I. General Principles (1)

A.

B.

C.

D.

Definition a. Taxation → Elements: ESS i. Enforced proportional contribution from persons and properties ii. Imposed by State ℅ sovereignty iii. Levied for support of government Nature & Characteristics a. Lifeblood theory → taxes are the lifeblood of the State, without it the government won’t be able to operate i. But State must still exercise power to tax with reason & proper procedure b. No-estoppel rule → State is not estopped from collecting taxes if it were prevented to do so by fault of its agents i. Exception: If State does not question timeliness of defense of taxpayer (if prescribed action na and the state did not rebut) c. Tax exemptions are strictly construed against the taxpayer d. Necessity theory → government cannot operate without taxes to pay for expenses e. Benefits received principle → taxes are what we pay for a civilized society f. Symbiotic relationship doctrine → taxpayer & government have reciprocal obligations Attributes of Sound Tax System: FAT a. Fiscal adequacy → sources of revenue must meet government expenses b. Administrative feasibility → effective administration with least inconvenience to taxpayer c. Theoretical justice → fair to average taxpayer, based on ability to pay Tax v. Other Exactions a. Tax v. License Fees Look At

Tax

Tax Imposed on persons / property / privilege

Imposed on lands

Imposed regardless of public improvement

Imposed to benefit the one who paid [benefit land by increasing its value]

To support the government

To contribute to public improvement

Regular exaction

Exceptional as to time & locality (not always imposed)

Imposed based on necessity

Imposed for benefits

c.

Tax v. Toll Fees Tax

From tax power

From police power

Purpose

To raise revenue

To regulate

Why imposed

Object are persons / property / privilege

Object is the right to exercise a privilege

Amount

No limit to amount

Must be necessary to carry out regulation

Imposed by State

Imposed by Private entities

To raise revenue

To offset cost of construction & maintenance

E.

Impact and Incidence of Taxation Impact

New imposition

Indirect Tax (ex. VAT)

Exacted from very person who should pay them. Incidence & burden is imposed on 1 person.

F.

Paid by one person in the expectation that he can shift the burden to someone else → Incidence is imposed on 1 person → Tax burden shifted to another, not the liability

Subject Matter

Community tax certificate

G. Tax v. Special Assessments

Whom the tax burden finally rests. This may be shifted.

Direct Tax

Personal Tax

b.

Incidence

Point where tax is originally imposed → Statutory taxpayer

Tax Base If regulated already + imposed another (fait accompli)

Toll Fees

License Fee

Power coming from

Timing

Special Assessments

Property Tax Real property tax ℅ LGC

Excise Tax On exercise of profession or enjoyment of privilege

Rates of Tax Progressive

Regressive  

h.

Increases as capacity to pay increases

i. H.

Scope Local

℅ LGC I.

j. k.

National ℅ NIRC

l. m.

Hh Ad Valorem

Based on value

n. o.

Specific Quantitative threshold L.

J.

K.

Prohibition against taxation of real property of Charitable Institutions, Churches, Parsonages, Mosques, and Non-Profit Cemeteries [their actual, direct, and exclusive use] Prohibition against taxation of non-stock, non-profit education institutions [their revenues & assets used directly, actually, and exclusively] Majority of congress vote for Tax Exemption including Tax Amnesty Prohibition on Use of tax for special purpose → abandonment of use - give it to general fund Tax Bills from HOR President’s veto power on Appropriation, Revenue, and Tariff Bills - May item-veto Judicial power to review legality of tax Grant of power to LGU to create own sources of revenue

Inherent Limitations in Power of Taxation ​[P,L,G,C,J] a. Must be for ​public purpose​ [Philplanters, Pascual] b. Power to tax is inherently ​legislative​ [Pepsi Cola] i. Delegable to: 1. President → tariff rates 2. Local governments 3. Administrative authorities c. Government entities / agencies / instrumentalities generally ​exempt​ [MIAA] i. No point for them to tax each other d. International ​comity​ [31st Infantry] i. Minimize harshness of international double taxation e. Limited to State’s ​territorial​ jurisdiction [CIR v. Marubeni] i. Except when privity of relationship exists between State & taxpayer ii. State can tax a transaction if substantial parts are done in the Philippines iii. This is an offshoot of “benefits received principle” - corollary benefit from paying taxes 1. If firm is not doing business here, do not tax me here iv. Close cousin of international comity 1. International comity → treaty or mere obligation 2. Territoriality → subject of taxation based on local laws Constitutional Limitations on Taxation Power a. Due process b. Equal protection c. Religious freedom d. Non-impairment e. Prohibition against imprisonment for non-payment of poll tax f. Uniformity and equality of taxation and progressive system of taxation g. Delegated authority to President to impose Tariff rates

Double Taxation Direct Double Taxation (x)

M.

Same property Same taxing authority Same purpose Same jurisdiction Same taxing period Same kind of tax

Indirect Double Taxation -

Forms of Escape from Taxation a. Willful blindness doctrine → taxpayer can no longer raise defense that errors on tax returns are not their responsibility (ex. It’s the CPA’s fault) i. No need to show intent to defraud in tax evasion ii. What has to be shown is awareness of responsibility to pay Tax Avoidance

Saving on taxes thru legal means

N.

O.

Same subject matter Different taxing authority

Tax Evasion (x) -

End to be achieved (pay less) Bad faith Unlawful course of action

Exemption from Taxation a. Tax exemption → freedom from burden to which other persons are subjected + waived of government’s right to collect b. Claimant must point to a specific law creating such right c. Tax refunds are tax exemptions d. Tax exclusions​ are strictly construed against the taxpayer e. Tax statutes​ are strictly construed against the government f. For indirect taxes → the statutory taxpayer shall be the one asking for a refund i. Except when law grants the the burdened party the exemption Other Doctrines  

a. b.

c. d.

Tax laws are prospective Tax rulings (modifying rulings) are non-retroactive if they will be prejudicial to the taxpayer. Except: i. Taxpayer deliberately misstates facts ii. New facts gathered by BIR are materially different iii. Taxpayer in bad faith Set-off taxes → No set-off of taxes against government claims because taxes are not contracts Taxpayer’s suit requisites: i. Public funds are disbursed by government and a law is violated or there is irregularity ii. Petitioner is directly affected