Tax Case Doctrines

CIR vs Estate of Toda (CorpoPerson Corpo Tax evasion case)

 If a corporation sells a property to a person first and then to a corporation, is it tax

evasion?
Only if done so for the purpose of tax evasion.

Tax evasion elements:

1. The end to be achieved (pay less)
2. Bad faith
3. Unlawful act or ommission (Fraud usually)

Evidence of purpose/Badges of fraud:

1. The two sales made in one day
2. The sale from Person to Corpo2 was notarized on an earlier date
3. Corpo1 receive a substantial amount of money earlier from Corpo2 as “investment” in
the sold property

“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. Altonaga’s sole purpose of
acquiring and transferring title of the subject properties on the same day was to create a tax
shelter. Altonaga never controlled the property and did not enjoy the normal benefits and
burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business
purpose and economic substance. Doubtless, the execution of the two sales was calculated to
mislead the BIR with the end in view of reducing the consequent income tax liability.”

Remedy:
Disregard the sale from the Corpo to the person and treat it as a Corpo Corpo sale.

Generally, a sale of or exchange of assets will have an income tax incidence only when it is
consummated but such tax incidence depends upon the substance of the transaction rather
them mere formalities.
“To permit the true nature of the transaction to be disguised by mere formalisms, which exist
solely to alter tax liabilities, would seriously impair the effective administration of the tax
policies of Congress.”

Ungab vs Cusi (Banana sapling producer case)

 Is the finality of a tax assessment protest indispensable in filing a criminal case of tax
evasion?
No. They are separate cases.
Assessment case= determine fact of overpayed/underpaid tax
Tax evasion case= determine fact of intent to defeat and evade the income tax

Here, the crime was complete when the violator willfuly filed fraudulent returns with the
intent to evade taxes. It is not necessary to prove that he was successful in doing so.

Caltex Philippines Inc. vs COA (Oil Price Stabilisation fund case)

 Can taxes be offset by the taxpayer’s claims against the government?

No. Taxes cannot be subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other. A claim for taxes is not such adebt, demand,
contract or judgment as is allowed to be set-off.

Requisite of compensation/set-off:
1. Both parties must be mutually creditors and debtors in their own right and as principals
2. Both debts must consist in sum of money or if consumable, of the same kind or quality
3. Both debts are due
4. Both debts are liquidated and demandable
5. Neither debt must be retained in a controversy commenced by third person and
communicated with debtor (neither debt is garnished)
6. Compensation must not be prohibited by law.

 Is the oil price stabilisation fund a form of tax?

Yes. Though it may not be for revenue generation, its purpose is regulatory. Its purpose is also
for the general public as the oil industry is greatly imbued with public interest.
Manila Electric vs Province of Laguna

 Does a franchise tax imposed under an Ordinance violate the non-impairment clause?
No. There is no violation of the non-impairment clause. Franchise Taxes are beyond the purview
of the clause for it is not within contractual tax exemptions. In fact, The LGC expressly repeals
laws which are inconsistent with it.

An example of impairment by law is when a tax exemption based on a contract is revoked by

a later taxing statute. But exemption from taxation provided for in a franchise, although in a
sense is an exemption based on a contract, may be revoked because under the Constitution, a
franchise is “subject to amendment, alteration, or repeal” by Congress. (Sec.11, Art. XII.)

RULES:
1) If the exemption was granted for valuable consideration and it is granted on the basis of a
contract.
cannot be revoked
2) If the exemption is granted by virtue of a contract, wherein the government enters into a
contract with a private corporation
 cannot be revoked unilaterally by the government
3) If the basis of the tax exemption is a franchise granted by Congress and under the franchise
or the tax exemption is given to a particular holder or person
can be unilaterally revoked by the government (Congress)
· > The non-impairment clause applies only to contracts and not to a franchise.
· > The non-impairment clause applies to taxation but not to police power and eminent domain.

Furthermore, it applies only where one party is the government and the other, a private
individual.
· > As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer enters
into a compromise with the BIR, the obligation of the taxpayer becomes one based on contract.
Sison vs Ancheta
 Is it valid to impose a higher tax rate to incomes of professionals compared to those
who earn compensation income?

Taxation may be invalid due to 2 constitutional violations:

1. Due process
2. Equal protection

Due process violations:

1. Arbitrariness
2. So high amounting to confiscation of property
3. the tax is beyond the jurisdiction of the State
4. it is not for a public purpose
5. If its retroactive effect is so harsh and unreasonable
None is present in this case

Equal protection violations:

1. Tax’ purpose is hostility against the taxpayer
2. Unreasonable discrimination

Here, there is reasonable discrimination as incomes of professionals and compensation incomes

are of different classes.

Professionals- are entitled to deduct expenses for purposes of tax deductions as they have
varying overhead expenses and little to no cost necessary for them to produce their income
(based on profession, not sale of goods)

Compensation income of employees are also entitle to deduct expenses but the problem is they
have no overhead expenses or selling expenses. So they basically deduct nothing.

Which is why Professionals should apply the net income tax system (higher rates )= Tax
computed after deductions.

And those earning compensation income apply the gross income tax system (lower rates)=tax
computed before deductions.
British American Tobacco vs Camacho

 Who has jurisdiction over the questions of constitutionality of tax laws?

The Regular Courts. RTC and SC.
The CTA’s jurisdiction in RA 1125 is to resolve tax disputes in general, not including resolving
the constitutionality of tax laws.

 How would you know if a classification is constitutional?

Using the Rational Basis Test:
(1) it rests on substantial distinctions
(2) it is germane to the purpose of the law
(3) it applies, all things being equal, to both present and future conditions
(4) it applies equally to all those belonging to the same class.

City of Pasig vs RP

 Are properties owned by the government subject to real property taxes?

Only those portions of the properties leased to taxable entities are subject to real estate taxes
for the period of such leases a. They may also be sold at public auctions to satisfy the tax
delinquency.
LGC: the exemption will not apply “when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.”

Iloilo City Bottlers vs Iloilo

 Is the base of operations the basis for the Situs (place) of taxation?
No. In this case, it can also be the place of distribution. Even if the Iloilo Bottlers plant moved to
Pavia, it still sold its drinks in Iloilo City. Tax is on the privilege of selling the drinks in Iloilo.

Factors in determining Situs of Taxation

1. Subject Matter
2. Nature of the tax
3. Citizenship of a tax payer
4. Residence of a tax payer
Rules in determining:
1. Persons- residence of the taxpayer because personal
2. Real property or tangible peronal property-location of property
3. Intangible personal property- location of owner
4. Income- Residence, citizenship, or place where income was earned
5. Business, occupation, transaction- Place of operation of business, practice of
occupation, and completion of transaction
6. Gratuitous transfer of property- Residence, Citizenship, or location of property

MIAA vs CA

 Can you tax GOCCs?

Yes. However, the MIAA is not a GOCC but an instrumentality. How? It is not organized as a
stock or non-stock corporation and the land is for public use.

Stock: Has to be divided into shares

Non-stock: Has to have members

 Can local government tax government instrumentalities?

No. Further, when local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments and liberally in
favor of instrumentalities (opposite of rule on tax payer exemptions)

Swedish Match Phil vs City Treasurer of Manila

 How do you determine if there is double taxation?

1. Same Subject Matter
2. Same Purpose
3. Same Authority (taxing)
4. Same Jurisdiction
5. Same Periods (taxing)
6. Same Character
Villanueva vs City of Iloilo

 Is there double taxation if the taxpayer is taxed under both the National Government
and the Local Government?

No. They are not the same Authority

 Is there double taxation if the taxpayer is subject to both Real Estate Tax and
Tenement Tax?
No. They are not the same character and purpose.
Real estate= taxed for the value of the property
Tenement= taxed for the license of operating tenement houses

Note:
At all events, there is no constitutional prohibition against double taxation in the Philippines. It
is something not favored, but is permissible, provided some other constitutional requirement is
not thereby violated, such as the requirement that taxes must be uniform.

Meralco Securities Corp vs Savellano

 Can you compel the Commissioner of Internal Revenue to impose a tax assessment?
No. The functions of the Commissioner in deciding whether or not a deficiency income tax
exists is discretionary and canot be compelled by Mandamus.

Note:
No informer’s reward can be granted if there is no collection of taxes

Asia International Auctioneers Inc. vs Parayno

 Can you question Revenue Memorandum Circulars as unconstitutional and therefore

can be filed in the regular courts?
No. RMCs are opinions or rulings of the CIR on the interpretation or implementation of the law.
Hence, you are not questioning the law. Instead, you are questioning the ruling of the CIR. So
go to CTA.
Hydro Resources vs CA

 Can a Law impose tax on a contract that ws perfected before its effectivity?
No. Tax laws should have no retroactive effect, except if provided in the law itself.

Further, the true date of the sale should be computed as the date of the perfection of the
contract.

Republic vs Mambulao

 Can taxes be off-set by set-off or compensation?

No. Taxes are not in the nature of contracts between the parties but grow out of a duty to, and
are the positive acts of the government, to the making and enforcing of which, the personal
consent of individual taxpayers is not required.

ADE= Actual, Direct, Exclusive

CIR vs Cebu Protland Cement and CTA= Payment of taxes cannot be forestalled by a pending
case

CIR vs Estate of Toda= Tax evasion elements

Ungab vs Cusi= a criminal case can continue without the finality of the tax assessment case

British American Tobacco vs Camacho= Rational Basis Test (SD, P, PandF, E)

LGC= if government land used by a private person, may be taxed