TAX1 Batch 1 | Cases 1-20
TAXATION BATCH 1 ( 1-20)
1. PASEO REALTY AND DEVELOPMENT
CORP. vs.COURT OF APPEALS -
ANARNA
G.R. No. 119286, October 13, 2004
440 scra 235
FACTS:
Paseo Realty and Development
Corporation, a domestic corporation
engaged in the lease of two parcels of land
at Paseo de Roxas in Makati City. On
April 16, 1990, petitioner filed its Income
Tax Return for the calendar year 1989
declaring a gross income of
P1,855,000.00, deductions of
P1,775,991.00, net income of P79,009.00,
an income tax due thereon in the amount
of P27,653.00, prior years excess credit
of P146,026.00, and creditable taxes
withheld in 1989 of P54,104.00 or a total
tax credit of P200,130.00 and credit
balance of P172,477.00. In a resolution
dated October 21, 1993 Respondent
Court reconsidered its decision of July
29, 1993 and dismissed the petition for
review, stating that it hasoverlooked the
fact
that the petitioners 1989 Corporate
Income Tax Return indicated that the
amount of P54,104.00 subject
of petitioners claim for refund has
already been included as part and parcel
of the P172,477.00 which the petitioner
automatically applied as tax credit for the
succeeding taxable year 1990.
Petitioner filed a Motion for
Reconsideration which was denied by
respondent Court. Petitioner filed a
Petition for Review with the Court of
Appeals. Resolving the twin issues of
whether petitioner is entitled to a refund
of P54,104.00 representing creditable
taxes withheld in 1989 and whether
petitioner applied such creditable taxes
withheld to its 1990 income tax liability,
the appellate court held that petitioner is
not entitled to a refund because it had
already elected to apply the total amount
of P172,447.00, which includes the
P54,104.00 refund claimed, against its
income tax liability for 1990. The
appellate court elucidated on the reason
for its dismissal of petitioners claim for
refund.
ISSUE:
Whether or not taxation is
essential?
RULING:
Yes, taxation is essential. 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.
2. Mactan Cebu International Airport
Authority Vs Marcos BELEN
Facts:
Petitioner Mactan Cebu International
Airport Authority (MCIAA) was created by
virtue of Republic Act No. 6958,
mandated to principally undertake the
economical, efficient and effective control,
management and supervision of the
Mactan International Airport in the
Province of Cebu and the Lahug Airport
in Cebu City, and such other airports as
may be established in the Province of
Cebu. Since the time of its creation,
petitioner MCIAA enjoyed the privilege of
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exemption from payment of realty taxes in
accordance with Section 14 of its Charter.
However, Mr. Eustaquio B. Cesa, Officer-
in-Charge, Office of the Treasurer of the
City of Cebu, demanded payment for
realty taxes on several parcels of land
belonging to the petitioner. Petitioner
objected to such demand for payment as
baseless and unjustified claiming in its
favor the afore cited Section 14 of R.A.
6958. It was also asserted that it is an
instrumentality of the government
performing governmental functions, citing
Section 133 of the Local Government
Code of 1991. Respondent City refused to
cancel and set aside petitioners realty tax
account, insisting that the MCIAA is a
government-controlled corporation whose
tax exemption privilege has been
withdrawn by virtue of Sections 193 and
234 of Labor Code that took effect on
January 1, 1992.
ISSUE: Whether or not the MCIAA is
subject to realty taxes.
Held:
Yes. Taxation is the rule and exemption is
the exception. The general rule as laid
down in Sec. 133 of the LGC is that the
taxing powers of LGUs cannot extend to
the levy of, inter alia taxes, fees and
charges of any kind on the National
Government, its agencies, and
instrumentalities, and LGUs. However,
Since the last paragraph of Section 234
unequivocally withdrew, upon
effectivity of the LGC, exemptions from
payment of real property taxes granted to
natural or juridical persons, including
government-owned or controlled
corporations, except as provided in the
said section, and the petitioner is,
undoubtedly, a government-owned
corporation, it necessarily follows that its
exemption from such tax granted it in
Section 14 of its Charter, R.A. No. 6958,
has been withdrawn. Any claim to the
contrary can only be justified if the
petitioner can seek refuge under any of
the exceptions provided in Section 234,
but not under Section 133, as it now
asserts, since, as shown above, the said
section is qualified by Sections 232 and
234.
3.PEPSI COLA BOTTLING COMPNY VS.
MUNICIPALITY OF TANAUAN DE LOS
REYES
TAX1 Batch 1 | Cases 1-20
69 SCRA 460 Taxation Delegation
to Local Governments Double
Taxation
FACTS:
the
Pepsi Cola has a bottling plant in the
Municipality of Tanauan, Leyte. In
September 1962, the Municipality
approved Ordinance No. 23 which levies
and collects from soft drinks producers
and manufacturers a tai of one-sixteenth
(1/16) of a centavo for every bottle of soft
drink corked.
In December 1962, the Municipality also
approved Ordinance No. 27 which levies
and collects on soft drinks produced or
manufactured within the territorial
jurisdiction of this municipality a tax of
one centavo P0.01) on each gallon of
volume capacity.
Pepsi Cola assailed the validity of the
ordinances as it alleged that they
constitute double taxation in two
instances: a) double taxation because
Ordinance No. 27 covers the same subject
matter and impose practically the same
tax rate as with Ordinance No. 23, b)
double taxation because the two
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ordinances impose percentage or specific
taxes.
Pepsi Cola also questions the
constitutionality of Republic Act 2264
which allows for the delegation of taxing
powers to local government units; that
allowing local governments to tax
companies like Pepsi Cola is confiscatory
and oppressive.
The Municipality assailed the arguments
presented by Pepsi Cola. It argued, among
others, that only Ordinance No. 27 is
being enforced and that the latter law is
an amendment of Ordinance No. 23,
hence there is no double taxation.
ISSUE:
Whether or not there is undue delegation
of taxing powers. Whether or not there is
double taxation.
HELD:
No. There is no undue delegation. The
Constitution even allows such delegation.
Legislative powers may be delegated to
local governments in respect of matters of
local concern. By necessary implication,
the legislative power to create political
corporations for purposes of local self-
government carries with it the power to
confer on such local governmental
agencies the power to tax. Under the New
Constitution, local governments are
granted the autonomous authority to
create their own sources of revenue and
to levy taxes. Section 5, Article XI
provides: Each local government unit
shall have the power to create its sources
of revenue and to levy taxes, subject to
such limitations as may be provided by
law. Withal, it cannot be said that
Section 2 of Republic Act No. 2264
emanated from beyond the sphere of the
legislative power to enact and vest in local
governments the power of local taxation.
There is no double taxation. The
argument of the Municipality is well
taken. Further, Pepsi Colas assertion
that the delegation of taxing power in
itself constitutes double taxation cannot
be merited. It must be observed that the
delegating authority specifies the
limitations and enumerates the taxes over
which local taxation may not be
exercised. The reason is that the State
has exclusively reserved the same for its
own prerogative. Moreover, double
taxation, in general, is not forbidden by
our fundamental law unlike in other
TAX1 Batch 1 | Cases 1-20
jurisdictions. Double taxation becomes
obnoxious only where the taxpayer is
taxed twice for the benefit of the same
governmental entity or by the same
jurisdiction for the same purpose, but not
in a case where one tax is imposed by the
State and the other by the city or
municipality.
4. ROXAS Y CIA VS CTA - DINGLASAN
GR No L-25043, April 26, 1968
FACTS:
Antonio, Eduardo and Jose Roxas,
brothers and at the same time partners of
the Roxas y Compania, their desire to
purchase the farmland. The tenants,
however, did not have enough funds, so
the Roxases agreed to a purchase by
installment. Subsequently, the CIR
demanded from the brothers the payment
of deficiency income taxes resulting from
the sale, 100% of the profits derived
therefrom was taxed. The brothers
protested the assessment but the same
was denied. On appeal, the Court of Tax
Appeals sustained the assessment.
Hence, this petition.
ISSUE:
Is Roxas liable to pay tax from 100% of
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the profits of the sale?
RULING:
No. It should be borne in mind that the
sale of the farmlands to the very farmers
who tilled them for generations was not
only in consonance with, but more in
obedience to the request and pursuant to
the policy of our Government to allocate
lands to the landless.
In order to maintain the general publics
trust and confidence in the Government
this power must be used justly and not
treacherously. It does not conform with
the sense of justice for the Government to
persuade the taxpayer to lend it a helping
hand and later on penalize him for duly
answering the urgent call.
In fine, Roxas cannot be considered a real
estate dealer and is not liable for 100% of
the sale. Pursuant to Section 34 of the
Tax Code, the lands sold to the farmers
are capital assets and the gain derived
from the sale thereof is capital gain,
taxable only to the extent of 50%.
DOCTRINE:
The power of taxation is sometimes called
also the power to destroy. Therefore, it
should be exercised with caution to
minimize injury to the proprietary rights
of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax
collector kill the "hen that lays the golden
egg". And, in order to maintain the
general public's trust and confidence in
the Government, this power must be used
justly and not treacherously. It does not
conform to our sense of justice in the
instant case for the Government to
persuade, the taxpayer to lend it a
helping hand and later on to penalize him
for duly answering the urgent call.
5,Sunio vs. NLRC, L-57767, January 31,
1984 - EUGENIO
Facts: Petitioner was impleaded in the
Complaint in his capacity as General
Manager of petitioner corporation. There
appears to be no evidence on record that
he acted maliciously or in bad faith in
terminating the services of private
respondents. His act, therefore, was
within the scope of his authority and was
a corporate act.
TAX1 Batch 1 | Cases 1-20
Issue: whether or not corporations tax
delinquency be enforced against its
stockholders?
Held: No, a corporations tax delinquency
cannot, for instance, be enforced against
its stockholders because not only would
this run counter to the principle that
taxes are personal, but it would run
counter to the principle that taxes are
personal, but it would also not be in
accord with the rule that a corporation is
vested by law with a personality that is
separate and distinct from those of the
persons composing it as well as from that
of any other legal entity to which it may
be related.
A corporation is an entity separate and
distinct from its stockholders and other
corporations to which it may be
connected. However, when the motion of
legal entity is used to defeat public
convenience, justify wrong, protect fraud,
or defend crime, the law will regard the
corporation as an association of persons
or, in the case of two corporations, merge
them into one. When the corporation is
the mere alter ego or business conduit of
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a person, it may be disregarded. Sunio are private corporations engaged in the
vs. National Labor Relations Commission, importation and distribution of fertilizers,
127 SCRA 390, No. L-57767 January 31, pesticides and agricultural chemicals.
Then President Marcos issued Letter of
1984
Instruction (LOI) 1465, imposing a capital
recovery component of Php10.00 per bag
of fertilizer. The levy was to continue until
Essential characteristics of tax. adequate capital was raised to make PPI
financially viable. Fertiphil paid the
1. it is an enforced contribution Php10.00 to the Fertilizer and Pesticide
Authority (FPA), which then remitted
2. it is generally payable in money. amount collected to the depository bank
3. It is proportionate in character, usually of PPI. Fertiphil paid P6,689,144 to FPA
based on the ability to pay from 1985 to 1986.
4. it is levied on persons and property After the 1986 Edsa Revolution, FPA
within the jurisdiction of the state voluntarily stopped the imposition of the
P10 levy. Fertiphil demanded a refund
5. it is levied pursuant to legislative
from PPI, but PPI refused. Fertiphil filed a
authority, the power to tax can only be complaint for collection and damages,
exercised by the law making body or questioning the constitutionality of LOI
congress 1465, claiming that it was unjust,
6. it is levied for public purpose unreasonable, oppressive, invalid and an
7. it is commonly required to be paid a unlawful imposition that amounted to a
denial of due process.
regular intervals.
6. PLANTERS PRODUCTS, INC., vs Issue: Whether or not LOI No. 1465 is
invalid.
FERTIPHIL CORPORATION
(G.R. No. 166006; 14 March 2008) -
Held:
GALICINAO
Yes. The LOI is invalid. It is a basic rule of
statutory construction that the text of a
Facts:
statute should be given a literal meaning.
Petitioner PPI and respondent Fertiphil
In this case, the text of the LOI is plain
TAX1 Batch 1 | Cases 1-20
that the levy was imposed in order to
raise capital for PPI.
While it is true that the power to tax can
be used as an implement of police power,
the primary purpose of the levy was
revenue generation. If the purpose is
primarily revenue, or if revenue is, at
least, one of the real and substantial
purposes, then the exaction is properly
called a tax. Police power and the power
of taxation are inherent powers of the
State. These powers are distinct and have
different tests for validity. Police power is
the power of the State to enact legislation
that may interfere with personal liberty or
property in order to promote the general
welfare, while the power of taxation is the
power to levy taxes to be used for public
purpose.
The main purpose of police power is the
regulation of a behavior or conduct, while
taxation is revenue generation. The
"lawful subjects" and "lawful means" tests
are used to determine the validity of a law
enacted under the police power. The
power of taxation, on the other hand, is
circumscribed by inherent and
constitutional limitations.
7. FRANCIA V INTERMEDIATE
APPELLATE COURT - MOGELLO ( c/o
TITO )
Page 5 of 25

GR No L-76649, June 28, 1988
FACTS:
Engracio Francia was the registered
owner of a house and lot located in Pasay
City. A portion of such property was
expropriated by the Republic of the
Philippines in 1977. It appeared that
Francia did not pay his real estate taxes
from 1963 to 1977. Thus, his property
was sold in a public auction by the City
Treasurer of Pasay City. Francia filed a
complaint to annual the auction sale. The
lower court dismissed the complaint and
the Intermediate Appellate Court affirmed
the decision of the lower court in toto.
Hence, this petition for review. Francia
contends that his tax delinquency of P
2,400 has been extinguished by legal
compensation. He claims that the
government owed him P 4,116 when a
portion of his land was expropriated on
October 15, 1977.
ISSUE:
May the expropriation payment
compensate for the real estate taxes due?
RULING:
No. There can be no offsetting of taxes
against the claims that the taxpayer may
have against the government. A person
cannot refuse to pay a tax on the ground
that the government owes him an amount
equal to or greater than the tax being
collected. The collection of a tax cannot
await the results of a lawsuit against the
government. Internal revenue taxes
cannot be the subject of compensation.
The Government and the taxpayer are not
mutually creditors and debtors of each
other under Article 1278 of the Civil Code
and a claim of taxes is not such a debt,
demand, contract or judgment as is
allowed to be set-off.
Moreover, the amount of P4,116 paid by
the national government for the 125
square meter portion of his lot was
deposited with the Philippine National
Bank long before the sale at public
auction of his remaining property. It
would have been an easy matter to
withdraw P 2,400 from the deposit so
that he could pay the tax obligation thus
aborting the sale at public auction. Thus,
the petition for review is dismissed. The
taxes assessed are the obligations of the
taxpayer arising from law, while the
money judgment against the government
TAX1 Batch 1 | Cases 1-20
is an obligation arising from contract,
whether express or implied.
Doctrine:
The general rule based on grounds of
public policy is well-settled that no set-off
is admissible against demands for taxes
levied for general or local governmental
purposes. The reason on which the
general rule is based, is that taxes are not
in the nature of contracts between the
party and party but grow out of duty to,
and are the positive acts of the
government to the making and enforcing
of which, the personal consent of
individual taxpayer is not required. x x x
Francia vs. Intermediate Appellate
Court, 162 SCRA 753, No. L-67649 June
28, 1988
8. DOMINGO V. GARLITOS - RIEGO
GR NO. L-18994, 29 JUNE 1963
Topic: Power of taxation compared to
other powers
Facts:
Page 6 of 25
 TAX1 Batch 1 | Cases 1-20

In the 1960 case of Domingo v Moscoso, 2700). Under the circumstances, both the administrator to pay the amount hereof
the Supreme Court declared as final and claim of the Government for the (Aldamiz vs. Judge of the Court of First
executory the order for the payment by inheritance taxes and the claim of the Instance of Mindoro, L-2360, Dec. 29,
the estate of the late Walter Scott Price of intestate for services rendered have 1949).
estate and inheritance taxes, charges and already become overdue and demandable
Same; Same; Same; Same; Legal basis.
penalties, amounting to P40,058.55 as well as fully liquidated.
The legal basis for such a procedure is
issued by the Court of First Instance
Compensation, therefore, takes place by the fact that in the testate or intestate
Leyte. The fiscal then presented a petition
operation of law, in accordance with proceedings to settle the estate of a
for the execution of the judgment before
Article 1279 and 1290 of the Civil Code, deceased person, the properties belonging
the Court of First Instance Leyte.The
and both debts are extinguished to their to the estate are under the jurisdiction of
petition was denied as the execution is
concurrent amounts. If the obligation to the court and such jurisdiction continues
not justifiable as the government is
pay taxes and the taxpayers claim until said properties have been
indebted to the estate under
against the government are both overdue, distributed among the heirs entitled
administration in the amount of P
demandable, as well as fully liquidated, thereto. During the pendency of the
262,200. Hence, the present petition for
compensation takes place by operation of proceedings all the estate is in custodia
certiorari and mandamus.
law and both obligations are extinguished Iegis and the proper procedure is not to
Issue: WON the petition must be given to their concurrent amounts. allow the sheriff. in case of a court
due course. judgment, to seize the properties but to
Referential Syllabus:
ask the court for an order to require the
Held: administrator to pay the amount due
Taxation; Inheritance tax; Procedure in
enforcement against estate of deceased from the estate and required to be paid.
No, the petition must be given due
course. The tax and the debt are person; Claim must be filed before Same; Same; Compensation between
compensated. The court having probate court.The ordinary procedure taxes and claims of intestate recognized
jurisdiction of the estate had found that by which to settle claims or indebtedness and appropriated for by law.The fact
the claim of the estate against the against the estate of a deceased person, that the court having jurisdiction of the
government has been recognized and an as an inheritance tax, is for the claimant estate had found that the claim of the
amount of P262,200 has already been to present a claim before the probate estate against the Government has been
appropriated by a corresponding law (RA court sa that said court may order the
Page 7 of 25
 TAX1 Batch 1 | Cases 1-20

appropriated for the purpose by a fees. PAL protested. The trial court and maintain public highways for
corresponding law (Rep. Act No. 2700) dismissed PALs complaint. Hence, this everyones use, they are veritable taxes,
shows that both the claim of the petition. not merely fees. PAL is, thus, exempt from
Government for inheritance taxes and the paying such fees, except for the period
claim of the intestate for services ISSUE: between June 27, 1968 to April 9, 1979,
Are motor vehicle registration fees taxes where its tax exception in the franchise
rendered have already become overdue
or regulatory taxes? was repealed.
and demandable as well as fully
liquidated. Compensation, therefore, 10. National Power Corp. vs. City of
RULING:
takes place by operation of law, in Cabanatuan
They are taxes. Tax are for revenue,
accordance with the provisions of Articles E. Purpose of Taxation- UNAS
whereas fees are exactions for purposes of
1279 and 1290 of the Civil Code, and
regulation and inspection, and are for
both debts are extinguished to the FACTS:
that reason limited in amount to what is The Petitioner is a government-owned and
concurrent amount. necessary to cover the cost of the services controlled corporation. It is tasked to
rendered in that connection. undertake the development of
9. PAL VS EDU TITO
It is the object of the charge, and not the hydroelectric generations of power and
Philippine Airlines v Edu name, that determines whether a charge the production of electricity from nuclear,
GR No L-41383, August 15, 1988 is a tax or a fee. The money collected geothermal and other sources, as well as,
under the Motor Vehicle Law is not the transmission of electric power on a
FACTS: intended for the expenditures of the nationwide basis. For many years now,
PAL is engaged in the air transportation Motor Vehicle Law is not intended for the petitioner sells electric power to the
expenditures of the Motor Vehicles Office residents of Cabanatuan City. Pursuant
business under a legislative franchise (Act
but accrues to the funds for the to the an ordinance, the respondent
4271), wherein it is exempt from the
assessed the petitioner a franchise tax
payment of taxes. On the strength of an construction and maintenance of public
amounting to P808,606.41, representing
opinion of the Secretary of Justice, PAL roads, streets and bridges.
75% of 1% of the latters gross receipts for
was determined to have not been paying As the fees are not collected for regulatory
the preceding year. Petitioner, whose
motor vehicle registration fees since 1956. purposes as an incident to the
capital stock was subscribed and paid
The Land Transportation Commissioner enforcement of regulations governing the wholly by the Philippine Government,
required all tax-exempt entities, including operation of motor vehicles on public refused to pay the tax assessment. It
PAL, to pay motor vehicle registration highways, but to provide revenue with argued that the respondent has no
which the Government is to construct
Page 8 of 25

authority to impose tax on government
entities. Petitioner also contended that as
a non-profit organization, it is exempted
from the payment of all forms of taxes,
charges, duties or fees. The respondent
filed a collection suit but the trial court
dismissed the case. On appeal, the Court
of Appeals reversed the trial courts order
and finds the National Power Corporation
(NPC) liable to pay franchise tax to
respondent City of Cabanatuan.
ISSUE:
Whether or not the respondent city
government has the authority impose a
tax on businesses enjoying a franchise.
HELD:
Yes. It is beyond dispute that the
respondent city government has the
authority to issue an ordinance and
impose an annual tax on businesses
enjoying a franchise. Taxes are the
lifeblood of the government, for without
taxes, the government can neither exist
nor endure. A principal attribute of
sovereignty, the exercise of taxing power
derives its source from the very existence
of the state whose social contract with its
citizens obliges it to promote public
interest and common good. The theory
behind the exercise of the power to tax
emanates from necessity; without taxes,
government cannot fulfill its mandate of
promoting the general welfare and well-
being of the people. Doubtless, the power
to tax is the most effective instrument to
raise needed revenues to finance and
support myriad activities of the local
government units for the delivery of basic
services essential to the promotion of the
general welfare and the enhancement of
peace, progress, and prosperity of the
people.
Additional Notes:
Constitutional Law; Local Governments;
Local Government Code; Taxation; Words
and Phrases; Franchise, defined.
Section 131 (m) of the LGC defines a
franchise as a right or privilege,
affected with public interest which is
conferred upon private persons or
corporations, under such terms and
conditions as the government and its
political subdivisions may impose in the
interest of the public welfare, security
and safety.
Same; Same; Same; Same; Same;
Business, defined.On the other hand,
section 131 (d) of the LGC defines
business as trade or commercial
activity regularly engaged in as means of
livelihood or with a view to profit.
Petitioner claims that it is not engaged in
an activity for profit, in as much as its
TAX1 Batch 1 | Cases 1-20
charter specifically provides that it is a
non-profit organization.
11. Commissioner of lnternal Revenue
vs. Algue, Inc. - ANARNA
GR No. L-28896, February 17, 1988
158 SCRA 9
FACTS:
Algue Inc. is a domestic corp
engaged in engineering, construction and
other allied activities. On Jan. 14, 1965,
the corp received a letter from the CIR
regarding its delinquency income taxes
from 1958-1959, amtg to P83,183.85. A
letter of protest or reconsideration was
filed by Algue Inc on Jan 18. On March
12, a warrant of distraint and levy was
presented to Algue Inc. thru its counsel,
Atty. Guevara, who refused to receive it
on the ground of the pending protest.
Since the protest was not found on the
records, a file copy from the corp was
produced and given to BIR Agent Reyes,
who deferred service of the warrant. On
April 7, Atty. Guevara was informed that
the BIR was not taking any action on the
protest and it was only then that he
accepted the warrant of distraint and levy
earlier sought to be served. On April 23,
Algue filed a petition for review of the
Page 9 of 25

decision of the CIR with the Court of Tax
Appeals.
CIR contentions: the claimed
deduction of P75,000.00 was properly
disallowed because it was not an ordinary
reasonable or necessary business
expense payments are fictitious because
most of the payees are members of the
same family in control of Algue and that
there is not enough substantiation of
such payments.
CTA: 75,000 had been legitimately
paid by Algue Inc. for actual services
rendered in the form of promotional fees.
These were collected by the Payees for
their work in the creation of the Vegetable
Oil Investment Corporation of the
Philippines and its subsequent purchase
of the properties of the Philippine Sugar
Estate Development Company.
ISSUE:
Whether or not the Collector of
Internal Revenue correctly disallowed the
P75,000.00 deduction claimed by Algue
as legitimate business expenses in its
income tax returns?
HELD:
Taxes are the lifeblood of the
government and so should be collected
without unnecessary hindrance. On the
other hand, such collection should be
made in accordance with law as any
arbitrariness will negate the very reason
for government itself. It is therefore
necessary to reconcile the apparently
conflicting interests of the authorities and
the taxpayers so that the real purpose
of /taxation, which is the promotion of
the common good, may be achieved.
12 Talento Vs Escalada - BELEN
Facts:
Petron received from the Provincial Assessors
Office of Bataan a notice of revised
assessment over its machineries and pieces of
equipment in Lamao, Limay, Bataan. Petron
was given a period of 60 days within which to
file an appeal with the Local Board of
Assessment Appeals . Petron filed a petition
with the LBAA (docketed as LBAA Case No.
2007-01) contesting the revised assessment on
the grounds that the subject assessment
pertained to properties that have been
previously declared; and that the assessment
covered periods of more than 10 years which
is not allowed under the Local Government
Code (LGC). According to Petron, the possible
valid assessment pursuant to Section 222 of
the LGC could only be for the years 1997 to
2006. Petron further contended that the fair
market value or replacement cost used by
petitioner included items which should be
TAX1 Batch 1 | Cases 1-20
properly excluded; that prompt payment of
discounts were not considered in determining
the fair market value; and that the subject
assessment should take effect a year after or on
January 1, 2008. In the same petition, Petron
sought the approval of a surety bond in the
amount of P1,286,057,899.
ISSUE: Whether or not the collection of taxes
may be suspended by filing of an appeal?
Held: Yes. We are not unaware of the doctrine
that taxes are the lifeblood of the government,
without which it can not properly perform its
functions; and that appeal shall not suspend
the collection of realty taxes. However, there is
an exception to the foregoing rule, i.e., where
the taxpayer has shown a clear and
unmistakable right to refuse or to hold in
abeyance the payment of taxes. In the instant
case, we note that respondent contested the
revised assessment on the following grounds:
that the subject assessment pertained to
properties that have been previously declared;
that the assessment covered periods of more
than 10 years which is not allowed under the
LGC; that the fair market value or replacement
cost used by petitioner included items which
should be properly excluded; that prompt
payment of discounts were not considered in
determining the fair market value; and that the
subject assessment should take effect a year
after or on January 1, 2008. To our mind, the
resolution of these issues would have a direct
Page 10 of 25

bearing on the assessment made by petitioner.
Hence, it is necessary that the issues must first
be passed upon before the properties of
respondent is sold in public auction.
13. PHIL. GUARANTY CO. VS. CIR
DE LOS REYES
FACTS:
The Philippine Guaranty Co., Inc., a
domestic insurance company, entered
into reinsurance contracts, on various
dates, with foreign insurance companies
not doing business in the Philippines.
Petitioner thereby agreed to cede to the
foreign reinsurers a portion of the
premiums on insurance it has originally
underwritten in the Philippines, in
consideration for the assumption by the
latter of liability on an equivalent portion
of the risks insured.
Said reinsurrance contracts were signed
by Philippine Guaranty Co., Inc. in
Manila and by the foreign reinsurers
outside the Philippines. Also said
premiums were excluded by Philippine
Guaranty Co., Inc. from its gross income
when it file its income tax returns. It did
not withhold or pay tax on them.
Consequently, the CIR assessed against
PETITIONER withholding tax on the
ceded reinsurance premiums. Petitioner
protested the assessment on the ground
that reinsurance premiums ceded to
foreign reinsurers not doing business in
the Philippines are not subject to
-
withholding tax.
CTA- in favor of the respondent.
ISSUE:
Whether reinsurance premiums ceded to
foreign reinsurers not doing business in
the Philippines are subject to tax
HELD:
Yes. The reinsurance premiums are
subject to tax.
The reinsurance contracts show that the
transactions or activities that constituted
the undertaking to reinsure Philippine
Guaranty Co., Inc. against losses arising
from the original insurances in the
Philippines were performed in the
Philippines
Section 4 of the Tax Code subjects foreign
corporations to tax on their income from
sources within the Philippine.
Sources means the activity, property, or
service giving rise to the income. The
original insurance undertakings took
TAX1 Batch 1 | Cases 1-20
place in the Philippines. It is not required
that the foreign corporation be engaged in
business in the Philippines. What is
controllinis not the place of business,
but the place of activity that created the
income. Thus, the income is subject to
income tax.
NOTE: The foreign insurers' place of
business should not be confused with
their place of activity.
Business should not be continuity and
progression of transactions while activity
may consist of only a single transaction.
An activity may occur outside the place of
business.
14. VILLANUEVA vs. CITY OF ILOILO -
DINGLASAN
FACTS
On September 30, 1946 the municipal
board of Iloilo City enacted Ordinance 86,
imposing license tax fees on tenement
house.This Court, in City of Iloilo vs.
Remedios Sian Villanueva and Eusebio
Villanueva declared the ordinance ultra
vires, "it not appearing that the power to
tax owners of tenement houses is one
among those clearly and expressly
Page 11 of 25

granted to the City of Iloilo by its
Charter." On January 15, 1960 the
municipal board of Iloilo City, believing,
obviously, that with the passage of RA
2264,Local Autonomy Act, it had acquired
the authority or power to enact an
ordinance similar to that previously
declared by this Court as ultra vires,
enacted Ordinance 11 (AN ORDINANCE
IMPOSING MUNICIPAL LICENSE TAX ON
PERSONS ENGAGED IN THE BUSINESS
OF OPERATING TENEMENT HOUSES).
By virtue of the ordinance in question,
the appellant City collected from appellee
Villanueva, for the years 1960-1964, the
sum of P5,824.30, and from other
appellees, for the same year, the sum of
P1,317.00. Hence, plaintiffs-appellees
filed a complaint, against the City of
Iloilo, praying that Ordinance 11 be
declared "invalid for being beyond the
powers of the Municipal Council of the
City of Iloilo to enact, and
unconstitutional for being violative of the
rule as to uniformity of taxation and for
depriving said plaintiffs of the equal
protection clause of the Constitution,"
and that the City be ordered to refund the
amounts collected from them under the
said ordinance. Lower court rendered
judgment declaring the ordinance illegal.
ISSUES
1. Is the City of Iloilo empowered by
the Local Autonomy Act to impose
tenement taxes? YES.
2. Is Ordinance 11 of the City of
Iloilo, illegal because it imposes
double taxation? NO.
3. Is Ordinance 11 oppressive and
unreasonable because it carries a
penal clause? NO.
4. Does Ordinance 11 violate the rule
of uniformity of taxation? NO.
RULING
1.RA 2264 confer on local governments
broad taxing authority which extends to
almost "everything, excepting those which
are mentioned therein," provided that the
tax so levied is "for public purposes, just
and uniform," and does not transgress
any constitutional provision or is not
repugnant to a controlling statute.Thus,
when a tax, levied under the authority of
a city or municipal ordinance, is not
within the exceptions and limitations
aforementioned, the same comes within
the ambit of the general rule, pursuant to
TAX1 Batch 1 | Cases 1-20
the rules of expressio unius est exclusio
alterius, and exceptio firmat regulum in
casibus non excepti.
The appellees strongly maintain that it is
a "property tax" or "real estate tax," and
not a "tax on persons engaged in any
occupation or business or exercising
privileges," or a license tax, or a privilege
tax, or an excise tax. It is our view,
contrary to the appellees' contention, that
the tax in question is not a real estate
tax. The tax imposed by the ordinance in
question does not possess the attributes
of a real estate tax. It is not a tax on the
land on which the tenement houses are
erected, although both land and tenement
houses may belong to the same owner.
The tax is not a fixed proportion of the
assessed value of the tenement houses,
and does not require the intervention of
assessors or appraisers. It is not payable
at a designated time or date, and is not
enforceable against the tenement houses
either by sale or distraint. Clearly,
therefore, the tax in question is not a real
estate tax. On the contrary, it is plain
from the context of the ordinance that the
intention is to impose a license tax on the
operation of tenement houses, which is a
form of business or calling. The
Page 12 of 25

ordinance, in both its title and body,
particularly sections 1 and 3 thereof,
designates the tax imposed as a
"municipal license tax" which, by itself,
means an "imposition or exaction on the
right to use or dispose of property, to
pursue a business, occupation, or calling,
or to exercise a privilege. In City of Iloilo
vs. Remedios Sian Villanueva, et al.,
tenement house is defined as "any house
or building, or portion thereof, which is
rented, leased, or hired out to be occupied,
or is occupied, as the home or residence
of three families or more living
independently of each other and doing
their cooking in the premises or by more
than two families upon any floor, so living
and cooking, but having a common right
in the halls, stairways, yards, water-
closets, or privies, or some of them."
Tenement houses, being necessarily
offered for rent or lease by their very
nature and essence, therefore constitute a
distinct form of business or calling,
similar to the hotel or motel business, or
the operation of lodging houses or
boarding houses.
The lower court has interchangeably
denominated the tax in question as a
tenement tax or an apartment tax. Called
TAX1 Batch 1 | Cases 1-20
by either name, it is not among the local government. There is nothing
exceptions listed in section 2 of the Local inherently obnoxious in the exaction of
Autonomy Act. On the other hand, the license fees or taxes with respect to the
imposition by the ordinance of a license same occupation, calling or activity by
tax on persons engaged in the business of both the State and a political subdivision
operating tenement houses finds thereof.
authority in section 2 of the Local
Autonomy Act which provides that
chartered cities have the authority to
impose municipal license taxes or fees
upon persons engaged in any occupation
or business, or exercising privileges
within their respective territories, and
"otherwise to levy for public purposes,
just and uniform taxes, licenses, or fees."
2. The trial court condemned the
ordinance as constituting "not only
double taxation but treble at that,"
because "buildings pay real estate taxes
and also income taxes as provided for in
Sec. 182 (A) (3) (s) of the NIRC, besides
the tenement tax under the said
ordinance." While it is true that the
plaintiffs-appellees are taxable under the
aforesaid provisions of the NIRC as real
estate dealers, and still taxable under the
ordinance in question, the argument
against double taxation may not be
invoked. The same tax may be imposed by
the national government as well as by the
Page 13 of 25

The contention that the plaintiffs-
appellees are doubly taxed because they
are paying the real estate taxes and the
tenement tax imposed by the ordinance in
question, is also devoid of merit. It is a
well-settled rule that a license tax may be
levied upon a business or occupation
although the land or property used in
connection therewith is subject to
property tax. To constitute double
taxation in the objectionable or prohibited
sense the same property must be taxed
twice when it should be taxed but once;
both taxes must be imposed on the same
property or subject-matter, for the same
purpose, by the same State, Government,
or taxing authority, within the same
jurisdiction or taxing district, during the
same taxing period, and they must be the
same kind or character of tax. It has been
shown that a real estate tax and the
tenement tax imposed by the ordinance,
although imposed by the same taxing
authority, are not of the same kind or
character.
3. A tax is not a debt in the sense of an
obligation incurred by contract, express
or implied, and therefore is not within the
meaning of constitutional or statutory
provisions abolishing or prohibiting
imprisonment for debt, and a statute or
ordinance which punishes the non-
payment thereof by fine or imprisonment
is not, in conflict with that prohibition.
Nor is the tax in question a poll tax, for
the latter is a tax of a fixed amount upon
all persons, or upon all persons of a
certain class, resident within a specified
territory, without regard to their property
or the occupations in which they may be
engaged. Therefore, the tax in question is
not oppressive in the manner the lower
court puts it. On the other hand, the
charter of Iloilo City empowers its
municipal board to "fix penalties for
violations of ordinances, which shall not
exceed a fine of two hundred pesos or six
months' imprisonment, or both such fine
and imprisonment for each offense.
4.The trial court brands the ordinance as
violative of the rule of uniformity of
taxation because while the owners of the
other buildings only pay real estate tax
and income taxes, the ordinance imposes
aside from these two taxes an apartment
or tenement tax. Appellees also argue
that there is "lack of uniformity" and
"relative inequality," because "only the
taxpayers of the City of Iloilo are singled
out to pay taxes on their tenement
TAX1 Batch 1 | Cases 1-20
houses, while citizens of other cities,
where their councils do not enact a
similar tax ordinance, are permitted to
escape such imposition."
It is our view that both assertions are
undeserving of extended attention. This
Court has already ruled that tenement
houses constitute a distinct class of
property. It has likewise ruled that "taxes
are uniform and equal when imposed
upon all property of the same class or
character within the taxing authority."
The fact, therefore, that the owners of
other classes of buildings in the City of
Iloilo do not pay the taxes imposed by the
ordinance in question is no argument at
all against uniformity and equality of the
tax imposition. Neither is the rule of
equality and uniformity violated by the
fact that tenement taxes are not imposed
in other cities, for the same rule does not
require that taxes for the same purpose
should be imposed in different territorial
subdivisions at the same time.So long as
the burden of the tax falls equally and
impartially on all owners or operators of
tenement houses similarly classified or
situated, equality and uniformity of
taxation is accomplished.
Page 14 of 25
 TAX1 Batch 1 | Cases 1-20

The last important issue posed by the liquor or intoxicating beverages of any (2) Whether or not the contested
appellees is that since the ordinance in form in the City of Cebu by ordinance is prohibited upon the ground
the case at bar is a mere reproduction of manufacturers and wholesalers for of double taxation.
Ordinance 86 of the City of Iloilo which purposes of a municipal tax with their
was declared by this Court as ultra vires, Held:
following rates. PROVIDED, however,
the decision in that case should be
that manufacturers, who is at the same (1) Yes. There is double taxation when the
accorded the effect of res judicata in the
time wholesalers of their own product, same person is taxed by the same
present case or should constitute estoppel
shall pay only as manufacturers under
by judgment. To dispose of this jurisdiction for the same purpose, which
the rates specified in the ordinance.
contention, it suffices to say that there is is not the case in San Miguel Brewery,
no identity of subject-matter in that case Pursuant to said ordinance, the SMB Inc. vs City of Cebu.
and this case because the subject-matter
which is engaged in the manufacture,
in it was an ordinance which dealt not (2) No, it is not prohibited because double
bottling, distribution and sale of beer
only with tenement houses but also taxation is not prohibited by the
throughout the Philippines, including the
warehouses, and the said ordinance was Constitution. In the case at bar, the
defendant Cebu City, paid thereto, under
enacted pursuant to the provisions of the ordinance in question imposes a tax on
City charter, while the ordinance in the protest, the sum of P29,874.69, the
the sale or disposal of every "bottle or
case at bar was enacted pursuant to the refund of which is prayed for in the
container" of "liquor intoxicating
provisions of the Local Autonomy Act. complaint herein, upon on the ground
beverages," and, as such, is a typical tax
that said ordinance is ultra vires (beyond
or revenue measure, whereas the sum of
one's legal power or authority), for
P600 it pays annually is for a "second-
15.SAN MIGUEL BREWERY, INC., VS imposing a sales tax, which is allegedly
class wholesale liquor license," which is a
CITY OF CEBU- EUGENIO beyond defendant's power to levy, apart
license to engage in the business of
from resulting in illegal double taxation,
wholesale liquor in Cebu City, and,
Facts: since SMB already pays the defendant a
accordingly, constitutes a regulatory
business license tax of P600 per annum.
San Miguel Brewery, Inc. (SMB) assails measure, in the exercise of the police
the validity of Ordinance No. 298, of the Issue/s: power.
City of Cebu, providing that "there shall
(1) Whether or not there is a double 16. CIR vs Bank of Commerce (459
be collected on any sale or disposal of
SCRA 638; G.R. No. 149636, 8 June
taxation.
Page 15 of 25

2005) - GALICINAO
Facts:
The respondent Bank of Commerce
derived passive income in the form of
interests or discounts from its
investments in government securities and
private commercial papers. On several
occasions during the said period, it paid
5% gross receipts tax on its income. as
reflected in its quarterly percentage tax
returns. Included therein were the
respondent banks passive income from
the said investments amounting to
P85,384,254.51, which had already been
subjected to a final tax of 20%.
Later, the CTA rendered judgment in Asia
Bank Corporation v. CIR, holding that the
20% final withholding tax on interest
income from banks does not form part of
taxable gross receipts for Gross Receipts
Tax (GRT) purposes. The CTA relied on
Section 4(e) of Revenue Regulations (Rev.
Reg.) No. 12-80. Relying on the said
decision, the respondent bank filed an
administrative claim for refund with the
CIR.
Issue: Whether there was double
taxation.
Held:
No. There was no double taxation. Double
taxation means taxing the same property
twice when it should be taxed only once;
that is, x x x taxing the same person
twice by the same jurisdiction for the
same thing. Otherwise described as
direct duplicate taxation, the two taxes
must be imposed on the same subject
matter, for the same purpose, by the
same taxing authority, within the same
jurisdiction, during the same taxing
period; and they must be of the same
kind or character.
In this case, first, the taxes herein are
imposed on two different subject matters.
The subject matter of the FWT is the
passive income generated in the form of
interest on deposits and yield on deposit
substitutes, while the subject matter of
the GRT is the privilege of engaging in the
business of banking.
A tax based on receipts is a tax on
business rather than on the property;
hence, it is an excise rather than a
property tax. It is not an income tax,
unlike the FWT. In fact, the court had
already held that one can be taxed for
engaging in business and further taxed
differently for the income derived
therefrom.
Second, although both taxes are national
in scope because they are imposed by the
TAX1 Batch 1 | Cases 1-20
same taxing authoritythe national
government under the Tax Codeand
operate within the same Philippine
jurisdiction for the same purpose of
raising revenues, the taxing periods they
affect are different. The FWT is deducted
and withheld as soon as the income is
earned, and is paid after every calendar
quarter in which it is earned. On the
other hand, the GRT is neither deducted
nor withheld, but is paid only after every
taxable quarter in which it is earned.
Third, these two taxes are of different
kinds or characters. The FWT is an
income tax subject to withholding, while
the GRT is a percentage tax not subject to
withholding.
17. CIR VS PROCTER & GAMBLE VS -
MOGELLO
NON-RESIDENT FOREIGN
CORPORATION- DIVIDENDS Sec 24 (b)
(1) of the NIRC states that an ordinary
35% tax rate will be applied to dividend
remittances to non-resident corporate
stockholders of a Philippine corporation.
This rate goes down to 15% ONLY IF the
country of domicile of the foreign
stockholder corporation shall allow such
foreign corporation a tax credit for taxes
deemed paid in the Philippines,
Page 16 of 25
 TAX1 Batch 1 | Cases 1-20

applicable against the tax payable to the ISSUE: WON tax refund be Facts:
domiciliary country by the foreign given to P&G in order to eliminate double
stockholder corporation. However, such taxation. Petitioner seeks to set aside the ruling of
tax credit for taxes deemed paid in the the Court of Appeals affirming the
Philippines MUST, as a minimum, reach decision of the Courts of Tax Appeals. The
an amount equivalent to 20 percentage HELD: No. Tax refunds are decision in question grants the
points in the nature of tax exemptions. As such, respondent a tax credit certificate to be
they are regarded as in derogation of given by the Petitioner based on claim of
FACTS: Procter and Gamble
sovereign authority and to be construed the overpaid withholding tax on royalties
Philippines declared dividends payable to
strictissimi juris against the person or paid by the respondent.
its parent company and sole stockholder,
entity claiming the exemption. The
P&G USA. Such dividends amounted to
burden of proof is upon him who claims To elucidate the matter, it is important to
Php 24.1M.
the exemption in his favor and he must be mention that the respondent is a
P&G Phil paid a 35% dividend able to justify his claim by the clearest domestic corporation organized and
withholding tax to the BIR which grant of organic or statute law.... and operating under the Philippine laws,
amounted to Php 8.3M It subsequently cannot be permitted to exist upon vague entered into a license agreement with SC
filed a claim with the Commissioner of implications, xxx Thus, when tax Johnson and Son, United States of
Internal Revenue for a refund or tax exemption is claimed, it must be shown America (USA), a non-resident foreign
credit, claiming that pursuant to Section indubitably to exist, for every
corporation based in the U.S.A. pursuant
24(b)(1) of the National Internal Revenue presumption is against it, and a well
to which the respondent was granted the
Code, as amended by Presidential Decree founded doubt is fatal to the claim.
right to use the trademark, patents and
No. 369, the applicable rate of
The higher court granted the technology owned by the latter including
withholding tax on the dividends remitted
petition of CIR. the right to manufacture, package and
was only 15%.
18. CIR v. SC Johnson and Son Inc. et distribute the products covered by the
CIR did not respond to their
al - RIEGO Agreement and secure assistance in
claims, hence case was elevated to the
GR NO 127105, 25 June 1999 management, marketing and production
Court of Tax Appeals. CTA ruled in favor
from SC Johnson and Son, U. S. A.
of P&G ordering CIR to refund or tax
credit. CIR filed a petition to the higher Topic: Modes of eliminating double
The basis of the claim, as alleged by the
court. taxation
respondent, is embodied on two treaties
Page 17 of 25

connected to double taxation, to wit: RP-
US Tax Treaty [Article 13 Paragraph 2 (b)
(iii)] in relation to the RP-West Germany
Tax Treaty [Article 12 (2) (b)]. RP-US Tax
Treaty imposes royalties based on a
percentage of net sales and subjected the
same to 25% withholding tax on royalty
which was paid by the respondent for a
period of time. In connection to this,
which is found on the same treaty, is a
clause which states,
the lowest rate of Philippine tax that may
be imposed on royalties of the same kind
paid under similar circumstances to a
resident of a third State.
To support the recently mentioned clause,
respondent also quoted the second treaty,
RP-West Germany Tax Treaty, to wit:
10 percent of the gross amount of
royalties arising from the use of, or the
right to use, any patent, trademark,
design or model, plan, secret formula or
process, or from the use of or the right to
use, industrial, commercial, or scientific
equipment, or for information concerning
industrial, commercial or scientific
experience.
Respondent, as affirmed by the Court of
Tax Appeals and Court of Appeals,
construed the phrase under similar
circumstance referring to payment
royalties which would impose only 10% of
tax on royalties and support the claim of
refund by the respondent.
Petitioner, on the other hand, dissent on
this matter and construed the very same
phrase referring to tax and not on
payment of royalties. Having
petitioners interpretation, since the RP-
US Tax Treaty does not give a matching
tax credit of 20 percent for the taxes paid
to the Philippines on royalties as allowed
under the RP-West Germany Tax Treaty,
private respondent cannot be deemed
entitled to the 10 percent rate granted
under the latter treaty for the reason that
there is no payment of taxes on royalties
under similar circumstances.
Issue: WON the respondent is entitled to
the claim of tax credit.
Held:
No, the respondent is NOT entitled to the
claim of tax credit. The argument of the
TAX1 Batch 1 | Cases 1-20
petitioner is meritorious. The phrase
under similar circumstance must be
construed referring to payment of tax and
of not royalties. The construction of the
respondent court is based principally on
syntax or sentence structure but fails to
take into account the purpose animating
the treaty provisions in point.
The apparent rationale for doing away
with double taxation is of encourage the
free flow of goods and services and the
the movement of capital, technology and
persons between countries, conditions
deemed vital in creating robust and
dynamic economies. Foreign investments
will only thrive in a fairly predictable and
reasonable international investment
climate and the protection against double
taxation is crucial in creating such a
climate.
Thus, since the RP-US Tax Treaty does
not give a matching tax credit of 20
percent for the taxes paid to the
Philippines on royalties as allowed under
the RP-West Germany Tax Treaty, private
respondent cannot be deemed entitled to
the 10 percent rate granted under the
latter treaty for the reason that there is
Page 18 of 25

no payment of taxes on royalties under
similar circumstances.
Double taxation usually takes place when
a person is resident of a contracting state
and derives income from, or owns capital
in, the other contracting state and both
states impose tax on that income or
capital. In order to eliminate double
taxation, a tax treaty resorts to several
methods. First, it sets out the respective
rights to tax of the state of source or situs
and of the state of residence with regard
to certain classes of income or capital. In
some cases, an exclusive right to tax is
conferred on one of the contracting
states; however, for other items of income
or capital, both states are given the right
to tax, although the amount of tax that
may be imposed by the state of source is
limited. The second method for the
elimination of double taxation applies
whenever the state of source is given a
full or limited right to tax together with
the state of residence. In this case, the
treaties make it incumbent upon the state
of residence to allow relief in order to
avoid double taxation. There are two
methods of reliefthe exemption method
and the credit method. In the exemption
method, the income or capital which is
taxable in the state of source or situs is
exempted in the state of residence,
although in some instances it may be
taken into account in determining the
rate of tax applicable to the taxpayers
remaining income or capital. On the other
hand, in the credit method, although the
income or capital which is taxed in the
state of source is still taxable in the state
of residence, the tax paid in the former is
credited against the tax levied in the
latter. The basic difference between the
two methods is that in the exemption
method, the focus is on the income or
capital itself, whereas the credit method
focuses upon the tax.
Referential Syllabus:
Actions; Pleadings and Practice;
Appeals; Forum-Shopping; Circular No.
28-91 applies both to original actions
and to appeals.The circular expressly
requires that a certificate of non-forum
shopping should be attached to petitions
filed before this Court and the Court of
Appeals. Petitioners allegation that
Circular No. 28-91 applies only to
original actions and not to appeals as in
TAX1 Batch 1 | Cases 1-20
the instant case is not supported by the
text nor by the obvious intent of the
Circular which is to prevent multiple
petitions that will result in the same
issue being resolved by different courts.
Same; Same; Same; Same; Office
of the Solicitor General; Since the OSG is
the only lawyer for the Commissioner of
Internal Revenue, the certification
executed by the OSG constitutes
substantial compliance with Circular No.
28-91.Anent the requirement that the
party, not counsel, must certify under
oath that he has not commenced any
other action involving the same issues in
this Court or the Court of Appeals or any
other tribunal or agency, we are inclined
to accept petitioners submission that
since the OSG is the only lawyer for the
petitioner, which is a government
agency mandated under Section 35,
Chapter 12, title III, Book IV of the 1987
Administrative Code to be represented
only by the Solicitor General, the
certification executed by the OSG in this
case constitutes substantial compliance
with Circular No. 28-91.
Taxation; Tax Treaties; Double
Taxation; International Law; A cursory
reading of the various tax treaties will
show that there is no similarity in the
provisions on relief from or avoidance of
Page 19 of 25

double taxation as this is a matter of
negotiation between the contracting
parties.The above construction is
based principally on syntax or sentence
structure but fails to take into account
the purpose animating the treaty
provisions in point. To begin with, we are
not aware of any law or rule pertinent to
the payment of royalties, and none has
been brought to our attention, which
provides for the pay ment of royalties
under dissimilar circumstances. The tax
rates on royalties and the circumstances
of payment thereof are the same for all
the recipients of such royalties and there
is no disparity based on nationality in
the circumstances of such payment. On
the other hand, a cursory reading of the
various tax treaties will show that there
is no similarity in the provisions on relief
from or avoidance of double taxation as
this is a matter of negotiation between
the contracting parties. As will be shown
later, this dissimilarity is true
particularly in the treaties between the
Philippines and the United States and
between the Philippines and West
Germany.
Same; Same; Same; Same; Words
and Phrases; International juridical
double taxation is defined as the
imposition of comparable taxes in two or
more states on the same taxpayer in
respect of the same subject matter and
for identical periods; The apparent
rationale for doing away with double
taxation is to encourage the free flow of
goods and services and the movement
of capital, technology and persons
between countries, conditions deemed
vital in creating robust and dynamic
economies.The RP-US Tax Treaty is just
one of a number of bilateral treaties
which the Philippines has entered into
for the avoidance of double taxation.
The purpose of these international
agreements is to reconcile the national
fiscal legislations of the contracting
parties in order to help the taxpayer
avoid simultaneous taxation in two
different jurisdictions. More precisely,
the tax conventions are drafted with a
view towards the elimination of
international juridical double taxation,
which is defined as the imposition of
comparable taxes in two or more states
on the same taxpayer in respect of the
same subject matter and for identical
periods. The apparent rationale for
doing away with double taxation is to
encourage the free flow of goods and
services and the movement of capital,
technology and persons between
countries, conditions deemed vital in
creating robust and dynamic economies.
TAX1 Batch 1 | Cases 1-20
Foreign investments will only thrive in a
fairly predictable and reasonable
international investment climate and the
protection against double taxation is
crucial in creating such a climate.
Same; Same; Same; Same; Same;
Methods resorted to in eliminating
double taxation; Exemption and Credit
Methods, Explained.Double taxation
usually takes place when a person is
resident of a contracting state and
derives income from, or owns capital in,
the other contracting state and both
states impose tax on that income or
capital. In order to eliminate double
taxation, a tax treaty resorts to several
methods. First, it sets out the respective
rights to tax of the state of source or
situs and of the state of residence with
regard to certain classes of income or
capital. In some cases, an exclusive right
to tax is conferred on one of the
contracting states; however, for other
items of income or capital, both states
are given the right to tax, although the
amount of tax that may be imposed by
the state of source is limited. The
second method for the elimination of
double taxation applies whenever the
state of source is given a full or limited
right to tax together with the state of
residence. In this case, the treaties
Page 20 of 25

make it incumbent upon the state of
residence to allow relief in order to avoid
double taxation. There are two methods
of reliefthe exemption method and the
credit method. In the exemption
method, the income or capital which is
taxable in the state of source or situs is
exempted in the state of residence,
although in some instances it may be
taken into account in determining the
rate of tax applicable to the taxpayers
remaining income or capital. On the
other hand, in the credit method,
although the income or capital which is
taxed in the state of source is still
taxable in the state of residence, the tax
paid in the former is credited against the
tax levied in the latter. The basic
difference between the two methods is
that in the exemption method, the focus
is on the income or capital itself,
whereas the credit method focuses upon
the tax.
Same; Same; Same; Same; In
negotiating tax treaties, the underlying
rationale for reducing the tax rate is that
the Philippines will give up a part of the
tax in the expectation that the tax given
up for this particular investment is not
taxed by the other country.In
negotiating tax treaties, the underlying
rationale for reducing the tax rate is that
the Philippines will give up a part of the
tax in the expectation that the tax given
up for this particular investment is not
taxed by the other country. Thus the
petitioner correctly opined that the
phrase royalties paid under similar
circumstances in the most favored
nation clause of the US-RP Tax Treaty
necessarily contemplated
circumstances that are tax related.
Same; Same; Same; Same; Most
Favored Nation Clause; The concessional
tax rate of 10 percent provided for in the
RP-Germany Tax Treaty could not apply
to taxes imposed upon royalties in the
RP-US Tax Treaty since the two taxes
imposed under the two tax treaties are
not paid under similar circumstances,
they are not containing similar
provisions on tax crediting.Given the
purpose underlying tax treaties and the
rationale for the most favored nation
clause, the concessional tax rate of 10
percent provided for in the RP-Germany
Tax Treaty should apply only if the taxes
imposed upon royalties in the RP-US Tax
Treaty and in the RP-Germany Tax Treaty
are paid under similar circumstances.
This would mean that private
respondent must prove that the RP-US
Tax Treaty grants similar tax reliefs to
residents of the United States in respect
TAX1 Batch 1 | Cases 1-20
of the taxes imposable upon royalties
earned from sources within the
Philippines as those allowed to their
German counterparts under the RP-
Germany Tax Treaty. The RP-US and the
RP-West Germany Tax Treaties do not
contain similar provisions on tax
crediting. Article 24 of the RP-Germany
Tax Treaty, supra, expressly allows
crediting against German income and
corporation tax of 20% of the gross
amount of royalties paid under the law
of the Philippines. On the other hand,
Article 23 of the RP-US Tax Treaty, which
is the counterpart provision with respect
to relief for double taxation, does not
provide for similar crediting of 20% of
the gross amount of royalties paid.
Same; Same; Same; Same; Same;
Statutory Construction; Laws are not just
mere compositions, but have ends to be
achieved and that the general purpose
is a more important aid to the meaning
of a law than any rule which grammar
may lay down; A treaty shall be
interpreted in good faith in accordance
with the ordinary meaning to be given to
the terms of the treaty in their context
and in the light of its object and
purpose.The reason for construing the
phrase paid under similar
circumstances as used in Article 13 (2)
Page 21 of 25

(b) (iii) of the RP-US Tax Treaty as
referring to taxes is anchored upon a
logical reading of the text in the light of
the fundamental purpose of such treaty
which is to grant an incentive to the
foreign investor by lowering the tax and
at the same time crediting against the
domestic tax abroad a figure higher than
what was collected in the Philippines. In
one case, the Supreme Court pointed
out that laws are not just mere
compositions, but have ends to be
achieved and that the general purpose
is a more important aid to the meaning
of a law than any rule which grammar
may lay down. It is the duty of the
courts to look to the object to be
accomplished, the evils to be remedied,
or the purpose to be subserved, and
should give the law a reasonable or
liberal construction which will best
effectuate its purpose. The Vienna
Convention on the Law of Treaties states
that a treaty shall be interpreted in good
faith in accordance with the ordinary
meaning to be given to the terms of the
treaty in their context and in the light of
its object and purpose.
Same; Same; Same; Same; Same;
The purpose of a most favored nation
clause is to grant to the contracting
party treatment not less favorable than
that which has been or may be granted
to the most favored among other
countries.The purpose of a most
favored nation clause is to grant to the
contracting party treatment not less
favorable than that which has been or
may be granted to the most favored
among other countries. The most
favored nation clause is intended to
establish the principle of equality of
international treatment by providing that
the citizens or subjects of the
contracting nations may enjoy the
privileges accorded by either party to
those of the most favored nation. The
essence of the principle is to allow the
taxpayer in one state to avail of more
liberal provisions granted in another tax
treaty to which the country of residence
of such taxpayer is also a party provided
that the subject matter of taxation, in
this case royalty income, is the same as
that in the tax treaty under which the
taxpayer is liable. Both Article 13 of the
RP-US Tax Treaty and Article 12 (2) (b) of
the RP-West Germany Tax Treaty, above-
quoted, speaks of tax on royalties for
the use of trademark, patent, and
technology. The entitlement of the 10%
rate by U.S. firms despite the absence of
a matching credit (20% for royalties)
would derogate from the design behind
the most favored nation clause to grant
TAX1 Batch 1 | Cases 1-20
equality of international treatment since
the tax burden laid upon the income of
the investor is not the same in the two
countries. The similarity in the
circumstances of payment of taxes is a
condition for the enjoyment of most
favored nation treatment precisely to
underscore the need for equality of
treatment.
Same; Tax Refunds; Statutory
Construction; Tax refunds are in the
nature of tax exemptions, and as such
they are regarded as in derogation of
sovereign authority and to be construed
strictissimi juris against the person or
entity claiming the exemption.It bears
stress that tax refunds are in the nature
of tax exemptions. As such they are
regarded as in derogation of sovereign
authority and to be construed
strictissimi juris against the person or
entity claiming the exemption. The
burden of proof is upon him who claims
the exemption in his favor and he must
be able to justify his claim by the
clearest grant of organic or statute law.
Private respondent is claiming for a
refund of the alleged overpayment of
tax on royalties; however, there is
nothing on record to support a claim
that the tax on royalties under the RP-US
Tax Treaty is paid under similar
Page 22 of 25

circumstances as the tax on royalties
under the RP-West Germany Tax Treaty.
19.Delpher Trades Corp. vs IAC
157 scra 349 (1988) TITO
Facts:
Delfin Pachceco anf his sister are co-
owners of a real estate. They leased it to
Construction Components Intl., with the
terms that if the lessor decide to sell the
property leased shall first offer the same
to the lessee and the letter has the
priority to buy under similar conditions.
The lessee assigned its rights to Hydro
Pipes Phil Inc., with consent of the
lessors. In the meantime, the leased
property was transferred to the Delpher
Trades by virtue of deed of exchange of
property, that in the exchange of these
properties.
The contract of lease, as well as the
assignment of lease were annotated at the
back of the title, as per stipulation of the
parties
"On January 3, 1976, a deed of exchange
was executed between lessors Delfin and
Pelagia Pacheco and defendant Delpher
Trades Corporation whereby the former
conveyed to the latter the leased property
(TCT No. T-4240) together with another
parcel of land also located in Malinta
Estate, Valenzuela, Metro Manila (TCT No.
4273) for 2,500 shares of stock of
defendant corporation with a total value
of P1,500,000.00
On the ground that it was not given the
first option to buy the leased property
pursuant to the in the lease agreement,
respondent Hydro Pipes Philippines, Inc.,
filed a complaint for reconveyance of Lot.
No. 1095 in its favor under conditions
similar to those whereby Delpher Trades
Corporation acquired the property from
Pelagia Pacheco and Delphin Pacheco.
Issue:
WON Pachecos, as a Taxpayer has the to
resort legal means to decrease payment of
taxes
Held:
TAX1 Batch 1 | Cases 1-20
RIGHT CANNOT BE DOUBTED. The
records do not point to anything wrong or
objectionable about this "estate planning"
scheme resorted to by the Pachecos. "The
legal right of a taxpayer to decrease the
amount of what otherwise could be his
taxes or altogether avoid them, by means
which the law permits, cannot be doubted
The "Deed of Exchange" of property
between the Pachecos and Delpher Trades
Corporation cannot be considered a
contract of sale. There was no transfer of
actual ownership interests by the
Pachecos to a third party. The Pacheco
family merely changed their ownership
from one form to another. The ownership
remained in the same hands. Hence, the
private respondent has no basis for its
claim of a right of first refusal under the
lease contract.
20. Commissioner of Internal Revenue
vs. Estate of Benigno P. Toda, Jr.
-UNAS
FACTS:
The case at bar stemmed from a
Notice of Assessment sent to CIC by the
Commissioner of Internal Revenue for
deficiency income tax arising from an
Page 23 of 25

alleged simulated sale of a 16-storey
commercial building known as Cibeles
Building, situated on two parcels of land
on Ayala Avenue, Makati City. CIC
authorized Benigno P. Toda, Jr., President
and owner of 99.991% of its issued and
outstanding capital stock, to sell the
Cibeles Building and the two parcels of
land on which the building stands for an
amount of not less than P90 million.
Toda purportedly sold the property for
P100 million to Rafael A. Altonaga, who,
in turn, sold the same property on the
same day to Royal Match, Inc. (RMI) for
P200 million. For the sale of the property
to RMI, Altonaga paid capital gains tax in
the amount of P10 million. The Bureau of
Internal Revenue (BIR) sent an
assessment notice and demand letter to
the CIC for deficiency income tax for the
year 1989 in the amount of
P79,099,999.22.The Estate thereafter
filed a letter of protest. The Commissioner
dismissed the protest, stating that a
fraudulent scheme was deliberately
perpetuated by the CIC wholly owned and
controlled by Toda by covering up the
additional gain of P100 million, which
resulted in the change in the income
structure of the proceeds of the sale of
the two parcels of land and the building
thereon to an individual capital gains,
thus evading the higher corporate income
tax rate of 35%. The Court of Appeals
affirmed the decision of the Court of Tax
Appeals (CTA) which held that the
respondent Estate of Benigno P. Toda, Jr.
is not liable for the deficiency income tax
of Cibeles Insurance Corporation (CIC).
ISSUE:
Whether or not the tax planning
scheme adopted by the corporation
constitutes tax evasion.
HELD:
Yes. Tax avoidance and tax evasion
are the two most common ways used by
taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within
the means sanctioned by law. This
method should be used by the taxpayer in
good faith and at arms length. Tax
evasion, on the other hand, is a scheme
used outside of those lawful means and
when availed of, it usually subjects the
taxpayer to further or additional civil or
criminal liabilities. Tax evasion connotes
the integration of three factors:
(1) the end to be achieved, i.e., the
payment of less than that known by the
TAX1 Batch 1 | Cases 1-20
taxpayer to be legally due, or the non-
payment of tax when it is shown that a
tax is due;
(2) an accompanying state of mind which
is described as being evil, in bad faith,
willfull, or deliberate and not
accidental; and
(3) a course of action or failure of action
which is unlawful.
All these factors are present in the
instant case. The data in the trial balance
would show that the real buyer of the
properties was RMI, and not the
intermediary Altonaga. The scheme
resorted to by CIC in making it appear
that there were two sales of the subject
properties cannot be considered a
legitimate tax planning. Such scheme is
tainted with fraud. Here, it is obvious
that the objective of the sale to Altonaga
was to reduce the amount of tax to be
paid especially that the transfer from him
to RMI would then subject the income to
only 5% individual capital gains tax, and
not the 35% corporate income tax. The
Court ordered the Estate of Benigno P.
Toda, Jr. to pay P79,099,999.22 as
deficiency income tax of Cibeles
Insurance Corporation.
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TAX1 Batch 1 | Cases 1-20

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