

2) Tolentino v. Finance

 Definition of VAT
o a fee levied on the sale, barter or exchange of goods and properties as well as on
the sale or exchange of services, equivalent to a percent of the gross ceiling price
or gross value in money of goods or properties sold, bartered or exchanged or of
the gross receipts from the sale or exchange of services.
 No regressive tax in the Philippines
 Excise tax – charge on the performance of an act
 Income tax is also an excise tax
 PURPOSE
o General – no specification where the proceeds will be used for
o Specific –
 BURDEN
o Direct – income tax, if you pass on the burden to the buyer, the effect tax will be
the additional income to the seller (direct liability, you cannot pass it on)
o Indirect – There’s no effect on the income on the seller of provider of the goods
(you can pass on the burden)

3) Mandanas v. Executive Secretary

 What will be the basis to compute the just share.

National Taxes National Internal Revenue

Not in the NIRC. Not a national tax.

 Is VAT an internal revenue tax? Yes. Subset of national tax.

 Should there be a distinction between VAT collected by the BOC and BIR? No. BOC is
only deputized for facility of the imports and all the exports. Collect all VAT on
importation.
 BOTTOMLINE: Just pertains to one category of tax. Basis is Section 105 – anyone who
sells or imports.
 o The buyer/importer pays the VAT.

Tax v. Tariff
 Tax – properties, persons, transactions
 Tariff – importation of goods

Diaz v. Secretary of Finance

 Tax v. Toll
 Users Tax
 Superficial liability is with the seller BUT the actual liability is to the buyer

Republic v. Bacolod
 Philsugin
 Tax v. special assessment
o SA – finance an improvement of a particular property
o Tax – generation of revenue
 Main purpose: research and improve the manufacture/production of sugar, increase
sugar production efficiency in the country
 Good advocacy, but why was it contested?
o Taxation as an implement of police power
 How did the court justify?
o Umpisa palang ng binili, puro lugi
o We keep on paying, but keep on losing
o No positive results seen
o Ended up consistently losing

Lutz v. Araneta
 What purpose?
o If the industry contributes to the public wealth, it has public interest
o Law was not tax, but the exercise of police power
 Taxation power as an implement of police power
15 February 2024

PHILEX Mining v. CIR

 Can tax liability be offset with the tax credit? No.
 Company and the State are not creditors and debtors of each other
o But there was already a grant for a claim for refund by the CA. Awarded a tax
credit certificate.
 Debt – in its …
 Tax – in its sovereign capacity
 Claim for refund is still pending
o We fail to see the logic of Philex's claim for this is an outright disregard of the
basic principle in tax law that taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance. Evidently, to countenance
Philex's whimsical reason would render ineffective our tax collection system.
Too simplistic, it finds no support in law or in jurisprudence.
o To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on
the ground that it has a pending tax claim for refund or credit against the
government which has not yet been granted. It must be noted that a
distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain. Hence, a tax does not depend upon the consent of the taxpayer. If any
taxpayer can defer the payment of taxes by raising the defense that it still has a
pending claim for refund or credit, this would adversely affect the government
revenue system. A taxpayer cannot refuse to pay his taxes when they fall due
simply because he has a claim against the government or that the collection of
the tax is contingent on the result of the lawsuit it filed against the
government. Moreover, Philex's theory that would automatically apply its VAT
input credit/refund against its tax liabilities can easily give rise to confusion
and abuse, depriving the government of authority over the manner by which
taxpayers credit and offset their tax liabilities.

TAX ORDINARY DEBT

Compulsory Bargain

Republic v. Mambulao Lumber Company

 Tax v. Debt
 Taxpayer and the State are not debtors and creditors of each other
 Tax are not in the nature of contracts

Domingo v. Garlitos
 WoN intestate estate taxes can be offset?
o YES
o In corporate capacity
o Government entered into a contract of service with the deceased Mr. Walter
 o Both debts are due and demandable

NDC v. CIR
 Tax v. Penalty

TAX PENALTY

 Situs Rule
o Situs of taxation is where the property pass
o For interest payments or loans – its where the debtor is
 In this case the NDC is in manila, it should pay, interest income is earned
here.
 NDC is obligated to withhold the tax on the interest income and give it to
the BIR. TERRITORIALITY PRINCIPLE. They failed to do this.
 NDC also arguing you cannot tax the government
o But it is the tax of the Japanese Shipbuilders
o It is a withholding tax
o The reason why we are chasing NDC because you are the remittance agent
 Withholding Tax System
o Failure – you cannot deduct the related expense
o In this case, the interest expense will not be claimed as a deduction
o It is a mechanism used by the gov when 2 parties with conflicting interest
o One of the taxes that you cannot compromise
o That’s not your tax anyway but you still failed to withhold
o Form of income tax
o It is final, no more will be collected
o It is actually a penalty to NDC (its amount is the amount of the tax)

LIFEBLODD THEORY
 You can’t refuse to pay taxes because it goes to the very essence
 Symbiotic Relationship

CIR v. ALGUE
 WoN CIR correctly disallowed the 75k? NO.
 GENERAL RULE: It is said that taxes are what we pay for civilization society. Without
taxes, the government would be paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to must contribute his share
in the running of the government. The government for its part, is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. This symbiotic relationship is the rationale
 of taxation and should dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
 KAIKIBAT: But even as we concede the inevitability and indispensability of taxation, it is
a requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will then come to his succor. For all the awesome power of the
tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it
has here, that the law has not been observed.
 Yes the power to tax is supreme and plenary but should be done by substantive and
procedural due process.
 A balancing act
 VALUE EXTRACTIONS

LORENZO v. POSADAS
 Delinquency in the payment of inheritance tax
 10 years have not yet occurred so not yet due as said by the nephew
 Necessity Theory:
 The inheritance tax should have accrued on the death of the decedent
 There was actually delinquency in the payment, and the estate is liable to the payment
 There no benefit to me, so won’t pay taxes. NO tangible benefits. This is the contention
of the trustee.
 The obligation to pay taxes rests not upon the privileges enjoyed by, or the protection
afforded to, a citizen by the government but upon the necessity of money for the
support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is allowed
to object to or resist the payment of taxes solely because no personal benefit to him can
be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.)
 Inheritance tax
o Law applicable is the time of the death of the decedent
o Transmission upon death
o Valuation of your estate will be based on the fair market value on the time of
death
o Except kahit enjoyment 10 years pa, bayaran parin ang inheritance tax.
 No personal benefit theory in terms of taxation

PASEO REALTY v. CA
 Tax credit
 Paseo is asking for the 54k refund
 SC: Paseo did not show his income tax return
 Witholding tax
 In case the corporation is entitled to a tax credit or refund of the excess estimated
quarterly income taxes paid, the excess amount shown on its final adjustment return
may be carried over and credited against the estimated quarterly income tax liabilities
for the taxable quarters of the succeeding taxable years. Once the option to carry-over
 and apply the excess quarterly income tax against income tax due for the taxable
quarters of the succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefore.
 Taxation is a destructive power which interferes with the personal and property rights of
the people and takes from them a portion of their property for the support of the
government. And since taxes are what we pay for civilized society, or are the lifeblood of
the nation, the law frowns against exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. A claim of refund or exemption from tax payments must
be clearly shown and be based on language in the law too plain to be mistaken. Elsewise
stated, taxation is the rule, exemption therefrom is the exception.

NAPOCOR v. Province of Albay

 Auction sale, proceeds of this will be applied to the tax delinquencies of NAPOCOR
 Napocor relied on its charter stating that it is exempt from taxes
 FIRB allegedly exercised undue delegation for giving tax exemptions to napocor.
 SC: FIRB has the power to recommend tax exemption thru PD 776 -> but this was
withdrawn
 But FIRB restored it thru some resolutions to exempt taxes
 EO amended the power of FIRB, that it should be approved by the President first
 SC: NAPOCOR is liable is liable to real property taxes to the time where FIRB has no
power to give tax exemptions
 SC: Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate funds
for the State to finance the needs of the citizenry and to advance the common weal.
 As a rule finally, claims of tax exemption are construed strongly against the claimant.
They must also be shown to exist clearly and categorically, and supported by clear legal
provisions.

Southern Cement v. Cement Manufacturers

 Purpose of tax imposition
o Generation of revenue
o In this case, regulation in the form of imposing safeguard measures
 Regulation of a particular industry when you impose tariffs – one reason for increasing
taxes
 REGULATORY PURPOSE

Osmena v. Orbos
 Even though it has a tax revenue in it, it has a regulatory purpose
 OPSF has both revenue generating and regulatory puporse
 Regulation of the prices of petroleum products
 Even if it for regulating, it will not negate that the fact it is a tax
PAL v. Edu
 Also seeks to regulate
 Registration fee
o The initial intention was the purpose to regulate
 Does not mean that it regulates that it becomes less of a tax and more of a fee
 One of the real and substantial purpose is revenue generating it is a tax
o Not mutually exclusive

Caltex v. COA
 Should be read in conjunction to the first case

General Principles of a Sound Tax System (FAT)

 Fiscal Adequacy
o Whatever system of taxation dapat may sufficient revenue for your needs
o Sufficient revenues to answer for your expenses
 Theoretical Justice
o Proportionate to your ability to pay
o Progressive tax
o Has to make sense: the wealthier you are the more you pay
 Administrative Feasibility
o Implementation should be done efficiently and effectively that it not be so costly
to collect the tax
o Cost should not outweigh the benefits of the tax
o Tax is quantifiable

Pascual v. Sec. of Public Works

 Inherent limitation to the power to tax which is public purpose
 It should not be for a private benefit

Planters v. Fertiphil
 Distinction and similarities and differences of planters v. sugar stabilization funds, coco
levy funds
 In both cases involved a private company

Tio v. VRB
 Neither can it be successfully argued that the DECREE contains an undue delegation of
legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to
"solicit the direct assistance of other agencies and units of the government and
deputize, for a fixed and limited period, the heads or personnel of such agencies and
units to perform enforcement functions for the Board" is not a delegation of the power
to legislate but merely a conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between the delegation of
power to make the law, which necessarily involves a discretion as to what it shall be,
 and conferring authority or discretion as to its execution to be exercised under and in
pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to
solicit such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the BOARD." That the grant of
such authority might be the source of graft and corruption would not stigmatize the
DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not
be without adequate remedy in law.

Commissioner v. Santos
 Extent or coverage of the power to tax

Basco v. PAGCOR
 Allowing LGUs have sources of revenues but under limitation subject to the Congress
 Basis for the dispute: Provision in the Charter of PAGCOR
o If in lieu of provision – exempt in all taxes except the 5%
 SC: Clearly decided that there is no violation of the delegated authority in the city of
manila to create sources of revenue

Garcia v. Executive Secretary

 There was a valid delegation of authority because a limit/standard was provided for in
the Executive Orders
 Standard: Tariff and Customs Code, the standards are here – in the interest of national
economy, general welfare, national security, as long these are present they can modify
the rates.
 Congressman Garcia contests this because the only goal is the protection of local
industries/beyond delegated authority of the President when it introduced the EOs
o Kaninong interest was being protected?
 SC: The protection of local industry is encompassed in the code is just one aspect
 Valid delegation to the President to the EOs based on the Tariff Code

ABAKADA v. Ermita
 2 points on undue delegation of the legislative power to tax to the president and undue
delegation of the president (choppy huhu)
 2 points
o Law must be complete
o Definite and determinable
 Operative word is SHALL
o 2 conditions should happen
 If the sec of finance after computation brings to attention to the
president, wala nang choice si president
 SC: Struck it down because there are standards that are easily determinable and
identifiable
Maceda v. Macaraig
 Whether there was undue delegation? None.
 Standard:
 Common to all cases: on sufficient standard,
 Law must be complete
 Must have a definite and determinable standard
 Does not have to be a specific standard.
 Not be spelled out specifically
 It can be implied to the whole

Commissioner v. CA
 On revenue issuance
[07 March 2024]

Manila Gas v. CIR

 Manila Gas operates in the PH and earnings comes from local sources
 Income situs in the PH hence subject to income tax
 2 separate taxable persons –
 2 sources
o Dividends
 accumulated earnings separated
 what you get when you invest in a corporations
o Interest income on loans
 Mga nagpautang ng shareholders
 So may credit si manila gas, a domestic corporate
 Where is the income earned?
 Interest income is within the PH, manila gas benefitted
 You tax income derived in the PH
 Manila gas argues that they are exempt to the income tax
o But it is the income of the shareholders
o Because when it distributed the dividends to shareholders
o Income tax earned only in the Philippines
o Situs is the tax of your income in the Philippines
o A shareholder is a not in the Philippines
o Dahil domestic corporation ang nagbigay ng dividend, situs rules is in the
Philippines so subject to income tax
o The withholding agent, since the foreign corp is not within reach of the territory
CIR v. BOAC
 WoN BOAC registered under the law of UK revenue considered income in the PH?
 SC: Income within the PH
o Resident corporation
 BOAC’s contention
o While true they are selling airline tix in the PH, they are an offline carrier (no
flights coming here)
o Wala akong income earned in the PH, I earn it elsewhere
o Consummation of service is here
o enjoyment of the service rendered by foreign entity even if outside the
jurisdiction of the Philippines, thus there is income subject to tax
o it is taxable where the service is performed
 it is where you enjoy it (Netflix, spotify, etc)
 Source of income is the property, activity, or service that produce an income here in
the PH is taxable (GOOD LAW)
o The court harped on the activity that produced the income is here in the PH
o Subject to income tax
 FINAL POINT: After a year of this case, the amendment was made in the tax code
o Walang requirement na dito dapat gawin in the PH, kahit anywhere in the world
o Pinasok yung BOAC doctrine
o GPB
 Origination from the PH – is this limiting? Limiting in a sense na
originating in the ph and one continuous uninterrupted flight
 Basta nagnggaling ka dito and one continuous flight – I will tax you here
[10 March 2024]

BOAC
 Engaged in business here in the PH + even if a foreign corporation

Iloilo bottlers
 Made a distinction
 All sales made in the warehouse, it had no impact in Iloilo city
o Doing business in Iloilo city – rolling stores
[14 March 2024]

CIR v. DLSU
 YMCA case is not educational institution
 Non-stock, non-profit institution
 Under the previous lending exemption directly used for these institution only pertains to
real property tax
 Even if the owner is private, for as long as the use is for actually exclusively for
charitable and educational purpose it is exempt.

Tan v. Del Rosario

 GPP - Persons in a profession
o Flowthrough entity

CIR v. Avon


American Bible
