SYLLABUS IN TAXATION | (REVISED SY 2015-2016) GENERAL PRINCIPLES & INCOME TAXATION BY: ATTY. VICENTE VILLA CANONEO A. General Principles of Taxation 1. Conceptt, Underlying Basis* and Purpose Taxation, Taxes Defined Aitibutes or Characteristics of Taxes Cebu Portland Cement v. CTA, L-29089, 15 Dec 1987, 156 SCRA 835 (Lifeblood of the Government) Mur. of Makati. CA, ea, GR No, 89888, 01 Oct 1990, 120 SCRA 206 Exempt from execution) [Ix > CIR v. Algue, Inc, et al, L-28896, 17 Feb 1886, 158 SCRA 9 (ifeblood theory; Rationale is Symbiotic 2) Relationship; timeliness of assessmentiollection; effect of warrant of distraint & levy; deductibility of Promotional exper BP! Family Savings Bank v. CA, et al, 330 SCRA 507, 12 Apr 2000 (Mutual observance of faimess & honesty; claim for refund due to losses, how to prove entitlement} 2. Principles of a Sound Tax System Fiscal Adequacy Theoretical Justice ‘Administrative Feastity Wil the observance of these principles invalidate the tax law? No, uniess other inherent and constitutional limitations are infinged. 3. Scope of Taxation ks vied No trout of sovereignty more pervaing; unlimited, plenary, comprehensive and supreme Wide spectrum of the power to tax reaches every trade, or occupation, every object of industry, use or enjoyment, every species of possession Imposes burden, inat followed could resut to seizure and penalty Pervasive affecting constantly and consistent al relations of life Itls0 involves the power to destroy per Justice Marshall | but Justice Holmes said no while the US SC sits] CIR v Tokyo Shipping Co. 244 SCRA 332, 26 May 1895 [Claim for refund of tax on GPB from charter of (2) vessel; claim for refund construed stctissim juris finding of fact by CTA that vesse! left without sugar laden; ra) " What is the concept of taxation? It can be viewed in two ways, namely: (a) as a power to tax and (b) as the act or process by which taxing power is exercised. 2 What is the ‘theory or underlying basis of taxation? It is a necessity without which no government could exist; revenues collected are intended to finance government and its activities, It can reach what traditionally are within police power measures to attain: i Social justice Equitable distribution of wealth Economic progress iti, iv. Protection of local industries, public welfare and the like The substantive issue here is the deductibility of P75,000 promotional fees pai i 2 The i x paid by Algue to certain individuals who were also its stockholders and who rendered services so nae ae would eam commission fees. The procedural issue whether or not Algue seasonably filed its appeal to the CTA from receipt of Warrant of Distraint and Levy. Due toa special circumstance, this case presents an exception to the rl that a warrant of distant and levy is “proof ofthe finality ofthe assessment and renders hopeless 8 request for reconsideration," being "tantamount to an outright denial thereof and makes the said request seine ight denial thereof and makes the said This isa claim for tax refund due to losses, which was denied by the CTA allegedly for failure to present the Annual Income Tax Return ofthe fllowing year which would show whether the overpaid texee been credited v that year’s tax lability, tal eS pee ia 116 years lapsed without refund though af one point lawyer of BIR said it was approved; kil the goose that lay the golden eggs} 4. Limitation of Taxation Inherent Limitations Public purpose Legislative in nature Territorial International Comity CIR v Mitsubishi Metal Corp, 181 SCRA 214, Jan 22, 1990 (Exemption of Japanese govt owned bank (& {does not extend to Jap corp who in tum lent the loan to a local company; exemption construed stitissimi) Exemption of government from tax Constitutional Directly affecting taxation ‘non-imprisonment for non payment of pol tax ‘ule of taxation should be uniform and equitable; progressive system taxation to evolve authorized President to fix limits by Congress exempt charitable and religious institution from property tax ‘exempting law must be passed by majoiy ofthe all members of Congress ‘special purpose tax should be used for said purpose and excess to revert fo general fund veto power of the president review power of the SC grant of power to local government ‘exemption non-stock non-profit educational institution, etc from taxes Indirectly affecting taxation Due Process and Equal Protection Clauses police power and eminent domain higher can override constitutional rights, subject to limitations Distinguish Taxation from Police Power and Eminent Domain Taxation is subordinate to a, Due process b. Separation of church and state ‘c._Non-impairment clause of contracts 4. Free exercise and enjoyment of religious profession Cases: Phil Bank of Communications v. CIR, et al, 302 SCRA 241, 28 Jan 1999 (Summary collection does not infinge due process) [5] x Sison v. Ancheta, GR 59431, 25 Jul 1984, 130 SCRA 654 (Uniformity, Equal Protection and Due Process Clauses not violated when BP 135 adopted gross income taxation) {when the tax “operates with the same force and effec in every place where the subject may be found* It was held to comply with uniformity requirement; “Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate.) Reyes v. Almanzor, 196 SCRA 322 (Arbitrary valuation violated Due Process){7] x Nitafan et.al. v CIR, GR No. 78780, Jul 23, 1987 (Salaries of justices & judges are nat exempt from income tax) PAL v. Sec of Finance, GR 115852, Aug 25, 1994 (Withdrawal of PAL's exemption fom VAT without being ‘mentioned in tite not violative of bill embracing one subject) Tolentino v. Sec of Finance & CIR, GR 11545, 65 SCAD 352, 235 SCRA 630 (Does VAT law violate the *progressivity rule of taxation” given that VAT is regressive?; equality & uniformity rule?) ABAKADA Guro v. Exec Secretary, 469 SCRA 1, etc., Sep 1, 2005 & Oct 18, 2005 Aspects of Taxation Lew CIR v Botello Shipping Corp 20 SCRA 487(8] x @ @ @ ®oTan v Del Rosario, Jr, 237 SCRA 324 (1994°) [Legislative discretion to determine nature (kind), object (purpose), extent (rate), coverage (subject), and situs (place) SNITS is valid; Assessment & collection Payment 6. Classification of Taxes According to subject matter (Capitation Tax, Property Tax, Excise Tax) According to burden or incidence (Director Indirect) a Maceda v Macaraeg 223 SCRA 217[10] x —_—— a ABAKADA Guto v. Exec Seoretary, GR 168056, etc, Sep 1, 2005 & Oct 18, 2005 ‘According to determination of amount (Ad Valorem, Specific) Tan v Mun of Pagbilao, GRL-14264, Apr 30, 1963, 7 SCRA 887 ‘According to purpose (General, Special) PAL v Romeo Edu, GR 41383, 15 Aug 1988, 164 SCRA 320 (exempt from taxes)t12]x ESSO Std Eastern v CIR GR 28508-9, 7 Jul 1989, 175 SCRA 149 (Margin fee 2 license ~ police power, not taxing)(13] x Lozano v. Energy Regulatory Board, GR 96119-21, 18 Dec 1990, 192 SCRA 363 (OPSF nota tax)[14] x ‘According to authority imposing the tax (National, Local) Meralco Secures v Central Board of Assessment Appeals, L-46245, 31 May 1982, 114 SCRA 260 (Real Property under Real Property Tax Code a national fax; This is no longer true under the Local Government Code, According o gradation (lx basettax rate) ~ (Progressive, regressive, ec) 7. Distinguished from other exactions License Procter &Gamble vs, Mun of Jagna, 94 SCRA 894 (nature and amount of license) — oo ery Golden Ribbon Lumber v City of Butuan, 12 SCRA 611 (non payment is illegal) Tol Gity of Ozamiz v Lumapas, 65 SCRA 33{18] x ‘Special Assessments (Now Special levy under the Local Government Code) Apostolic Prefect v. Treasurer of Baguio, 71 Phil 547 Debt or an ordinary obligation Victoria Milling v. Phil Ports Authority, GR 73705, 27 Aug 1987, 153 SCRA 317 (share of govt from earnings of arrastre and stevedoring from contractual compensation not tax) [19] x CIR v Prieto, 109 Phil §92[20] x 8. Interpretation and Construction of Tax Statutes How are tax laws interpreted or construed? . Rules of statutory construction are applied, lecislatve intents primordial ¢. Incase of doubt, construed in favor of taxpayer 4. But for exemptions, construed agains taxpayer i. Except when it apples to government ‘Special class of subjects under special conditions ll, When the law says so Cases CIR V CA, Central Vegetable Mig Co. & CTA GR 107135, 23 Feb 1999(21]x Luzon Stevedoring v CTA, GR 30252, 29 Jul 1988, 163 SCRA 647[22] x CIR v Gotamco & Sons, GR 31092, 27 Feb 1987, 148 SCRA 26[23] x CIRCA, CTA and Ateneo de Manila, GR 115349, 18 Apr 1997, 271 SCRA 605{24] x How are the rules applied? Apply fist the doctrine that imposition is a burden thus construed strc vs. govt, then if applicable the burden shifts to taxpayer to prove he is exempt. 8. Classifications of Exemptions Express iv. Sec 30 of NIRC @ 5 Tan v. Del Rosario, 237 SCRA 324 (1994) ~ This is challenge tothe validity of Simplified Net Income Taxation applied to general professional partnerships; uniformity of taxation merely requires that all subjects or objects of taxation similarly are to be treated alike both in privileges and liabilities, 3