I.

General Principles of Taxation

there is
1. Definition and concept of taxation restraint on the
 Taxation is the inherent power of the sovereign exercised through the legislature to impose burdens upon injurious use of
subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate property
objects of government. It is the mode of raising revenue for public purposes.
 It is the power by which the sovereign raises revenue to defray the expenses of government. It is a way of Benefits It is assumed that the He receives the The person
apportioning the cost of government among those who in some measure are privileged to enjoy its benefits received individual receives the market value of the affected receives
and must bear its burden.
equivalent of the tax in property taken from indirect benefits
2. Nature and characteristics of taxation the form of protection him as may arise
 The nature of the power of taxation is two-fold. It is both an inherent power and a legislative power. and benefits he from the
 An inherent power – The power of taxation is inherent in the State, being an attribute of sovereignty. The receives from the maintenance of a
power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no government healthy economic
limits, so that security against abuse is to be found only in the responsibility of the legislature which standard of
imposes the tax on the constituency who are to pay it This is so because the very existence of the State is society
dependent on taxes.
 Legislative in character – The power of taxation is essentially a legislative function. Taxation is an attribute Amount of Generally, there is no No amount imposed Amount imposed
of sovereignty. It is the strongest of all powers of the government. There is a presumption in favor of
imposition limit on the amount of but rather the owner should not be
legislative determination. Public policy decrees that since upon the prompt collection of revenue depends
the very existence of government itself, whatever determination shall be arrived at by the legislature tax that may be is paid the market more than
should not be interfered with, unless there be a clear violation of some constitutional inhibition. It is a imposed value of property sufficient to cover
legislative power because it involves the promulgation of rules. The Constitution has allocated to the taken license and
legislative department the enactment of law. necessary
expenses
3. Power of taxation as distinguished from Police Power and Power of Eminent Domain
Relationshi Subject to certain Inferior to the Relatively free
p to constitutional impairment of from
TAXATION EMINENT DOMAIN POLICE POWER
Constitutio limitations; including the obligations of constitutional
n impairment of obligation contracts limitations; it is
Authority Only by the government May be exercised Only by
of contracts prohibition; superior to the
who or its political by government
government cannot impairment of
exercises subdivisions (1) government or or its political
expropriate property contract
the power political subdivisions
which under a provision
subdivisions OR (2)
contract it had
granted to public
previously bound
utilities
itself to purchase
Purpose The property is taken The property is The use of the
for the support of the taken for public use property is Relevant Jurisprudence
government and must be regulated for
compensated promoting the Romeo Gerochi vs. DOE, GR No. 159796, July 17, 2007
general welfare
and is not FACTS: Congress enacted the EPIRA on June 8, 2001; on June 26, 2001, it took effect. On April 5, 2002,
compensable respondent National Power Corporation-Strategic Power Utilities Group (NPC-SPUG) filed with respondent ERC a
petition for the availment from the Universal Charge of its share for Missionary Electrification. On May 7, 2002, NPC
Persons Operates on a Operates on an Operates on a filed another petition with ERC praying that the proposed share from the Universal Charge for the Environmental
charge of P0.0025/kWh, or a total of P119,488,847.59, be approved for withdrawal from the Special Trust Fund
affected community or class of individual as owner community or
(STF) managed by respondent Power Sector Assets and Liabilities Management Group (PSALM) for the
individuals of a particular class of rehabilitation and management of watershed areas.
property individuals
On December 20, 2002, the ERC issued an Order provisionally approving the computed amount of P0.0168/kWh as
Effect The money contributed There is a transfer There is no the share of the NPC-SPUG from the Universal Charge for Missionary Electrification and authorizing the National
becomes part of the of transfer of Transmission Corporation (TRANSCO) and Distribution Utilities to collect the same from its end-users on a monthly
public funds the right to property title. At most, basis. On June 26, 2003, the ERC rendered its Decision modifying its Order of December 20, 2002 to the effect that
an additional amount of P0.0205 per kilowatt-hour should be added to the P0.0168/kWh. Accordingly, a total amount
of P0.0373/kWh is approved for withdrawal from the STF managed by PSALM as its share from the Universal
Charge for Missionary Electrification (UC-ME) effective on the following billing cycles: (a) June 26-July 25, 2003 for
TRANSCO; and (b) July 2003 for Distribution Utilities (Dus).
TRANSCO and Dus are directed to collect the UC-ME in the amount of P0.0373/kWh and remit the same to PSALM
on or before the 15th day of the succeeding month. In the meantime, NPC-SPUG is directed to submit, not later than
April 30, 2004, a detailed report to include Audited Financial Statements and physical status (percentage of
completion) of the projects using the prescribed format.
On August 13, 2003, NPC-SPUG filed an MR asking the ERC to set aside the Decision which the ERC granted.
Thus, the NPC-SPUG is directed to submit a quarterly report on the following:
1. Projects for CY 2002 undertaken;
2. Location
3. Actual amount utilized to complete the project;
4. Period of completion;
5. Start of Operation; and
6. Explanation of the reallocation of UC-ME funds, if any.
Meanwhile, on April 2, 2003, ERC authorized NPC to draw up to P70M from PSALM for its 2003 Watershed
Rehabilitation Budget subject to the availability of funds for the Environmental Fund component of the Universal
Charge. On the basis of the said ERC decisions, respondent Panay Electric Company, Inc. (PECO) charged
petitioner Romeo Gerochi and all other end-users with the Universal Charge as reflected in their respective electric
bills starting from the month of July 2003.
Petitioners contention: Sec, 34 of RA 9136 & Rule 18 of its IRR are unconstitutional for the ff reasons:
1) The universal charge provided for under the EPIRA and sought to be implemented under its IRR is a tax which is
to be collected from all electric end-users and self-generating entities. The power to tax is strictly a legislative
function and as such, the delegation of said power to any executive or administrative agency like the ERC is
unconstitutional, giving the same unlimited authority. The provision clearly provides that the Universal Charge is to
be determined, fixed and approved by the ERC, hence leaving to the latter complete discretionary legislative
authority.
2) The ERC is also empowered to approve and determine where the funds collected should be used.
3) The imposition of the Universal Charge on all end-users is oppressive and confiscatory and amounts to taxation
without representation as the consumers were not given a chance to be heard and represented.
Respondent’s contention: PSALM through the Office of the Government Corporate Counsel (OGCC) contends that
unlike a tax which is imposed to provide income for public purposes, such as support of the government,
administration of the law, or payment of public expenses, the assailed Universal Charge is levied for a specific
regulatory purpose, which is to ensure the viability of the country's electric power industry. Thus, it is exacted by the
State in the exercise of its inherent police power. On this premise, PSALM submits that there is no undue delegation
of legislative power to the ERC since the latter merely exercises a limited authority or discretion as to the execution
and implementation of the provisions of the EPIRA. Respondents Department of Energy (DOE), ERC, and NPC
share the same view that the Universal Charge is not a tax because it is levied for a specific regulatory purpose.
ISSUE: WON the imposition of the Universal Charge under Sec. 34 of the EPIRA is an merely an exercise of the
power of taxation
HELD: No. It is an exercise of the State’s police power.
RATIO: 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. On the other hand, police
power is the power of the state to promote public welfare by restraining and regulating the use of liberty and
property. It is the most pervasive, the least limitable, and the most demanding of the three fundamental powers of the
State.
The conservative and pivotal distinction between these two powers rests in the purpose for which the charge is
made. If generation of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax;
but if regulation is the primary purpose, the fact that revenue is incidentally raised does not make the imposition a
tax.
In exacting the assailed Universal Charge through Sec. 34 of the EPIRA, the State's police power, particularly its
regulatory dimension, is invoked. Such can be deduced from Sec. 34 which enumerates the purposes for which the
Universal Charge is imposed and which can be amply discerned as regulatory in character. The EPIRA resonates
such regulatory purposes, thus:
(a) To ensure and accelerate the total electrification of the country; (b) To ensure the quality, reliability, security and
affordability of the supply of electric power; (c) To ensure transparent and reasonable prices of electricity in a regime
of free and fair competition and full public accountability to achieve greater operational and economic efficiency and
enhance the competitiveness of Philippine products in the global market; (d) To enhance the inflow of private capital
and broaden the ownership base of the power generation, transmission and distribution sectors; (e) To ensure fair
and non-discriminatory treatment of public and private sector entities in the process of restructuring the electric
power industry; (f) To protect the public interest as it is affected by the rates and services of electric utilities and other
providers of electric power; (g) To assure socially and environmentally compatible energy sources and infrastructure;
(h) To promote the utilization of indigenous and new and renewable energy resources in power generation in order to
reduce dependence on imported energy; (i) To provide for an orderly and transparent privatization of the assets and
liabilities of the National Power Corporation (NPC); (j) To establish a strong and purely independent regulatory body
and system to ensure consumer protection and enhance the competitive operation of the electricity market; and (k)
To encourage the efficient use of energy and other modalities of demand side management.
From the aforementioned purposes, it can be gleaned that the assailed Universal Charge is not a tax, but an
exaction in the exercise of the State's police power. Public welfare is surely promoted.
Moreover, it is a well-established doctrine that the taxing power may be used as an implement of police power.
Evidently, the establishment and maintenance of the STF, under the last paragraph of Section 34, RA 9136, is well
within the pervasive and non-waivable power and responsibility of the government to secure the physical and
economic survival and well-being of the community, that comprehensive sovereign authority we designate as the
police power of the State. This feature of the Universal Charge further boosts the position that the same is an
exaction imposed primarily in pursuit of the State's police objectives. The STF reasonably serves and assures the
attainment and perpetuity of the purposes for which the Universal Charge is imposed, i.e., to ensure the viability of
the country's electric power industry.
WHEREFORE, the instant case is hereby DISMISSED for lack of merit.
Carlos Superdrug v. DSWD, GR No. 166494, June 29, 2007
PARTIES: Petitioners are domestic corporations and proprietors operating drugstores in the Philippines. Public
respondents include the DSWD, DOH, DOF, DOJ, and DILG which have been specifically tasked to monitor the
drugstores' compliance with the law; promulgate the implementing rules and regulations for the effective
implementation of the law; and prosecute and revoke the licenses of erring drugstore establishments.
FACTS: On February 26, 2004, RA 9257 was signed into law by PGMA and it became effective on March 21, 2004.
Section 4 (a) of the Act granting senior citizens the following:
(a) twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and similar
lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the
exclusive use or enjoyment of senior citizens, including funeral and burial services for the death of senior citizens;
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost
of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from
gross income for the same taxable year that the discount is granted. Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code,
as amended.
On May 28, 2004, the DSWD approved and adopted the IRR of R.A. No. 9257, Rule VI, Article 8 of which states:
The establishment may claim the discounts granted under Rule V, Section 4 — Discounts for Establishments;
Section 9, Medical and Dental Services in Private Facilities[,] and Sections 10 and 11 — Air, Sea and Land
 Transportation as tax deduction based on the net cost of the goods sold or services rendered. Provided, That the ———— ————
cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is Net Taxable Income xxxxx xxxxx
granted; Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, Tax Due xxx xxx
shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to Less: Tax Credit -- xx
the provisions of the National Internal Revenue Code, as amended; Provided, finally, that the implementation of the
tax deduction shall be subject to the Revenue Regulations to be issued by the BIR and approved by the DOF ————

in reference to the query of the Drug Stores Association of the Philippines (DSAP) concerning the meaning of a tax Net Tax Due -- xx
deduction under the Expanded Senior Citizens Act, the DOF clarified as follows: As shown above, under a tax deduction scheme, the tax deduction on discounts was subtracted from Net Sales
1) The difference between the Tax Credit (under the Old Senior Citizens Act) and Tax Deduction (under the together with other deductions which are considered as operating expenses before the Tax Due was computed
Expanded Senior Citizens Act). based on the Net Taxable Income. On the other hand, under a tax credit scheme, the amount of discounts which is
the tax credit item, was deducted directly from the tax due amount.
1.1. The provision of Section 4 of RA. 7432 (the old Senior Citizens Act) grants 20% discount from all establishments
relative to the utilization of transportation services, hotels and similar lodging establishment, restaurants and On October 1, 2004, AO 171 or the Policies and Guidelines to Implement the Relevant Provisions of RA 9257 was
recreation centers and purchase of medicines anywhere in the country, the costs of which may be claimed by the issued by the DOH, providing the grant of twenty percent (20%) discount in the purchase of unbranded generic
private establishments concerned as tax credit. medicines from all establishments dispensing medicines for the exclusive use of the senior citizens. On November
12, 2004, the DOH issued AO 177 amending AO 171. Under AO 177, the twenty percent discount shall not be
Effectively, a tax credit is a peso-for-peso deduction from a taxpayer's tax liability due to the government of the limited to the purchase of unbranded generic medicines only, but shall extend to both prescription and non-
amount of discounts such establishment has granted to a senior citizen. The establishment recovers the full amount prescription medicines whether branded or generic.
of discount given to a senior citizen and hence, the government shoulders 100% of the discounts granted.
Petitioner’s contention: Sec. 4 (a) of the Expanded Senior Citizens Act is unconstitutional based on the following:
It must be noted, however, that conceptually, a tax credit scheme under the Philippine tax system, necessitates that 1) The law is confiscatory because it infringes Art. III, Sec. 9 of the Constitution which provides that private property
prior payments of taxes have been made and the taxpayer is attempting to recover this tax payment from his/her shall not be taken for public use without just compensation;
income tax due. The tax credit scheme under R.A. No. 7432 is, therefore, inapplicable since no tax payments have 2) It violates the equal protection clause (Art. III, Sec. 1) enshrined in our Constitution which states that "no person
previously occurred. shall be deprived of life, liberty or property without due process of law, nor shall any person be denied of the equal
protection of the laws;" and
1.2. The provision under RA 9257, on the other hand, provides that the establishment concerned may claim the 3) The 20% discount on medicines violates the constitutional guarantee in Article XIII, Section 11 that makes
discounts under Section 4 (a), (f), (g) and (h) as tax deduction from gross income, based on the net cost of "essential goods, health and other social services available to all people at affordable cost." 14
goods sold or services rendered.
Petitioners assert that Section 4 (a) of the law is unconstitutional because it constitutes deprivation of private
Under this scheme, the establishment concerned is allowed to deduct from gross income, in computing for its tax property. Compelling drugstore owners and establishments to grant the discount will result in a loss of profit and
liability, the amount of discounts granted to senior citizens. Effectively, the government loses in terms of foregone capital because 1) drugstores impose a mark-up of only 5% to 10% on branded medicines; and 2) the law failed to
revenues an amount equivalent to the marginal tax rate the said establishment is liable to pay the government. This provide a scheme whereby drugstores will be justly compensated for the discount.
will be an amount equivalent to 32% of the twenty percent (20%) discounts so granted. The establishment shoulders
the remaining portion of the granted discounts. ISSUE: WON the State, in promoting the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program as a valid exercise of its police power
It may be necessary to note that while the burden on [the] government is slightly diminished in terms of its
percentage share on the discounts granted to senior citizens, the number of potential establishments that may claim
tax deductions, have however, been broadened. Aside from the establishments that may claim tax credits under the HELD: Yes. The Senior Citizens Act was enacted primarily to maximize the contribution of senior citizens to nation-
old law, more establishments were added under the new law such as: establishments providing medical and dental building, and to grant benefits and privileges to them for their improvement and well-being as the State considers
services, diagnostic and laboratory services, including professional fees of attending doctors in all private hospitals them an integral part of our society.
and medical facilities, operators of domestic air and sea transport services, public railways and skyways and bus
transport services. The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare
for its object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to
A simple illustration might help amplify the points discussed above, as follows: underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible
response to conditions and circumstances, thus assuring the greatest benefits. Accordingly, it has been described as
"the most essential, insistent and the least limitable of powers, extending as it does to all the great public needs." It is
Tax Deduction Tax Credit "[t]he power vested in the legislature by the constitution to make, ordain, and establish all manner of wholesome and
reasonable laws, statutes, and ordinances, either with penalties or without, not repugnant to the constitution, as they
Gross Sales xxxxxx xxxxxx shall judge to be for the good and welfare of the commonwealth, and of the subjects of the same."
Less: Cost of goods sold xxxxx xxxxx
————— ————— For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the
Net Sales xxxxxx xxxxxx primacy of police power because property rights, though sheltered by due process, must yield to general welfare.
Less: Operating Expenses:
Thus, it is incorrect for petitioners to insist that the grant of the senior citizen discount is unduly oppressive to their
business, because petitioners have not taken time to calculate correctly and come up with a financial report, so that
Tax Deduction on Discounts xxxx -- they have not been able to show properly whether or not the tax deduction scheme really works greatly to their
Other deductions: xxxx xxxx disadvantage.
In treating the discount as a tax deduction, petitioners insist that they will incur losses because, referring to the DOF
Opinion, for every P1.00 senior citizen discount that petitioners would give, P0.68 will be shouldered by them as only
P0.32 will be refunded by the government by way of a tax deduction.
To illustrate this point, petitioner Carlos Super Drug cited the anti-hypertensive maintenance drug Norvasc as an
example. According to the latter, it acquires Norvasc from the distributors at P37.57 per tablet, and retails it at
P39.60 (or at a margin of 5%). If it grants a 20% discount to senior citizens or an amount equivalent to P7.92, then it
would have to sell Norvasc at P31.68 which translates to a loss from capital of P5.89 per tablet. Even if the
government will allow a tax deduction, only P2.53 per tablet will be refunded and not the full amount of the discount
which is P7.92. In short, only 32% of the 20% discount will be reimbursed to the drugstores.
Petitioners' computation is flawed. For purposes of reimbursement, the law states that the cost of the discount shall
be deducted from gross income, the amount of income derived from all sources before deducting allowable
expenses, which will result in net income. Here, petitioners tried to show a loss on a per transaction basis, which
should not be the case. An income statement, showing an accounting of petitioners' sales, expenses, and net profit
(or loss) for a given period could have accurately reflected the effect of the discount on their income. Absent any
financial statement, petitioners cannot substantiate their claim that they will be operating at a loss should they give
the discount. In addition, the computation was erroneously based on the assumption that their customers consisted
wholly of senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on the amount of the discount.
Furthermore, it is unfair for petitioners to criticize the law because they cannot raise the prices of their medicines
given the cutthroat nature of the players in the industry. It is a business decision on the part of petitioners to peg the
mark-up at 5%. Selling the medicines below acquisition cost, as alleged by petitioners, is merely a result of this
decision. Inasmuch as pricing is a property right, petitioners cannot reproach the law for being oppressive, simply
because they cannot afford to raise their prices for fear of losing their customers to competition.
Undeniably, the success of the senior citizens program rests largely on the support imparted by petitioners and the
other private establishments concerned. This being the case, the means employed in invoking the active
participation of the private sector, in order to achieve the purpose or objective of the law, is reasonably and directly
related. Without sufficient proof that Section 4 (a) of R.A. No. 9257 is arbitrary, and that the continued
implementation of the same would be unconscionably detrimental to petitioners, the Court will refrain from quashing
a legislative act. 31
WHEREFORE, the petition is DISMISSED for lack of merit.
Manila Memorial Park vs. DSWD, GR No. 175356, December 3, 2013
Parties: Petitioners Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc. are domestic corporations engaged
in the business of providing funeral and burial services, while public respondents are Secretaries of the DSWD and
DOF
Facts: On April 23, 1992, RA 7432 was passed into law, granting senior citizens: a) grant of twenty percent (20%)
discount from all establishments relative to utilization of transportation services, hotels and similar lodging
establishments, restaurants and recreation centers and purchase of medicine anywhere in the country: Provided,
That private establishments may claim the cost as tax credit; b) a minimum of twenty percent (20%) discount on
admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals and other similar places of
culture, leisure, and amusement; c) exemption from the payment of individual income taxes: Provided, That their
annual taxable income does not exceed the property level as determined by NEDA for that year; d) exemption from
training fees for socioeconomic programs undertaken by the OSCA as part of its work; e) free medical and dental
services in government establishments anywhere in the country, subject to guidelines to be issued by DOH, GSIS
and SSS; f) to the extent practicable and feasible, the continuance of the same benefits and privileges given by
GSIS, SSS and PAG-IBIG, as the case may be, as are enjoyed by those in actual service.
On August 23, 1993, RR 02-94 was issued to implement RA 7432. Secs. 2 (i) and 4 provides:
Sec. 2. (i). Tax Credit — refers to the amount representing the 20% discount granted to a qualified senior citizen by
all establishments relative to their utilization of transportation services, hotels and similar lodging establishments,
restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls, circuses, carnivals and other
similar places of culture, leisure and amusement, which discount shall be deducted by the said establishments from
their gross income for income tax purposes and from their gross sales for VAT or other percentage tax purposes.
Sec. 4. Private establishments, i.e., transport services, hotels and similar lodging establishments, x x x, giving 20%
discounts to qualified senior citizens are required to keep separate and accurate records of sales made to senior
citizens, which shall include the name, identification number, gross sales/receipts, discounts, dates of transactions
and invoice number for every transaction. cISDHE
The amount of 20% discount shall be deducted from the gross income for income tax purposes and from gross sales
of the business enterprise concerned for purposes of the VAT and other percentage taxes.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20 percent discount deductible
from gross income for income tax purposes, or from gross sales for VAT or other percentage tax purposes. In effect,
the tax credit benefit under RA 7432 is related to a sales discount. This contrived definition is improper, considering
that the latter has to be deducted from gross sales in order to compute the gross income in the income statement
and cannot be deducted again, even for purposes of computing the income tax. When the law says that the cost of
the discount may be claimed as a tax credit, it means that the amount — when claimed — shall be treated as a
reduction from any tax liability, plain and simple.
On February 26, 2004, RA 9257 amended certain provisions of RA 7432, to wit: HSCATc
SECTION 4. Privileges for the Senior Citizens. — The senior citizens shall be entitled to the following: (a) the grant
of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and similar
lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the
exclusive use or enjoyment of senior citizens, including funeral and burial services for the death of senior citizens;
xxx xxx xxx
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax deduction based on the net cost
of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from
gross income for the same taxable year that the discount is granted. Provided, further, That the total amount of the
claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code,
as amended.
To implement the tax provisions of RA 9257, the Secretary of Finance issued RR No. 4-2006.
Feeling aggrieved by the tax deduction scheme, petitioners filed the present case, praying that Section 4 of RA 7432,
as amended by RA 9257, and the IRR issued by the DSWD and the DOF be declared unconstitutional insofar as
these allow business establishments to claim the 20% discount given to senior citizens as a tax deduction; that the
DSWD and the DOF be prohibited from enforcing the same; and that the tax credit treatment of the 20% discount
under the former Section 4 (a) of RA 7432 be reinstated.
Petitioners' Arguments: Petitioners emphasize that they are not questioning the 20% discount granted to senior
citizens but are only assailing the constitutionality of the tax deduction scheme prescribed under RA 9257 and the
implementing rules and regulations issued by the DSWD and the DOF.
Petitioners posit that the tax deduction scheme contravenes Article III, Section 9 of the Constitution, which provides
that: "private property shall not be taken for public use without just compensation." In support of their position,
petitioners cite Central Luzon Drug Corporation, where it was ruled that the 20% discount privilege constitutes taking
of private property for public use which requires the payment of just compensation, and Carlos Superdrug
Corporation v. Department of Social Welfare and Development, where it was acknowledged that the tax deduction
scheme does not meet the definition of just compensation.
Petitioners likewise seek a reversal of the ruling in Carlos Superdrug Corporation that the tax deduction scheme
adopted by the government is justified by police power. They assert that "[a]lthough both police power and the power
of eminent domain have the general welfare for their object, there are still traditional distinctions between the two"
and that "eminent domain cannot be made less supreme than police power."
Petitioners also contend that the tax deduction scheme violates Article XV, Section 4 and Article XIII, Section 11 of
the Constitution because it shifts the State's constitutional mandate or duty of improving the welfare of the elderly to
the private sector. Under the tax deduction scheme, the private sector shoulders 65% of the discount because only
35% of it is actually returned by the government. Consequently, the implementation of the tax deduction scheme
prescribed under Section 4 of RA 9257 affects the businesses of petitioners.
Respondents' Arguments: Respondents, on the other hand, assert that there is no justiciable controversy as
petitioners failed to prove that the tax deduction treatment is not a "fair and full equivalent of the loss sustained" by
them. As to the constitutionality of RA 9257 and its implementing rules and regulations, respondents contend that
petitioners failed to overturn its presumption of constitutionality. More important, respondents maintain that the tax
deduction scheme is a legitimate exercise of the State's police power.
ISSUES: WON RA 9257 and its IRR, insofar as they provide 20% discount to senior citizens may be claimed as tax
deduction by private establishments, is a valid exercise of police power
HELD: YES. The validity of the 20% senior citizen discount and tax deduction scheme under RA 9257, as an
exercise of police power of the State, has already been settled in Carlos Superdrug Corporation.
RATIO: Petitioners posit that the resolution of this case lies in the determination of whether the legally mandated
20% senior citizen discount is an exercise of police power or eminent domain. If it is police power, no just
compensation is warranted. But if it is eminent domain, the tax deduction scheme is unconstitutional because it is not
a peso for peso reimbursement of the 20% discount given to senior citizens. Thus, it constitutes taking of private
property without payment of just compensation.
At the outset, we note that this question has been settled in Carlos Superdrug Corporation (see earlier case for the
longer version of the ratio).
The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare
for its object. Police power is not capable of an exact definition, but has been purposely veiled in general terms to
underscore its comprehensiveness to meet all exigencies and provide enough room for an efficient and flexible
response to conditions and circumstances, thus assuring the greatest benefits. HCaIDS
For this reason, when the conditions so demand as determined by the legislature, property rights must bow to the
primacy of police power because property rights, though sheltered by due process, must yield to general welfare.
 No compelling reason has been proffered to overturn, modify or abandon the ruling in Carlos
Superdrug Corporation.
The Court agrees with petitioners' observation that there are statements in Central Luzon Drug
Corporation describing the 20% discount as an exercise of the power of eminent domain, viz.:
The privilege enjoyed by senior citizens does not come directly from the State, but rather from the private
establishments concerned. Accordingly, the tax credit benefit granted to these establishments can be
deemed as their just compensation for private property taken by the State for public use.
Besides, the taxation power can also be used as an implement for the exercise of the power of eminent
domain. Tax measures are but "enforced contributions exacted on pain of penal sanctions" and "clearly
imposed for a public purpose."
Just compensation is defined as the full and fair equivalent of the property taken from its owner by the
expropriator. The measure is not the taker's gain but the owner's loss. The word just is used to intensify
the meaning of the word compensation, and to convey the idea that the equivalent to be rendered for the
property to be taken shall be real, substantial, full and ample.
A tax deduction does not offer full reimbursement of the senior citizen discount. As such, it would not meet
the definition of just compensation.
Here, the Court is afforded an opportunity to clarify the above-quoted statements in Central Luzon Drug
Corporation and Carlos Superdrug Corporation. First, we note that the above-quoted disquisition on
eminent domain in Central Luzon Drug Corporation is obiter dicta and, thus, not binding precedent. As
stated earlier, in Central Luzon Drug Corporation, we ruled that the BIR acted ultra vires when it effectively
treated the 20% discount as a tax deduction, under Sections 2.i and 4 of RR No. 2-94, despite the clear
wording of the previous law that the same should be treated as a tax credit. The Court, therefore, was not
confronted in that case with the issue as to whether the 20% discount is an exercise of police power or
eminent domain.
 Second, although the Court adverted to Central Luzon Drug Corporation in its ruling in Carlos Superdrug
Corporation, this referred only to preliminary matters. The Court deems it proper to amplify its explanation
in Carlos Superdrug Corporation as to why the 20% discount is a valid exercise of police power and why it
may not, under the specific circumstances of this case, be considered as an exercise of the power of
eminent domain contrary to the obiter in Central Luzon Drug Corporation.

 Police power versus eminent domain.
 In the exercise of police power, a property right is impaired by regulation, or the use of property is merely
prohibited, regulated or restricted to promote public welfare. In such cases, there is no compensable
taking, hence, payment of just compensation is not required. Examples of these regulations are property
condemned for being noxious or intended for noxious purposes (e.g., a building on the verge of collapse to
be demolished for public safety, or obscene materials to be destroyed in the interest of public morals) as
well as zoning ordinances prohibiting the use of property for purposes injurious to the health, morals or
safety of the community (e.g., dividing a city's territory into residential and industrial areas). It has, thus,
been observed that, in the exercise of police power (as distinguished from eminent domain), although the
regulation affects the right of ownership, none of the bundle of rights which constitute ownership is
appropriated for use by or for the benefit of the public.

On the other hand, in the exercise of the power of eminent domain, property interests are appropriated and
applied to some public purpose which necessitates the payment of just compensation therefor. Normally,
the title to and possession of the property are transferred to the expropriating authority. Examples include
the acquisition of lands for the construction of public highways as well as agricultural lands acquired by the
government under the agrarian reform law for redistribution to qualified farmer beneficiaries. However, it is
a settled rule that the acquisition of title or total destruction of the property is not essential for "taking"
under the power of eminent domain to be present. Examples of these include establishment of easements
such as where the land owner is perpetually deprived of his proprietary rights because of the hazards
posed by electric transmission lines constructed above his property or the compelled interconnection of the
telephone system between the government and a private company. In these cases, although the private
property owner is not divested of ownership or possession, payment of just compensation is warranted
because of the burden placed on the property for the use or benefit of the public.
 The 20% senior citizen discount is an exercise of police power.
The 20% discount is intended to improve the welfare of senior citizens who, at their age, are less likely to
be gainfully employed, more prone to illnesses and other disabilities, and, thus, in need of subsidy in
purchasing basic commodities. It may not be amiss to mention also that the discount serves to honor
senior citizens who presumably spent the productive years of their lives on contributing to the development
and progress of the nation. This distinct cultural Filipino practice of honoring the elderly is an integral part
of this law.
 As to its nature and effects, the 20% discount is a regulation affecting the ability of private establishments
to price their products and services relative to a special class of individuals, senior citizens, for which the
Constitution affords preferential concern. In turn, this affects the amount of profits or income/gross sales
that a private establishment can derive from senior citizens. In other words, the subject regulation affects
the pricing, and, hence, the profitability of a private establishment. However, it does not purport to
appropriate or burden specific properties, used in the operation or conduct of the business of private
establishments, for the use or benefit of the public, or senior citizens for that matter, but merely regulates
the pricing of goods and services relative to, and the amount of profits or income/gross sales that such
private establishments may derive from, senior citizens.

The subject regulation may be said to be similar to, but with substantial distinctions from, price control or
rate of return on investment control laws which are traditionally regarded as police power measures. These
laws generally regulate public utilities or industries/enterprises imbued with public interest in order to
protect consumers from exorbitant or unreasonable pricing as well as temper corporate greed by
controlling the rate of return on investment of these corporations considering that they have a monopoly
over the goods or services that they provide to the general public. The subject regulation differs therefrom
in that (1) the discount does not prevent the establishments from adjusting the level of prices of their goods
and services, and (2) the discount does not apply to all customers of a given establishment but only to the
class of senior citizens. Nonetheless, to the degree material to the resolution of this case, the 20%
discount may be properly viewed as belonging to the category of price regulatory measures which affect
the profitability of establishments subjected thereto.
On its face, therefore, the subject regulation is a police power measure.
CONCLUSION: In closing, Court notes that petitioners hypothesize, consistent with our previous ratiocinations, that
the discount will force establishments to raise their prices in order to compensate for its impact on overall profits or
income/gross sales. The general public, or those not belonging to the senior citizen class, are, thus, made to
effectively shoulder the subsidy for senior citizens. This, in petitioners' view, is unfair.
As already mentioned, Congress may be reasonably assumed to have foreseen this eventuality. But, more
importantly, this goes into the wisdom, efficacy and expediency of the subject law which is not proper for judicial
review. In a way, this law pursues its social equity objective in a non-traditional manner unlike past and existing
direct subsidy programs of the government for the poor and marginalized sectors of our society. Verily, Congress
must be given sufficient leeway in formulating welfare legislations given the enormous challenges that the
government faces relative to, among others, resource adequacy and administrative capability in implementing social
reform measures which aim to protect and uphold the interests of those most vulnerable in our society. In the
process, the individual, who enjoys the rights, benefits and privileges of living in a democratic polity, must bear his
share in supporting measures intended for the common good. This is only fair.
In fine, without the requisite showing of a clear and unequivocal breach of the Constitution, the validity of the
assailed law must be sustained.
REFUTATION OF THE DISSENT: The main points of Justice Carpio's Dissent may be summarized as follows: (1)
the discussion on eminent domain in Central Luzon Drug Corporation is not obiter dicta; (2) allowable taking, in
police power, is limited to property that is destroyed or placed outside the commerce of man for public welfare; (3)
the amount of mandatory discount is private property within the ambit of Article III, Section 9 of the Constitution; and
(4) the permanent reduction in a private establishment's total revenue, arising from the mandatory discount, is a
taking of private property for public use or benefit, hence, an exercise of the power of eminent domain requiring the
payment of just compensation.
In conclusion, the Court maintains that the correct rule in determining whether the subject regulatory measure has
amounted to a "taking" under the power of eminent domain is the one laid down in Alalayan v. National Power
Corporation and followed in Carlos Superdrug Corporation consistent with long standing principles in police power
and eminent domain analysis. Thus, the deprivation or reduction of profits or income/gross sales must be clearly
shown to be unreasonable, oppressive or confiscatory. Under the specific circumstances of this case, such
determination can only be made upon the presentation of competent proof which petitioners failed to do. A law,
which has been in operation for many years and promotes the welfare of a group accorded special concern by the
Constitution, cannot and should not be summarily invalidated on a mere allegation that it reduces the profits or
income/gross sales of business establishments.
WHEREFORE, the Petition is hereby DISMISSED for lack of merit
|Victoria’s Milling Co. vs. Municipality of Victorias, L-21183,September 27, 1968
FACTS: Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental, was approved by the
municipal council of Victorias on September 22, 1956 by way of an amendment to two municipal ordinances
separately imposing license taxes on operators of sugar centrals and sugar refineries. The changes were: with
respect to sugar centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the rates
of license taxes as well as the range of graduated schedule of annual output capacity.
It was enacted pursuant to the taxing power conferred by Commonwealth Act 472. By Section 1 of the Ordinance:
"Any person corporation or other forms of companies, operating sugar central or engage[d] in the manufacture of
centrifugal sugar shall be required to pay the following annual municipal license tax, payable quarterly, to wit: . . ."
Section 1 referred to prescribes a wide range of schedule. It starts with a sugar central with mill having an annual
output capacity of not less than 50,000 piculs of centrifugal sugar, in which case an annual municipal license tax of
P1,000.00 is provided. Depending upon the annual output capacity the schedule of taxes continues with P2,000.00
progressively upward in twelve other grades until an output capacity of 1,500,001 piculs or more shall have been
reached. For this, the annual tax is P40,000.00. The tax on sugar refineries is likewise calibrated with similar rates. It
also starts with P1,000.00 for a refinery with mill having an annual output capacity of not less than 25,000 bags of
100 lbs. of refined sugar. Then, it continues with the second bracket of from 25,001 bags to 75,000 bags of 100 lbs.
Here, the municipal license tax is P1,500.00. Then follow the other rates in the graduated scale with the ceiling
placed at a capacity of 1,750.001 bags or more. The annual municipal license tax for the last mentioned output
capacity is P40,000.00.
Of importance are the provisions of Section 1(m) relating to sugar centrals and Section 2(m) covering sugar
refineries with specific reference to the maximum annual license tax, viz:
"SECTION No. 1 — Any person, corporation or other forms of Companies, operating Sugar Central or engaged in
the manufacture of centrifugal sugar shall be required to pay the following annual municipal license tax, payable
quarterly, to wit:
xxx xxx xxx
(m) Sugar Central with mill having a capacity of producing an annual output of from 1,500,001 piculs or more shall
be required to pay an annual municipal license tax of — P40,000.00.
"SECTION No. 2 — Any person, corporation or other forms of Companies shall be required to pay an annual
municipal license tax for the operation of Sugar Refinery Mill at the following rates:
xxx xxx xxx
(m) Sugar Refinery with mill having a capacity of producing an annual output of from 1,750,001 bags of 100 lbs. or
more shall be required to pay an annual municipal license tax of — P40,000.00".
For the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the
Municipality of Victorias comes within these items in the schedule.
Plaintiff filed this suit to ask for judgment declaring Ordinance No. 1, series of 1956, null and void; ordering the
refund of all license taxes paid and to be paid under protest; directing the officials of Victorias and the Province of
Negros Occidental to observe, during the pendency of the action, the provisions of section 357 of the Revised
Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 edition, regarding the treatment of
licenses taxes paid under protest by virtue of disputed ordinance; and other reliefs.
Petitioner’s contention: The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in
Provincial Circular 12-A issued by the Finance Department on February 27, 1940; (b) it is discriminatory since it
singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of
defendant municipality; (c) it constitutes double taxation; and (d) the national government has pre-empted the field of
taxation with respect to sugar centrals or refineries.
The trial court rendered its judgment: (a) declaring that Ordinance No. 1, series of 1956, of the municipality of
Victorias, Negros Occidental, as invalid; (b) ordering all officials of the defendant to observe the provisions of Section
357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 Edition; with
particular reference to any license taxes paid by the plaintiff under said Ordinance No. 1 series of 1956, after notice
of this decision; and (c) ordering the defendant to refund to the plaintiff any and all such license taxes paid under
protest after notice of this decision".
Both plaintiff and defendant appealed direct to Supreme Court. Plaintiff questions that portion of the decision denying
the refund of the license taxes paid under protest in the amount of P280,000 covering the period from the first
quarter of 1957 to the second quarter of 1960; and balked at the court's order limiting refund to "any and all such
license taxes paid under protest after notice of this decision". Defendant, upon the other hand, challenges the
correctness of the court's decision invalidating Ordinance No. 1, series
of 1956.
ISSUE: WON Ordinance No. 1, passed by defendant's municipal council is a regulatory enactment or a revenue
measure
HELD: Ordinance No. 1 is a revenue measure.
The trial court says, and plaintiff seconds, that the amounts set forth in the ordinance in question did exceed the cost
of licensing regulating and surveillance, and that defendant cannot impose a tax- for-revenue — in the guise of a
police or a regulatory measure. This Court’s finding, however, is the other way.
Under the Commonwealth Act 472, a municipality is authorized to imposed three kinds of licenses; (1) license for
regulation of useful occupations or enterprises; (2) license for restriction or regulation of non-useful occupations or
enterprises; and (3) license for revenue. The first two easily fall within the broad police power granted under the
general welfare clause. The third class, however, is for revenue purposes. It is not a license fee, properly speaking,
and yet it is generally so termed. It rests on the taxing power. That taxing power must be expressly conferred by
statute upon the municipality.
Ordinance No. 1, series of 1956, is but an amendment of Ordinance No. 18, series of 1947, in reference to refineries,
and Ordinance No. 25, series of 1953, covering sugar centrals. Ordinance No. 18 imposes "municipal taxes on
persons, firms or corporations operating refinery mills in this municipality". Ordinance No. 25 speaks of municipal
taxes "relative to the output of the sugar centrals". But, what are these taxes for? Resolution No. 60 of the municipal
council of Victorias, adopted also a ready answer. It reads in part:
"WHEREAS, the Municipal Treasurer informed the Municipal Council of the revenue of the Municipality and the
heavy obligations which confront it because of the implementation of Minimum Wage Law on the salaries and wages
it pays to its municipal employees and laborers thus greatly draining the Municipal Treasury;
WHEREAS, this local administration is committed to the plan of ameliorating the deplorable situation existing in the
barrios, sitios and rural areas by giving them essential and necessary facilities calculated to improve conditions
thereat thru improvements of roads and feeder roads;
WHEREAS, one of the causes of the municipality's financial difficulty is low rates of municipal taxes imposed by
some of the ordinances enacted by the local legislative body;
WHEREAS, [in] . . . the ordinances known as Ordinance No. 25, Series of 1953, dealing on the operation of Sugar
Central, and Ordinance No. 18, Series of 1947, which exclusively deals with the operation of Sugar Refinery Mill, the
rates so given are rates suggested and determined by the Provincial Circular No. 12-A, dated February 27, 1940
issued by the Department of Finance as regards to Sugar Centrals;
WHEREAS, the Municipal Council has come to the conclusion that the rates provided for in such ordinances are no
longer adequate if made in keeping with the present high cost of living;
WHEREAS, the Municipal Council has also taken cognizance of the fact that the price of sugar per picul today is
more than twice its pre-war average price; . . .".
Given the purposes just mentioned, the Court finds no warrant in logic to give assent to the view that the ordinance
in question is solely for regulatory purpose. The ordinance is for raising money. To say otherwise is to misread the
purpose of the ordinance.
We should not hang so heavy a meaning on the use of the term "municipal license tax". This does not necessarily
connote the idea that the tax is imposed — as the lower court would want it — to mean a revenue measure in the
guise of a license tax. For really, this runs counter to the declared purpose to make money.
Besides, the term "license tax" has not acquired a fixed meaning. It is often "used indiscriminately to designate
impositions exacted for the exercise of various privileges." It does not refer solely to a license for regulation. In many
instances, it refers to "revenue- raising exactions on privileges or activities." On the other hand, license fees are
commonly called taxes. But, legally speaking, the latter are "for the purpose of raising revenues", in contrast to the
former which are imposed "in the exercise of police power for purposes of regulation."
We accordingly say that the designation given by the municipal authorities does not decide whether the imposition is
properly a license tax or a license fee. The determining factors are the purpose and effect of the imposition as may
be apparent from the provisions of the ordinance. Thus, "[w]hen no police inspection, supervision, or regulation is
provided, nor any standard set for the applicant to establish, or that he agrees to attain or maintain, but any all
persons engaged in the business designated, without qualification or hindrance, may come, and a license on
payment of the stipulated sum will issue, to do business, subject to no prescribed rule of conduct and under no
guardian eye, but according to the unrestrained judgment or fancy of the applicant and licensee, the presumption is
strong that the power of taxation, and not the police power, is being exercised."
Precisely because of these considerations the present imposition must be treated as a levy for revenue purposes. A
quick glance at the big amount of maximum annual tax set forth in the ordinance P40,000.00 for sugar centrals, and
P40,000.00 for sugar refineries will readily convince one that the tax is really a revenue tax. And then, we read in the
ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision
or regulation.
We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of Victorias, was promulgated
not in the exercise of the municipality's regulatory power but as a revenue measure — a tax on occupation
or business. The authority to impose such tax is backed by the express grant of power in Section 1 of
Commonwealth Act 472.
*As to the issue on discrimination: The ordinance in question does not single out Victorias as the only object of
the ordinance. Said ordinance is made to apply to any sugar central or sugar refinery which may happen to operate
in the municipality. So it is, that the fact that plaintiff is actually the sole operator of a sugar refinery does not make
the ordinance discriminatory.
*As to the issue on Double Taxation: Plaintiff's argument on double taxation must not be upheld: First. The two
taxes cover two different objects. Section 1 of the ordinance taxes a person operating sugar centrals or engaged in
the manufacture of centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills.
One occupation or business is different from the other. Second. The disputed taxes are imposed on occupation or
business. Both taxes are not on sugar. The amount thereof depends on the annual output capacity of the mills
concerned, regardless of the actual sugar milled. Plaintiff's argument perhaps could make out a point if the object of
taxation here were the sugar it produces, not the business of promoting it.
The judgment under review is hereby reversed; and Judgment is hereby rendered: (a) declaring valid and
subsisting Ordinance No. 1, series of 1956, of the Municipality of Victorias, Province of Negros Occidental;
and (b) dismissing plaintiff's complaint as supplemented and amended. Costs against plaintiff. So ordered.
MARGA
CIR vs ALGUE
FACTS: The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in
engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total
amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue filed
a letter of protest or request for reconsideration, which letter was stamp-received on the same day in the office of the
petitioner. The private respondent is claiming a deduction of 75,000. However, the petitioner contends that the
claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary, reasonable or necessary
business expense. The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the said
amount had been legitimately paid by the private respondent for actual services rendered. The payment was 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.
Parenthetically, it may be observed that the petitioner had originally claimed these
promotional fees to be personal holding company income 12 but later conformed to the decision of the respondent
court rejecting this assertion. 13 In fact, as the said court found, the amount was earned through the joint efforts of
the persons among whom it was distributed. It has been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing
process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith O'Farell, and
Pablo Sanchez worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to
invest in it. 14 Ultimately,after its incorporation largely through the promotion of the said persons, this new
corporation purchased the PSEDC properties. 15 For this sale, Algue received as agent a commission of
P125,000.00, and it was from this commission that the P75,000. promotional fees were paid to the aforenamed
individuals.
The petitioner claims that these payments are fictitious because most of the payees are members of the same family
in control of Algue. It is argued that no indication was made as to how such payments were made, whether by check
or in cash, and there is not enough substantiation of such payments. In short, the petitioner suggests a tax dodge, an
attempt to evade a legitimate assessment by involving an imaginary deduction.
ISSUE: Whether or not the Collector of Internal Revenue correctly disallowed the P75,000.00 deduction claimed by
private respondent Algue as legitimate business expenses in its income tax returns?
HELD: No. CIR's disallowance was improper.
RATIO: Indeed, it is suspicious when the private respondent's President, Alberto Guevara, and the accountant,
Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different
amounts as each payee's need arose. However, it should be remembered that this was a family corporation where
strict business procedures were not applied and immediate issuance of receipts was not required. Even so, at the
end of the year, when the books were to be closed, each
payee made an accounting of all of the fees received by him or her, to make up the total of P75,000.00. 20
Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close
relationship among the persons in the family corporation.
More so, the Court agrees with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent was P125,000.00.
After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The
amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was
the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the
actual purchase by it of the Sugar Estate properties.
This finding of the respondent court is in accord with the following provision of the Tax
Code:
"SEC. 30. Deductions from gross income. — In computing net income there shall be allowed as deduction —
(a) Expenses:
(1) In general. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any
trade or business, including a reasonable allowance for salaries or other compensation for personal services actually
rendered; . . ." 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
"SEC. 70. Compensation for personal services. — Among the ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for
personal services actually rendered. The test of deductibility in the case of compensation payments is whether they
are reasonable and are, in fact, payments purely for service. This test and its practical application may be further
stated and illustrated as follows:
"Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a)
An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the
case of a corporation having few stockholders, practically all of whom draw salaries. If in such a case the salaries are
in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close
relationship to the stockholdings of the of􀀻cers of employees, it would seem likely that the salaries are not paid
wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock. . . ."
(Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.)
It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its
controlling stockholders. The Solicitor General is correct when he says that the burden is on the taxpayer to prove
the validity of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and reasonable in the
light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new business requiring millions of pesos. This was no mean
feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack
of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-
earned income to the taxing authorities, every person who is able to must contribute his share in the running of the
government. The government for its part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes
that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed.
Thus, the Court finds that the claimed deduction by the private respondent is permitted under the Internal Revenue
Code and should therefore not have been disallowed by the petitioner.
TALENTO v. ESCALADA
FACTS: This is a instant petition for certiorari under Rule 65 assailing the order of the RTC on November 5, 2007
granting the petition for the issuance of a writ of preliminary injunction 􀀺led by private respondent Petron Corporation
(Petron) thereby enjoining petitioner Emerlinda S. Talento, Provincial Treasurer of Bataan, and her representatives
from proceeding with the public auction of Petron's machineries and pieces of equipment during the pendency of the
latter's appeal from the revised assessment of its properties.
On June 18, 2007, Petron received from the Provincial Assessor's O􀀿ce 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 􀀺le an appeal with the Local Board of Assessment Appeals (LBAA). 2 Based on said revised assessment,
petitioner Provincial Treasurer of Bataan issued a notice informing Petron that as of June 30, 2007, its total liability is
P1,731,025,403.06, 3 representing deficiency real property tax due from 1994 up to the first and second quarters of
2007.
On August 17, 2007, Petron filed a petition with the LBAA. Petron's arguments:
1.) the subject assessment pertained to properties that have been previously declared;
2.) the assessment covered periods of more than 10 years which is not allowed under the LGC;
3.) the possible valid assessment pursuant to Section 222 of the LGC could only be for the years 1997 to
2006;
4.) the fair market value or replacement cost used by petitioner included items which should be properly
excluded;
5.) that prompt payment of discounts were not considered in determining the fair market value; and finally that
the the subject assessment should take effect a year after or on January 1, 2008.
Petron likewise sought the approval of a surety bond in the amount of P1,286,057,899.54.August 22, 2007, Petron
received from petitioner a fnal notice of delinquent real property tax with a warning that the subject properties would
be levied and auctioned should Petron fail to settle the revised assessment due. Petron replied to the petitioner
notifying them about the pendency of its appeal before the LBAA, thus, any action by the Treasurer's Office on the
subject properties would be premature. However, petitoner replied that only Petron'spayment under protest shall bar
the collection of the realty taxes due, pursuant to Sections 231 and 252 of the LGC.
Thereafter, a Warrant of Levy was issued against Petron's machineries. This prompted Petron to file an urgent
motion to lift the fnal notice of delinquent real property tax and warrant of levy with the LBAA which it later on
withdrew because Petitione immediately sent a Notice of Sale and instead, Petron filed a petition for prohibition with
prayer for the issuance of a temporary restraining order (TRO) and preliminary injunction before the RTC of Bataan.
The RTC eventually issued TRO for 20 days enjoining petitioner from proceeding with the public auction of Petron's
properties. Then on November 5, 2007, the trial court issued the assailed Order granting Petron's petition for
issuance of writ of preliminary injunction, subject to Petron's posting of a P444,967,503.52 bond in addition to its
previously posted surety bond of P1,286,057,899.54, to complete the total amount equivalent to the revised
assessment of P1,731,025,403.06. The trial court held that in scheduling the sale of the properties despite the
pendency of Petron's appeal and posting of the surety bond with the LBAA, petitioner deprived Petron of the right to
appeal. Petitoner's Urgent Motion for the Immediate Dissolution of the Temporary Restraining was denied. Hence,
the petition.
ISSUE: Whether the trial court correctly granted respondent's petition for issuance of a writ of preliminary injunction?
HELD: Yes.
RATIO: Section 3, Rule 58, of the Rules of Court, provides: Grounds for issuance of preliminary injunction. — A
preliminary injunction may be granted by the court when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the
commission or continuance of the acts complained of, or in the performance of an act or acts, either for a limited
period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would
probably work injustice to the applicant; or
(c) That a party, court, or agency or a person is doing, threatening, or attempting to do, or is procuring or suffering to
be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.
The requisites for the issuance of a writ of preliminary injunction are:
(1) the existence of a clear and unmistakable right that must be protected; and
(2) an urgent and paramount necessity for the writ to prevent serious damage.
The urgency and paramount necessity for the issuance of a writ of injunction becomes relevant in the instant case
considering that what is being enjoined is the sale by public auction of the properties of Petron amounting to at least
P1.7 billion and which properties are vital to its business operations. If at all, the repercussions and far reaching
implications of the sale of these properties on the operations of Petron merit the issuance of a writ of preliminary
injunction in its favor.
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 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.
In addition to the fact that the issues raised by the respondent would have a direct impact on the validity of the
assessment made by the petitioner, we also note that respondent has posted a surety bond equivalent to the amount
of the assessment due. The Rules of Procedure of the LBAA, particularly Section 7, Rule V thereof, provides:
Section 7. Effect of Appeal on Collection of Taxes . — An appeal shall not suspend the collection of the
corresponding realty taxes on the real property subject of the appeal as assessed by the Provincial, City or Municipal
Assessor, without prejudice to the subsequent adjustment depending upon the outcome of the appeal. An appeal
may be entertained but the hearing thereof shall be deferred until the corresponding taxes due on the real property
subject of the appeal shall have been paid under protest or the petitioner shall have given a surety bond, subject to
the following conditions:
(1) the amount of the bond must not be less than the total realty taxes and penalties due as assessed by the
assessor nor more than double said amount;
(2) the bond must be accompanied by a certification from the Insurance Commissioner
(a) that the surety is duly authorized to issue such bond;
(b) that the surety bond is approved by and registered with said Commission; and
(c) that the amount covered by the surety bond is within the writing capacity of the surety company; and
(3) the amount of the bond in excess of the surety company's writing capacity, if any, must be covered by
Reinsurance Binder, in which case, a certification to this effect must likewise accompany the surety bond.
Corollarily, Section 11 of Republic Act No. 9282, 23 which amended Republic Act No. 1125 (The Law Creating the
Court of Tax Appeals) provides: Section 11. Who may Appeal; Mode of Appeal; Effect of Appeal; —
xxx xxx xxx
No appeal taken to the Court of Appeals from the Collector of Internal Revenue . . . shall suspend the payment, levy,
distraint, and/or sale of any property for the satisfaction of his tax liability as provided by existing law. Provided,
however, That when in the opinion of the Court the collection by the aforementioned government agencies may
jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the processing may suspend
the collection and require the taxpayer either to deposit the amount claimed or to 􀀺le a surety bond for not more than
double the amount with the Court.
ROXAS v. CTA
FACTS: Don Pedro Roxas and Doña Carmen Ayala, Spanish subjects, transmitted to their grandchildren by
hereditary succession the following properties:
(1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas
province;
(2) A residential house and lot located at Wright St., Malate, Manila; and
(3) Shares of stocks in different corporations.
To manage the above-mentioned properties, said children namely, Antonio Roxas, Eduardo Roxas and Jose Roxas,
formed a partnership called Roxas y Compañia.
At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for
generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its
part, the Government, in consonance with the constitutional mandate to acquire big landed estates and apportion
them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences
were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to
the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and
subdivision expenses.
It turned out however that the Government did not have funds to cover the purchase price, and so a special
arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of
P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the
arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and
contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly amortizations
paid by the farmers.
In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71.
Fifty percent of said net gain was reported for income tax purposes as gain on the sale of capital asset held for more
than one year pursuant to Section 34 of the Tax Code.
On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia. the payment of real estate
dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax
for dealers of securities for 1952 plus P910.00 compromise penalty for late payment.
The defficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net
pro􀁊ts for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of
deductions from gross income of various business expenses and contributions claimed by Roxas y Cia. and the
Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on
installment, the Commissioner considered the partnership as engaged in the business of real estate, hence 100% of
the profits derived therefrom was taxed.
ISSUE: Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable?
HELD: No. The sale of the Nasugbu farm lands is a capital gain and thus taxable only to the extent of 50%.
RATIO: It should be borne in mind that the sale of the Nasugbu farm lands 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. It was the bounden duty of the Government to pay the agreed
compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among
the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of
funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold the lands directly
to the farmers in the same way and under the same terms as would have been the case had the Government done it
itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude.
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 with 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.
In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, 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%.
PHILIPPINE HEALTHCARE PROVIDER v. CIR
FACTS: Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate
a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick
and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial
responsibilities of the organization". Individuals enrolled in its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed
physicians, specialists and other professional technical staff participating in the group practice health delivery system
at a hospital or clinic owned, operated or accredited by it.
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter
and the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and
interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.1
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner's health care agreement with
the members of its health care program pursuant to Section 185 of the 1997 Tax Code.
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest,
petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT
and DST assessments.
CTA granted the petitoner's petition for review and ordered the respondent to desist from collecting the DST
deficiency tax.
Respondent appealed the CTA decision to the CA insofar as it cancelled the DST assessment. He claimed that
petitioner's health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax
Code.
On August 16, 2004, the CA rendered its decision. It held that petitioner's health care agreement was in the nature of
a non-life insurance contract subject to DST.
Petitioner moved for reconsideration but the CA denied it. Hence, the petition.
ISSUES:
1.) Whether or not HMOs' are engaged in the insurance business? - NO;
2.) Whether a Healthcare Agreement is an Insurance Contract Contemplated under Sec 185 of the NIRC? - NO.
RATIO:
1.) We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its
agreements are treated as insurance contracts and the DST is not a tax on the business but an excise on the
privilege, opportunity or facility used in the transaction of the business. 15
Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to
determine whether it is an HMO or an insurance company, as this distinction is indispensable in turn to the issue of
whether or not it is liable for DST on its health care agreements. 16
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are
meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. — On all policies of insurance or bonds or
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance),
and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or position,
for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of
any bond or other obligations issued by any province, city, municipality, or other public body or organization, and on
all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made
or renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty
centavos (P0.50) on each four pesos (P4.00), or fractional part thereof, of the premium charged. (Emphasis
supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be
considered surplusage or superfluous, meaningless, void and insignificant. To this end, a construction which renders
every word operative is preferred over that which makes some words idle and nugatory. 17 This principle is
expressed in the maxim Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect to the
whole of the statute — its every word. 18
From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely:
(1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should
be transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an
entity that provides, offers or arranges for coverage of designated health services needed by plan members for a
fixed prepaid premium". 19 The payments do not vary with the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable
years?
We rule that it was not.
Section 2 (2) of PD 20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an
insurance business" or "transacting an insurance business":
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of
an insurance business within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.
Moving on, a substantial portion of petitioner's services covers preventive and diagnostic medical services intended
to keep members from developing medical conditions or diseases. 30 As an HMO, it is its obligation to maintain the
good health of its members.
Accordingly, its health care programs are designed to prevent or to minimize the possibility of any assumption of risk
on its part. Thus, its undertaking under its agreements is not to indemnify its members against any loss or damage
arising from a medical condition but, on the contrary, to provide the health and medical services needed to prevent
such loss or damage. 31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical
services), but these are incidental to the principal activity of providing them medical care. The "insurance-like" aspect
of petitioner's business is miniscule compared to its non-insurance activities. Therefore, since it substantially
provides health care services rather than insurance services, it cannot be considered as being in the insurance
business.
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact
that it is not supervised by the Insurance Commission but by the Department of Health. 33 In fact, in a letter dated
September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business.
This determination of the commissioner must be accorded great weight. It is well-settled that the interpretation of an
administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the
interpretation of laws by the courts.
2.) Section 185 states that DST is imposed on "all policies of insurance . . . or obligations of the nature of indemnity
for loss, damage, or liability. . . ."
In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the
taxing authority. 38 This is because 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. 39 Hence, tax
laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged so
as to embrace matters not specifically provided. 40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the
nature of non-life insurance, which is primarily a contract of indemnity. However, those cases did not involve the
interpretation of a tax provision. Instead, they dealt with the liability of a health service provider to a member under
the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor
of the member and strictly against the HMO. For this reason, we reconsider our ruling that Blue Cross and
Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk and
5. In consideration of the insurer's promise, the insured pays a premium.
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains all the
elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an
insurance contract. The primary purpose of the parties in making the contract may negate the existence of an
insurance contract. For example, a law firm which enters into contracts with clients whereby in consideration of
periodical payments, it promises to represent such clients in all suits for or against them, is not engaged in the
insurance business. Its contracts are simply for the purpose of rendering personal services. On the other hand, a
contract by which a corporation, in consideration of a stipulated amount, agrees at its own expense to defend a
physician against all suits for damages for malpractice is one of insurance, and the corporation will be deemed as
engaged in the business of insurance. Unlike the lawyer's retainer contract, the essential purpose of such a contract
is not to render personal services, but to indemnify against loss and damage resulting from the defense of actions for
malpractice. 42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioner's agreements. To begin
with, there is no loss, damage or liability on the part of the member that should be indemnified by petitioner as an
HMO. Under the agreement, the member pays petitioner a predetermined consideration in exchange for the hospital,
medical and professional services rendered by the petitioner's physician or affiliated physician to him. In case of
availment by a member of the benefits under the agreement, petitioner does not reimburse or indemnify the member
as the latter does not pay any third party. Instead, it is the petitioner who pays the participating physicians and other
health care providers for the services rendered at pre-agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of the
member to any third party-provider of medical services which might in turn necessitate indemnification from
petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or claim has already been incurred. There
is no indemnity precisely because the member merely avails of medical services to be paid or already paid in
advance at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g., laboratory
services, x-ray, routine annual physical examination and consultations, vaccine administration as well as family
planning counseling, even in the absence of any peril, loss or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-
participating physician or hospital. However, this is only a very minor part of the list of services available. The
assumption of the expense by petitioner is not confined to the happening of a contingency but includes incidents
even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc., 43 although the health care contracts
called for the defendant to partially reimburse a subscriber for treatment received from a non-designated doctor, this
did not make defendant an insurer. Citing Jordan, the Court determined that "the primary activity of the defendant
(was) the provision of podiatric services to subscribers in consideration of prepayment for such services". 44 Since
indemnity of the insured was not the focal point of the agreement but the extension of medical services to the
member at an affordable cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient
to establish it. Almost anyone who undertakes a contractual obligation always bears a certain degree of financial risk.
Consequently, there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual
insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it
might fail to earn a reasonable return on its investment. But it is not the risk of the type peculiar only to insurance
companies. Insurance risk, also known as actuarial risk, is the risk that the cost of insurance claims might be higher
than the premiums paid. The amount of premium is calculated on the basis of assumptions made relative to the
insured. 45

However, assuming that petitioner's commitment to provide medical services to its members can be construed as an
acceptance of the risk that it will shell out more than the prepaid fees, it still will not quality as an insurance contract
because petitioner's objective is to provide medical services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner's agreements with its members leads us to conclude that it is not an insurance
contract within the context of our Insurance Code.
Finally, THE POWER TO TAX IS NOT THE POWER TO DESTROY
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its
very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which
imposes the tax on the constituency who is to pay it. 51 So potent indeed is the power that it was once opined that
"the power to tax involves the power to destroy". 52
Petitioner claims that the assessed DST to date which amounts to P376 million 53 is way beyond its net worth of
P259 million. 54 Respondent never disputed these assertions. Given the realities on the ground, imposing the DST
on petitioner would be highly oppressive. It is not the purpose of the government to throttle private business. On the
contrary, the government ought to encourage private enterprise. 55 Petitioner, just like any concern organized for a
lawful economic activity, has a right to maintain a legitimate business. 56 As aptly held in Roxas, et al. v. CTA, et al.:
57
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". 58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because
of a tax imposition may be an acceptable consequence but killing the business of an entity is another matter and
should not be allowed. It is counter-productive and ultimately subversive of the nation's thrust towards a better
economy which will ultimately benefit the majority of our people
JERALD
SISON V. ANCHETA
ANTERO M. SISON, JR., petitioner, vs. RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue;
ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue; TOMAS TOLEDO, Deputy Commissioner,
Bureau of Internal Revenue;
MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A.
VIRATA, Minister of Finance, respondents.
Doctrine:The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of sovereignty. It is the
strongest of all the powers of government." It is, of course, to be admitted that for all its plenitude, the power to tax is
not unconfined. There are restrictions. The Constitution sets forth such limits. Adversely affecting as it does property
rights, both the due process and equal protection clauses may properly be invoked, as petitioner does, to invalidate
in appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1803 dictum of Chief
Justice Marshall that "the power to tax involves the power to destroy." Justice Frankfurter, after referring to it as an
"unfortunate remark," characterized it as "a flourish of rhetoric [attributable to] the intellectual fashion of the times
[allowing] a free use of absolutes." This is merely to emphasize that it is not and there cannot be such a
constitutional mandate. Justice Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's
famous dictum was brushed away by one stroke of Mr. Justice Holmes's pen: 'The power to tax is not the power
to destroy while this Court sits.'
FACTS: The success of the challenge posed in this suit for declaratory relief or prohibition proceeding on the validity
of Section 1 of Batas Pambansa Blg. 135 depends upon a showing of its constitutional infirmity. The assailed
provision further amends Section 21
of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens or residents on (a) taxable
compensation income, (b) taxable net income, (c) royalties, prizes, and other winnings, (d) interest from bank
deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar arrangements, (e) dividends and share of
individual partner in the net profits of taxable partnership, (f) adjusted gross income. As taxpayer alleges that by
virtue thereof, "he would be unduly
discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his
profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers." He characterizes
the above section as arbitrary
amounting to class legislation, oppressive and capricious in character.
ISSUE: Whether or not the imposition of a higher tax rate on taxable net income derived from business or profession
than on compensation is constitutionally infirm.
HELD: No.
It is manifest that the field of state activity has assumed a much wider scope. Hence the need for more revenues.
The power to tax, an inherent prerogative, has to be availed of to assure the performance of vital state functions. It is
the source of the bulk of public
funds. To paraphrase a recent decision, taxes being the lifeblood of the government, their prompt and certain
availability is of the essence.
Petitioner alleges arbitrariness. A mere allegation does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner would condemn the provision as void on its face, he has not made
out a case. This is merely to adhere to
the authoritative doctrine that where the due process and equal protection clauses are invoked, considering that they
are not fixed rules but rather broad standards, there is a need for proof of such persuasive character as would lead
to such a conclusion. Absent
such a showing, the presumption of validity must prevail.
Classification, if rational in character, is allowable. In a leading case, Lutz v. Araneta, 98 Phil. 143 (1955), the Court
went so far as to hold "at any rate, it is inherent in the power to tax that a state be free to select the subject of
taxation, and it has been repeatedly
held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation.' " Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution:
"The rule of taxation shall be uniform and equitable." (Art. VIII, Sec. 17, par. 1) This requirement is met according to
Justice Laurel in Philippine Trust Company v: Yatco, 69 Phil. 420 (1940) when the tax "operates with the same force
and effect in every place where the subject may be found.
The rule of uniformity does not call for perfect uniformity or perfect equality, because this is hardly attainable."
In the case of the gross income taxation embodied in Batas Pambansa Blg. 135, the discernible basis of
classification is the susceptibility of the income to the application of generalized rules removing all deductible items
for all taxpayers within the class and fixing a
set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of compensation income are set
apart as a class. As there is practically no overhead expense, these taxpayers are not entitled to make deductions
for income tax purposes because
they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their
calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would
not be just then to disregard the
disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the
basis of gross income. There is ample justification for the Batasang Pambansa to adopt the gross system of income
taxation to compensation income,
while continuing the system of net income taxation as regards professional and business income.

REYES V. ALMANZOR
JOSE B.L. REYES and EDMUNDO A. REYES, petitioners, vs. PEDRO ALMANZOR, VICENTE ABAD SANTOS,
JOSE ROÑO, in their capacities as appointed and Acting Members of the CENTRAL BOARD OF ASSESSMENT
APPEALS; TERESITA H. NOBLEJAS, ROMULO M. DEL ROSARIO, RAUL C. FLORES, in their capacities as
appointed and Acting Members of the BOARD OF ASSESSMENT APPEALS of Manila; and NICOLAS CATIIL, in his
capacity as City Assessor of Manila, respondents.
Doctrine:
The power to tax "is an attribute of sovereignty". In fact, it is the strongest of all the powers of government. But for all
its plenitude, the power to tax is not unconfined as there are restrictions. Adversely effecting as it does property
rights, both the due process and equal protection clauses of the Constitution may properly be invoked to invalidate in
appropriate cases a revenue measure. If it were otherwise, there would be truth to the 1903 dictum of Chief Justice
Marshall that "the power to tax involves the power to destroy." The web or unreality spun from Marshall's famous
dictum was brushed away by one stroke of Mr. Justice Holmes' pen, thus: "The power to tax is not the power to
destroy while this Court sits." "So it is in the Philippines." (Sison, Jr. v. Ancheta, 130 SCRA 655 [1984]; Obillos, Jr. v.
Commissioner of Internal Revenue, 139 SCRA 439 [1985]).
In the same vein, the due process clause may be invoked where a taxing statute is so arbitrary that it finds no
support in the Constitution. An obvious example is where it can be shown to amount to confiscation of property. That
would be a clear abuse of power.
FACTS: Petitioners J.B.L. Reyes, Edmundo and Milagros Reyes are owners of parcels of land situated in Tondo and
Sta. Cruz Districts, City of Manila, which are leased and entirely occupied as dwelling sites by tenants. Said tenants
were paying monthly rentals not exceeding three hundred pesos (P300.00) in July, 1971. On July 14, 1971, the
National Legislature enacted Republic Act No. 6359 prohibiting for one year from its effectivity, an increase in
monthly rentals of dwelling units or of lands on which another's dwelling is located, where such rentals do not exceed
three hundred pesos (P300.00) a month but allowing an increase in rent by not more than 10% thereafter.
On October 12, 1972, Presidential Decree No. 20 amended R.A. No. 6359 by making absolute the prohibition to
increase monthly rentals below P300.00 and by indefinitely suspending the aforementioned provision of the Civil
Code, excepting leases with a definite period. Consequently, the Reyeses, petitioners herein, were precluded from
raising the rentals and from ejecting the tenants. In 1973, respondent City Assessor of Manila reclassified and
reassessed the value of the subject properties based on the schedule of market values duly reviewed by the
Secretary of Finance. The revision, as expected, entailed an increase in the corresponding tax rates prompting
petitioners to file a Memorandum of Disagreement with the Board of Tax Assessment Appeals. They averred that the
reassessments made were "excessive, unwarranted, inequitable, confiscatory and unconstitutional" considering that
the taxes imposed upon them greatly exceeded the annual income derived from their properties. They argued that
the income approach should have been used in determining the land values instead of the comparable sales
approach which the City Assessor adopted.
ISSUE: Whether or not the Honorable Board erred in ADOPTING THE "COMPARABLE SALES APPROACH"
METHOD IN FIXING THE ASSESSED VALUE OF APPELLANTS' PROPERTIES.
HELD: Yes. The petition is impressed with merit.
The crux of the controversy is in the method used in tax assessment of the properties in question. Petitioners
maintain that the "Income Approach" method would have been more realistic for in disregarding the effect of the
restrictions imposed by P.D. 20 on the market value of the properties affected, respondent Assessor of the City of
Manila unlawfully and unjustifiably set increased new assessed values at levels so high and successive that the
resulting annual real estate taxes would admittedly exceed the sum total of the yearly rentals paid or payable by the
dweller tenants under P.D. 20. Hence, petitioners protested against the levels of the values assigned to their
properties as revised and increased on the ground that they were arbitrarily excessive, unwarranted, inequitable,
confiscatory and unconstitutional.
Under Art. VIII, Sec. 17 (1) of the 1973 Constitution, then enforced, the rule of taxation must not only be uniform, but
must also be equitable and progressive.
Uniformity has been defined as that principle by which all taxable articles or kinds of property of the same class shall
be taxed at the same rate (Churchill v. Concepcion, 34 Phil. 969 [1916]).
Taxation is said to be equitable when its burden falls on those better able to pay. Taxation is progressive when its
rate goes up depending on the resources of the person affected.
The taxing power has the authority to make a reasonable and natural classification for purposes of taxation but the
government's act must not be prompted by a spirit of hostility, or at the very least discrimination that finds no support
in reason. It suffices then that the laws operate equally and uniformly on all persons under similar circumstances or
that all persons must be treated in the same manner, the conditions not being different both in the privileges
conferred and the liabilities imposed.
Finally under the Real Property Tax Code (P.D. 464 as amended), it is declared that the first Fundamental Principle
to guide the appraisal and assessment of real property for taxation purposes is that the property must be "appraised
at its current and fair market value."
By no stretch of the imagination can the market value of properties covered by P.D. No. 20 be equated with the
market value of properties not so covered. The former has naturally a much lesser market value in view of the rental
restrictions.
Verily, taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.
However, 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 taxations, which is the promotion of the common good, may be achieved
(Commissioner of Internal Revenue v. Algue, Inc., et al., 158 SCRA 9 [1988]). Consequently, it stands to reason that
petitioners who are burdened by the government by its Rental Freezing Laws (then R.A. No. 6359 and P.D. 20)
under the principle of social justice should not now be penalized by the same government by the imposition of
excessive taxes petitioners can ill afford and eventually result in the forfeiture of their properties.
PREMISES CONSIDERED, (a) the petition is GRANTED; (b) the assailed decisions of public respondents are
REVERSED and SET ASIDE; and (c) the respondent Board of Assessment Appeals of Manila and the City Assessor
of Manila are ordered to make a new assessment by the income approach method to guarantee a fairer and more
realistic basis of computation.
6. Principles of a Sound Tax System
Basic principles of a sound tax system (Canons of Taxation) [FAT]
1. Fiscal adequacy
a. Revenue raised must be sufficient to meet government/public expenditures and other public needs (Chavez v.
Ongpin, G.R. No. 76778, June 6, 1990). Neither an excess nor a deficiency of revenue vis-à-vis the needs of
government would be in keeping with the principle (Vitug, 2006).
2. Administrative feasibility
a. The tax system should be capable of being effectively administered and enforced with the least inconvenience to
the taxpayer (Diaz v. Secretary of Finance, G.R. No. 193007, July 19, 2011).
3. Theoretical justice
a. Must take into consideration the taxpayer’s ability to pay (Ability to Pay Theory).
b. Art. VI, Sec. 28(1), 1987 Constitution mandates that the rule on taxation must be uniform and equitable and that
the State must evolve a progressive system of taxation.
A violation of the principle of a sound tax system may or may not invalidate a tax law
A tax law will retain its validity even if it is not in consonance with the principles of fiscal adequacy and administrative
feasibility because the Constitution does not expressly require so. These principles are only designated to make
our tax system sound. However, if a tax law runs contrary to the principle of theoretical justice, such violation will
render the law unconstitutional considering that under the Constitution, the rule of taxation should be uniform and
equitable (J. Dimaampao, 2015).
7. Stages of Aspects of Taxation
Stages/aspects of a system of taxation [LAPR] (2006 Bar)
1. Levy or Imposition (Tax Legislation) – This refers to the enactment of a law by Congress authorizing the
imposition of tax. It further contemplates the determination of the subject of taxation, purpose for which the tax shall
be levied, fixing the rate of taxation and the rules of taxation in general.
2. Assessment and Collection (Tax Administration) – This is the act of administration and implementation of the
tax law by executive through its administrative agencies. The act of assessing and collecting taxes is administrative
in character, and therefore can be delegated (J. Dimaampao, 2015,).
NOTE: The term “assessment” which here means notice and demand for payment of a a tax liability, should not be
confused with “assessment” relative to a real property taxation, which refers to the listing and valuation of taxable
real property.
3. Payment – The act of compliance by the taxpayer, including such options, schemes or remedies as may be
legally available.
GR: Tax shall be paid by the person subject thereto at the time the return is filed (Sec. 56[A][1], NIRC).
XPN: When the tax due is in excess of P2,000, the taxpayer other than a corporation may elect to pay the tax in 2
equal installments in which case, the first installment shall be paid at the time the return is filed and the second
installment, on or before July 15 following the close of the calendar year (Sec. 56[A][2], NIRC).
NOTE: If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid
becomes due and payable, together with delinquency penalties.
4. Refund – The recovery of any alleged to have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any sum alleged to have been excessively, or in any
manner wrongfully collected.
8. Requisites of a Valid Tax
1. It should be for a public purpose
2. It should be uniform
3. That either the person or property being taxed be within the jurisdiction of the taxing authority
4. The tax must not impinge on the inherent and constitutional limitations on the power of taxation
9. Tax as distinguished from other forms of exactions
10. Kinds of Taxes
As to object:
1. Personal/Poll or Capitation tax – A fixed amount imposed upon all persons, or upon all persons of a certain
class, residents within a specified territory, without regard to their property or occupation. E.g. Community
tax
2. Property tax – Tax imposed on property, whether real or personal, in proportion either to its value, or in
accordance with some other reasonable method of apportionment. E.g. Real Property tax
3. Privilege/Excise tax – a charge upon the performance of an act, the enjoyment of a privilege, or the
engaging in an occupation. An excise tax is a tax that does not fall as property tax. E.g. Income tax, Estate
tax, Donor’s tax, VAT
NOTE: This is different from the excise tax under the NIRC which is a business tax imposed on items such as cigars,
cigarettes, wines, liquors, frameworks, mineral products, etc.
As to burden or incidence:
1. Direct
2. Indirect
(1) Direct taxes are demanded from the very person who, as intended, should pay the tax which he cannot
shift to another.
(2)
(3) Indirect taxes are demanded in the first instance from one person with the expectation that he can shift
the burden to someone else, not as a tax but as a part of the purchase price.
---
Income tax, estate and donor's tax are considered as direct taxes. On the other hand, value-added tax, excise
tax, other percentage taxes, and documentary stamp tax are indirect taxes.
NOTE: The liability for payment of the indirect taxes lies only with the seller of the goods or services, not in the buyer
thereof. Thus, one cannot invoke one’s exemption privilege to avoid the passing on or the shifting of the VAT to him
by the manufacturers/suppliers of the goods. Hence, it is important to determine if the tax exemption granted
specifically includes the indirect tax, otherwise, it is presumed that the tax exemption embraces only those taxes for
which the buyer is directly liable (CIR v. PLDT, 478 SCRA 61).
Indirect taxes, like VAT and excise tax, are different from withholding taxes (direct taxes). To distinguish, indirect
taxes, the incidence of taxation falls on one person but the burden thereof can be shifted or passed on to another
person, such as when the tax is
imposed upon goods before reaching the consumer who ultimately pays for it. On the other hand, in case of
withholding taxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The burden of
taxation is not shifted to the withholding
agent who merely collects, by withholding, the tax due from income payments to entities arising from certain
transactions and remits the same to the government. Due to this difference, the deficiency VAT and excise tax
cannot be “deemed” as withholding taxes
merely because they constitute indirect taxes (Asia International Auctioneers, Inc. v. CIR, G.R. No. 179115,
September 26, 2012).
As to tax rates:
1. Specific – tax of a fixed amount imposed by the head or number, or by some standard of weight or
measurement. E.g. Excise tax on cigar, cigarettes and liquors
2. Ad valorem – tax based on the value of the property with respect to which the tax is assessed. It requires
the intervention of assessors or appraisers to estimate the value of such property before the amount due
can be determined. E.g. Real estate tax, Income tax, Donor’s tax and Estate tax
3. Mixed – a choice between ad valorem and/or specific depending on the condition attached.
As to purposes: 1. When the property has acquired a business situs in another jurisdiction, such that it has definite location there,
1. General/Fiscal or Revenue – tax imposed solely for the general purpose of the government. E.g. Income accompanied by some degree of permanency;
tax and Donor’s tax 2. When an express provision of the statute provides for another rule.

2. Special / Regulatory or Sumptuary – tax levied for specific purpose, i.e. to achieve some social or NOTE: Under Sec. 104 of the NIRC, in case of donor’s and estate tax, the following properties are considered as
economic ends E.g. Tariff and certain duties on imports situated, thus taxed, in the Philippines and the residence of their owners are immaterial, EXCEPT where the foreign
country grants exemption or does not impose taxes on intangible properties to Filipino citizens.
As to scope or authority to impose: a. Franchise which must be exercised in the Philippines;
1. National tax – Tax levied by the National Government. E.g. Income tax, Estate tax, Donor’s tax, VAT, b. Shares, obligations or bonds issued by any corporation or sociedad anonima;
Other Percentage taxes and Documentary Stamp taxes c. Organized or constituted in the Philippines in accordance with its laws;
d. Shares, obligations or bonds by any foreign corporation 85% of its business is located in the Philippines;
2. Local or Municipal – A tax levied by a local government. E.g. Real Estate tax and Community tax e. Shares, obligations or bonds issued by any Foreign corporation if such shares, obligations or bonds have
acquired a business situs in the Philippines;
As to graduation: f. Shares or rights in any partnership, business or industry established in the Philippines.
1. Progressive – A tax rate which increases as the tax base or bracket increases. E.g. Income tax, Estate tax
and Donor’s tax Application of the doctrine of mobilia sequuntur personam not mandatory in all cases
Such doctrine has been decreed as a mere "fiction of law having its origin in considerations of general convenience
2. Regressive – The tax rate decreases as the tax base or bracket increases. and public policy, and cannot be applied to limit or control the right of the State to tax property within its jurisdiction,"
and must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied
3. Proportionate – A tax of a fixed percentage of amounts of the base (value of the property, or amount of if to do so would result in inescapable and patent injustice" (Wells Fargo Bank and Union Trust v. Collector, G.R. No.
gross receipts etc.) E.g. VAT and Other Percentage taxes L-46720, June 28, 1940).

11. Situs of Taxation c. Excise Tax

Income Tax (Criteria: Place, Nationality, Residence)

It is the place or authority that has the right to impose and collect taxes (Commissioner v. Marubeni, G.R. No. Place (applied to NRA, NRFC, NRC) - From sources of income derived within the Philippines
137377, December 18, 2001). Nationality (applied to RC, DC) - From sources of income derived within and without the Philippines
Residence (applied to RA, RFC) - From sources of income derived within the Philippines
Factors that determine the situs of taxation [ReCiNS2]
1. Residence of the taxpayer Donor’s Tax and Estate Tax (Criteria: Place, Nationality, Residence)
2. Citizenship of the taxpayer Place (applied to NRA) - Taxed on properties situated within the Philippines
3. Nature of the tax Nationality (applied to RC, NRC) - Taxed upon their properties wherever situated
4. Subject matter of the tax Residence (applied to RA) - Taxed upon their properties wherever situated
5. Source of income
VAT – Place where the transaction is made. If the transaction is made (perfected and consummated) outside of the
Rules Observed in Fixing Tax Situs Philippines, we can no longer tax such transaction (J. Dimaampao, 2015).
a. Poll/Capitation/Community Tax - Residence of taxpayer, regardless of the source of income or location
of property of the taxpayer
NOTE: Situs of taxation of excise tax is the place where the privilege is exercised. In case of a franchise, which is a
b. Property Tax right or privileges granted to it by the government, the situs of taxation is the place where the franchise holder
exercises its franchise regardless of the place where its services or products are delivered. Thus, in a franchise of
electric power distribution, the franchisee is liable within the jurisdiction it exercises its privilege (City of Iriga v.
Real Property - Location of the property (lex reisitae / lex situs), regardless of whether the owner is a resident or Camarines Sur III Electric Cooperative, G.R. No. 192945, September 5, 2012).
non-resident

Rationale: The Documentary Stamp Tax is in the nature of an excise tax because it is imposed upon the privilege, opportunity
1. The taxing authority has control because of the stationary and fixed character of the property. or facility offered at exchanges for the transaction of the business (CIR v. Pilipinas Shell Petroleum Corporation,
2. The place where the real property is situated gives protection to the real property; hence the property or its G.R. No. 192398, September 29, 2014).
owner should support the government of that place.
Remedies available against multiplicity of situs
Personal Property Tax laws and treaties with other States may:
1. Exempt foreign nationals from local taxation and local nationals from foreign taxation under the principle of
Tangible – Location of the property reciprocity;
Intangible – GR: Domicile of the owner, wherever it is actually kept or located, pursuant to the principle of the 2. Credit foreign taxes paid from local taxes due;
mobilia sequntur personam, which literally means “movable follows the person/owner.” 3. Allow foreign taxes as deduction from gross income; or
XPN: 4. Reduce the Philippine income tax rate.
12. Construction and Interpretation
a. Tax Laws
GR: Tax statutes must be construed strictly against the government and liberally in favor of the taxpayer (MCIAA v.
Marcos, G.R. No. 120082 September 11, 1996). The imposition of a tax cannot be presumed.
XPN: Unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled
rule that the imposition of a tax cannot be presumed. Where there is doubt, tax laws must be construed strictly
against the government and in favor of the taxpayer. This is because taxes are burdens on the taxpayer, and should
not be unduly imposed or presumed beyond what the statutes expressly and clearly import (CIR v. The Philippine
American Accident Insurance, Inc., 453 SCRA 668, G.R. No. 141658 March 18, 2005).
The rule that, in case of doubt of legislative intent, the doubt must be liberally construed in favor of taxpayer does not
extend to cases involving the issue of the validity of the tax law itself which, in every case, is presumed valid.
b. Tax Exemption and Exclusions
GR: Statutes granting tax exemptions are construed in strictissimi juris against the taxpayers and liberally in favor of
the taxing authority (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996).
Tax refunds are in the nature of tax exemptions which are construed in strictissimi juris against the taxpayer and
liberally in favor of the government (Kepco Philippines Corporation v. CIR, G.R. No. 179961, January 31, 2011).
It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius. Thus, the omission or
removal of PAGCOR from exemption from the payment of corporate income tax is to require it to pay corporate
income tax (PAGCOR v. BIR, G.R. No. 172087, March 15, 2011).
XPNs:
a. If the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of
construction does not apply because the practical effect of the exemption is merely to reduce the
amount of money that has to be handled by the government in the course of its operations
(MCIAA v. Marcos, G.R. No. 120082, September 11, 1996).
b. The exemption granted in favor of NAPOCOR must be liberally construed. It is a recognized
principle that the rule on strict interpretation does not apply in the case of exemptions in favor of
a government political subdivision or instrumentality. In the case of property owned by the state
or a city or other public corporations, the express exemption should not be construed with the
same degree of strictness that applies to exemptions contrary to the policy of the state, since as
to such property "exemption is the rule and taxation the exception” (Maceda v. Macaraig,
G.R. No. 88291, May 31, 1991).
c. Erroneous payment of the tax, or absence of law for the government’s exaction (CIR v. Fortune
Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008).
c. Tax Rules and Regulations
The construction placed by the office charged with implementing and enforcing the provisions of a Code should be
given controlling weight unless such interpretation is clearly erroneous.
It is of course axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of the
enabling statute if such rule or regulation is to be valid. In case of conflict between a statute and an administrative
order, the former must prevail. To be valid, an administrative rule or regulation must conform, not contradict, the
provisions of the enabling law. An implementing rule or regulation cannot modify, expand, or subtract from the law it
is intended to implement. Any rule that is not consistent with the statute itself is null and void (Fort Bonifacio
Development Corporation v. CIR, G.R. No. 175707, November 19, 2014).
Revenue Memorandum Circulars (RMCs) must not override, supplant, or modify the law, but must remain consistent
and in harmony with the law they seek to apply and implement (CIR v. SM Prime Holdings, Inc., 613 SCRA 774,
2010).
Admittedly the government is not estopped from collecting taxes legally due because of mistakes or errors of its
agents. But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where
injustice will result to the taxpayer (CIR v. CA, G.R. No. 117982, February 6, 1997).
d. Penal provisions of Tax Laws
In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its right to prosecute.
They receive strict construction in favor of the Government and limitations in such cases will not be presumed in the
absence of clear legislation (Lim v. CA, G.R. No. 48134-37, October 18, 1990).
e. Non-retroactive application to Taxpayers
Tax laws, including rules and regulations operate prospectively unless otherwise legislatively intended by express
terms or by necessary implication (Gulf Air Company, Philippine Branch v. CIR, G.R. No. 182045, September 19,
2012).
Revenue statutes are substantive laws and in no sense must their application be equated with that of remedial laws
(CIR v. Acosta, G.R. No. 154068, August 3, 2007).
GR: Tax laws operate prospectively whether they enact, amend or repeal.
XPN: Tax laws may only be given retroactive application if the legislature expressly or impliedly provides that it shall
be given retroactive application.
BIR Rules and Regulations that revoke, modify or reverse a ruling or circular
GR: It shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the
taxpayers.
XPN:
1) It may be given retroactive effect even if such would be prejudicial to the taxpayer in the following cases:
a. Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him
by the BIR;
b. Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is
based;
c. Where the taxpayer acted in bad faith (Sec. 246, NIRC).
2) If the revocation is due to the fact that the regulation is erroneous or contrary to law, such revocation shall have
retroactive operation as to affect past transactions, because a wrong construction of the law cannot give rise to a
vested right that can be invoked by a taxpayer.
NOTE: Retroactive application of revenue laws may be allowed if it will not amount to denial of due process. There is
violation of due process when the tax law imposes harsh and oppressive tax (J. Dimaampao, 2015).
Relevant Jurisprudence
CIR V. SAN MIGUEL CORPORATION

Doctrine:
The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does so
clearly, expressly, and unambiguously. A tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar
strictness to tax laws and the provisions of a taxing act are not to be extended by implication. As burdens, taxes
should not be unduly exacted nor assumed beyond the plain meaning of the tax laws.
FACTS: Respondent San Miguel Corporation, a domestic corporation engaged in the manufacture and sale of
fermented liquor, produces as one of its products "Red Horse" beer which is sold in 500-ml. and 1-liter bottle
variants.
On January 1, 1998, Republic Act (R.A.) No. 8424 or the Tax Reform Act of 1997
took effect. It reproduced, as Section 143 thereof, the provisions of Section 140 of the old National Internal Revenue
Code as amended by R.A. No. 8240 which became effective on January 1, 1997. Section 143 of the Tax Reform Act
of 1997 reads:
SEC. 143. Fermented Liquor. — There shall be levied, assessed and collected an excise tax on beer, lager beer,
ale, porter and other fermented liquors except tuba, basi, tapuy and similar domestic fermented liquors in
accordance with the following schedule:
(a) If the net retail price (excluding the excise tax and value-added tax) per liter of volume capacity is less than
Fourteen pesos and fifty centavos (P14.50), the tax shall be Six pesos and fifteen centavos (P6.15) per
liter;
(b) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is
Fourteen pesos and fifty centavos (P14.50) up to Twenty-two pesos (P22.00), the tax shall be Nine pesos
and fifteen centavos (P9.15) per liter;
(c) If the net retail price (excluding the excise tax and the value-added tax) per liter of volume capacity is more
than Twenty-two pesos (P22.00), the tax shall be Twelve pesos and fifteen centavos (P12.15) per liter.
Variants of existing brands which are introduced in the domestic market after the effectivity of Republic Act No. 8240
shall be taxed under the highest classification of any variant of that brand.
Fermented liquor which are brewed and sold at micro-breweries or small establishments such as pubs and
restaurants shall be subject to the rate in paragraph (c) hereof.
The excise tax from any brand of fermented liquor within the next three (3) years from the effectivity of Republic Act
No. 8240 shall not be lower than the tax which was due from each brand on October 1, 1996.
The rates of excise tax on fermented liquor under paragraphs (a), (b) and (c) hereof shall be increased by twelve
percent (12%) on January 1, 2000.
Thereafter, on December 16, 1999, the Secretary of Finance issued Revenue Regulations No. 17-99 increasing the
applicable tax rates on fermented liquor by 12% as follows:
This increase, however, was qualified by the last paragraph of Section 1 of Revenue Regulations No. 17-99 which
reads:
Provided, however, that the new specific tax rate for any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquors shall not be lower than the excise tax that is actually being paid prior to
January 1, 2000.
Now, for the period June 1, 2004 to December 31, 2004, respondent was
assessed and paid excise taxes amounting to P2,286,488,861.58 for the 323,407,194 liters of Red Horse beer
products removed from its plants. Said amount was computed based on the tax rate of P7.07/liter or the tax rate
which was being applied to its products prior to January 1, 2000, as the last paragraph of Section 1 of Revenue
Regulations No. 17-99 provided that the new specific tax rate for fermented liquors "shall not be lower than the
excise tax that is actually being paid prior to January 1, 2000." Respondent, however, later contended that the said
qualification in the last paragraph of Section 1 of Revenue Regulations No. 17-99 has no basis in the plain wording
of Section 143. Respondent argued that the applicable tax rate was only the P6.89/liter tax rate stated in Revenue
Regulations No. 17-99, and that accordingly, its excise taxes should have been only P2,228,275,566.66.
On May 22, 2006, respondent filed before the BIR a claim for refund or tax credit of the amount of P60,778,519.56
as erroneously paid excise taxes for the period of May 22, 2004 to December 31, 2004. Later, said amount was
reduced to P58,213,294.92 because of prescription. As the petitioner Commissioner of Internal Revenue (CIR) failed
to act on the claim, respondent filed a petition for review with the CTA.
On September 26, 2007, the CTA Second Division granted the petition and ordered petitioner to refund
P58,213,294.92 to respondent or to issue in the latter's favor a Tax Credit Certificate for the said amount for the
erroneously paid excise taxes. The CTA held that Revenue Regulations No. 17-99 modified or altered the mandate
of Section 143 of the Tax Reform Act of 1997.
ISSUE: Whether or not the last paragraph of Section 1 of Bureau of Internal Revenue (BIR) Revenue Regulations
No. 17-99 faithfully complies with the mandate of Section 143 of the Tax Reform Act of 1997.
HELD: No.
Section 143 of the Tax Reform Act of 1997 is clear and unambiguous. It provides for two periods: the first is the 3-
year transition period beginning January 1, 1997, the date when R.A. No. 8240 took effect, until December 31, 1999;
and the second is the period thereafter. During the 3-year transition period, Section 143 provides that "the excise tax
from any brand of fermented liquor . . . shall not be lower than the tax which was due from each brand on October 1,
1996." After the transitory period, Section 143 provides that the excise tax rate shall be the figures provided under
paragraphs (a), (b) and (c) of Section 143 but increased by 12%, without regard to whether such rate is lower or
higher than the tax rate that is actually being paid prior to January 1, 2000 and therefore, without regard to whether
the revenue collection starting January 1, 2000 may turn out to be lower than that collected prior to said date.
Revenue Regulations No. 17-99, however, created a new tax rate when it added in the last paragraph of Section 1
thereof, the qualification that the tax due after the 12% increase becomes effective "shall not be lower than the tax
actually paid prior to January 1, 2000." As there is nothing in Section 143 of the Tax Reform Act of 1997 which
clothes the BIR with the power or authority to rule that the new specific tax rate should not be lower than the excise
tax that is actually being paid prior to January 1, 2000, such interpretation is clearly an invalid exercise of the power
of the Secretary of Finance to interpret tax laws and to promulgate rules and regulations necessary for the effective
enforcement of the Tax Reform Act of 1997. Said qualification must, perforce, be struck down as invalid and of no
effect.
It bears reiterating that tax burdens are not to be imposed, nor presumed to be imposed beyond what the statute
expressly and clearly imports, tax statutes being construed strictissimi juris against the government. In case of
discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails as
said rule or regulation cannot go beyond the terms and provisions of the basic law. It must be stressed that the
objective of issuing BIR Revenue Regulations is to establish parameters or guidelines within which our tax laws
should be implemented, and not to amend or modify its substantive meaning and import.
Hence, while it may be true that the interpretation advocated by petitioner CIR is in furtherance of its desire to raise
revenues for the government, such noble objective must yield to the clear provisions of the law, particularly since, in
this case, the terms of the said law are clear and leave no room for interpretation.
CIR V. ACESITE (PHILIPPINES) HOTEL CORPORATION
(a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor
shall any form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of five
(5%) percent of the gross revenue or earnings derived by the Corporation from its operation under this Franchise.
Such tax shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of taxes,
levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal,
provincial, or national government authority.

Doctrine: Action for refund strictly construed; Acesite discharged the burden of proof.
Since an action for a tax refund partakes of the nature of an exemption, which cannot be allowed unless granted in
the most explicit and categorical language, it is strictly construed against the claimant who must discharge such
burden convincingly. In the instant case, respondent Acesite had discharged this burden as found by the CTA and
the CA. Indeed, the records show that Acesite proved its actual VAT payments subject to refund, as attested to by an
independent Certified Public Accountant who was duly commissioned by the CTA. On the other hand, petitioner
never disputed nor contested respondent's testimonial and documentary evidence. In fact, petitioner never presented
any evidence on its behalf.
FACTS: Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue in
Manila. It leases 6,768.53 square meters of the hotel's premises to the Philippine Amusement and Gaming
Corporation [hereafter, PAGCOR] for casino operations. It also caters food and beverages to PAGCOR's casino
patrons through the hotel's restaurant outlets. For the period January (sic) 96 to April 1997, Acesite incurred VAT
amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR during said period.
Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter
refused to pay the taxes on account of its tax exempt status.
(b) Others: The exemptions herein granted for earnings derived from the operations conducted under the franchise
specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall
inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the
Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized
to be conducted under this Franchise and to those receiving compensation or other remuneration from the
Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the
Corporation or operator.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on
whether the taxes are direct or indirect.
Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted
exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted
or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending
the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR
from being liable to indirect taxes.

MOPPET
Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT to the
Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal consequences of non-payment of the tax. 13. SOURCES OF TAX LAWS
However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it ● Local Taxes: refer to those imposed and collected by the local government
was rendered to a tax-exempt entity. On 21 May 1998, Acesite filed an administrative claim for refund with the CIR ● National Taxes: refer to national internal revenue taxes and tariff imposed and collected by the national
but the latter failed to resolve the same. Thus on 29 May 1998, Acesite filed a petition with the Court of Tax Appeals. government through agencies
The CTA ruled in favor of Acesite.
❖ Constitution
Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR was not only
exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the transactions ❖ Laws
between respondent Acesite and PAGCOR were "effectively zero-rated" because they involved the rendition of ● 1997 National Internal Revenue Code (RA 8424, as amended up to RA 10963 — the Tax Reform for
services to an entity exempt from indirect taxes. Acceleration and Inclusion or TRAIN )
● Tariff and Customs Code
● Local Government Code
ISSUE:
● Tax ordinances of Local Government Units
Whether or not Acesite discharged the burden of proof, since action for refund is strictly construed. (Refer to
Doctrine.)
❖ Case Law (Decisions of the Courts — Trial Courts, Court of Tax Appeal, Court of Appeals and the
Supreme Court)
Whether PAGCOR's tax exemption privilege includes the indirect tax of VAT to entitle Acesite to zero percent (0%)
VAT rate. (Refer to below discussion.)
❖ Administrative Issuances/ Interpretations
● Executive Orders
HELD: Yes.
● BIR Rulings
● Revenue Regulations Revenue Memorandum Circulars
It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of ● Revenue Memorandum Orders
taxes. Section 13 of P.D. 1869 pertinently provides:
❖ Tax treaties, executive agreements and conventions
Sec. 13. Exemptions. —
14. DOCTRINES OF TAXATION
(2) Income and other taxes. — ❖ Prospectivity
● General Rule: tax laws must only be imposed prospectively
● Exception: if the law expressly provides for retroactive application; retroactive application of revenue laws
may be allowed if it will not amount to denial of due process; there is a violation of due process when the
tax law imposes harsh and oppressive tax
❖ Imprescriptibility
● General Rule: taxes are imprescriptible by reason that it is the lifeblood of the government
● Exception: tax laws may provide for statute of limitations; in particular, the NIRC and LGC provide for the
prescriptive periods for assessment and collection
❖ Double Taxation
● in its strict sense it mens taxing twice, by the same public authority, within the same taxing district, for the
same purpose, in the same year or taxing period, the same subject matter
● defined as the requirement that one person or any one subject of taxation shall directly contribute twice to
the same burden, while other subjects of taxation belonging to the same class are required to contribute
but once
❖ Escape from Taxation — Five Forms
● Shifting: the transfer of the burden of a tax by the original payer or the one on whom the tax was assessed
or imposed to another or someone else
● Capitalization: the reduction in the price of the taxed object equal to the capitalized value of future taxes
which the purchaser expects to be called upon to pay
● Transformation: the method of escape from taxation whereby the manufacturer or producer upon whom
the tax has been imposed, fearing the loss of his market if the should add the tax to the price, pays the tax
and endeavors to recoup himself by improving his process of production thereby turning out his units of
products at a lower cost. In such case, the loss occasioned by the tax may be offset by the gains resulting
from the economics of production
● Evasion: the use by the tax payer of illegal or fraudulent means to defeat or lessen the payment of a tax;
also known as “tax dodging”
● Avoidance: often called “tax planning” or “tax minimization”, is the use by the taxpayer of legally
permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or
reduce tax liability
❖ Exemption from Taxation - the grant of immunity to particular persons or corporations or to persons or
corporations of a particular class from a tax which persons and corporations generally within the same
state or taxing district are obliged to pay; it is an immunity or privilege; freedom from financial charge ir
burden to which others are subjected
❖ Doctrine of Equitable Recoupment
● a legal principle that grants a right to a creditor to recover debt; the debt diminishes to the extent s/he
holds the debtor’s property in violation of the debtor’s legal rights
● a legal principle that a creditor loses the right to recover a debt if the creditor illegally possess some of the
debtor’s property
❖ Compensation and Set-Off
● taxes cannot be subject to compensation for the simple reason that the government and the tax payer are
not creditors and debtors of each other
● there is a material distinction between a tax and debt — debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its sovereign capacity; a distinguishing feature of a tax
is that it is compulsory rather than a matter of bargain, hence a tax does not depend upon the consent of
the taxpayer
● if any tax payer can defer the payment of taxes by raising the defense that it still has a pending claim for
refund or credit, this would adversely affect the government revenue system; a taxpayer cannot refuse to
pay his taxes when they fall due simply because he has a claim against the government or that the
collection of the tax is contingent on the result of the lawsuit it filed against the government
● there can be no offsetting of taxes against the claims that the taxpayer may have against the government;
a person cannot refuse to pay tax on the ground that the government owes him an amount equal to or
greater than the tax being collected; the collection of tax cannot await the results of a set-off or
compensation — taxes cannot be a subject of set-off or compensation
❖ Compromise and Tax Amnesty
● Compromise: a contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to
one already commenced; it implied the mutual agreement by the parties in regard to the thing or subject
matter which is to be compromised; compromises are generally allowed and enforceable when the subject
matter thereof is not prohibited from being compromised and the person entering such compromise is duly
authorized to do so
● Tax Amnesty: a general pardon or intentional overlooking by the State of its authority to impose penalties
on persons otherwise guilty of tax evasion or violation of a revenue or tax law; it partakes of an absolute
forgiveness or waiver by the government of its rights to collect what is due it and to give tax evaders who
wish to relent a chance to start with a clean slate
❖ Taxpayer’s suit
1. Nature and Concept
● the plaintiff in a taxpayer’s suit is affected by the expenditure of public funds
● the right of a citizen and a taxpayer to maintain an action in courts to restrain the unlawful use of public
funds to his injury cannot be denied
2. vs. Citizen’s Suit
● the plaintiff in a citizen’s suit is but a mere instrument of the public concern
● in a matter of mere public right, the people are the real parties; it is at least the right, if not the duty, of
every citizen to interfere and see that a public offense be properly pursued and punished and that a public
grievance be remedied
3. Requisites, concept of Locus standi, doctrine of transcendental importance and ripeness for judicial
determination
● locus standi is a party’s personal and substantial interest in a case such that he has sustained or will
sustain direct injury as a result of the governmental act being challenged; being a mere procedural
technicality, the requirement of locus standi may be waived by the Court in the exercise of its discretion
● the SC has adopted a rule that even where the petitioners have failed to show direct injury they have been
allowed to sue under the principle of transcendental importance; considering the importance to the
public of a suit assailing the constitutionality of a tax law and in keeping with the Court’s duty, specially
explicated in the 1987 Constitution, to determine whether or not other branches of the Government have
kept themselves within the limits of the Constitution and the laws and that they have not abused the
discretion given to them, the SC may brush aside technicalities of procedure and take cognizance the suit
● judicial intervention is unnecessary in the absence of a factual setting or an actual controversy which is
endangered by the issuance of an assessment against the taxpayer; a closely related requirement is
ripeness, that is the question must be ripe for adjudication. And a constitutional question is ripe for
adjudication when the governmental act being challenged has a direct adverse effect on the individual
challenging it. Thus to be ripe for judicial adjudication, the petitioner must show a personal stake in the
outcome of the case or an injury to himself that can be redressed by a favorable decision of the Court.
Determinants to be considered as being of transcendental importance:
(1) the character of the funds or other assets involved in the case
(2) the presences of a clear case of disregard of a constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government; and
(3) the lack of any other party with a more direct and specific interest in raising the questions being raised
j. Relevant Jurisprudence
VILLANUEVA V. CITY OF ILOILO
DOCTRINE/S:
Double Taxation — In order 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.”
Rule of Uniformity of Taxes — taxes are uniform and equal when imposed upon all property of the same class or
character within the taxing authority; 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
FACTS: On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of
Republic Act 2264, otherwise known as the 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 (eleven), series of
1960 which states that:
"AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF
OPERATING TENEMENT HOUSES
"Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264,
otherwise known as the Autonomy Law of the Local Government, that:
"Section 1. — A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of
payment herein provided.
"Section 2. — Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting
space divided into separate apartments or accessories.
x x x”
In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses,
aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners
of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino
or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of
the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio City
and Quezon City, which cities, according to him, do not impose tenement or apartment taxes.
By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios
S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S.
Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has
likewise been paying real estate taxes on his property.
On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint,
respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, 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.
RTC: declared the ordinance illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose
apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes owners of
tenement houses who fail to pay the tax, (c) it constitutes "not only double taxation, but treble at that," and (d) it
violates the rule of uniformity of taxation.
ISSUE/S: WON
1. Ordinance 11 is illegal because it imposes double taxation? — NO
2. City of Iloilo is empowered by the Local Autonomy Act to impose tenement taxes? — YES
3. Ordinance 11 violate the rule of uniformity of taxes? — NO
RULING:
1. While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal
Revenue Code 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 local
government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same
occupation, calling or activity by both the State and a political subdivision thereof.
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. The State may collect an ad valorem tax on property used in
a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no
sense a double tax.
In order 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." 23 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.
At all events, there is no constitutional prohibition against double taxation in the Philippines. 24 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.
2. The pertinent provision of the Local Autonomy Act is:
“Sec. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal
districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or
business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure
licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or
the municipal district council of the municipal district; to collect fees and charges for services rendered by the city,
municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with
any business, profession or occupation being conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and
municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon
nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal
Revenue Code x x x”
It is now settled that the aforequoted provisions of Republic Act 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. 2 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.
The title of the ordinance designates it as a "municipal license tax on persons engaged in the business of operating
tenement houses," while Section 1 thereof states that a "municipal license tax is hereby imposed on tenement
houses.” The tax in question is not 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.
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 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.” “And it
not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to
the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question
is ultra vires insofar as it taxes a tenement house such as those belonging to defendants.”
3. It has been 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." 31 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. 32 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. 33 The plaintiffs-appellees, as
owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly
distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and
equally. 34
CITY OF BAGUIO V. FORTUNATO DE LEON
DOCTRINE/S:
Double Taxation — There is nothing inherently obnoxious in the requirement that license fees or taxes be exacted
with respect to the same occupation, calling or activity by both the state and the political subdivision thereof; Double
Taxation is not in violation of due process
Rule of Uniformity — "A tax is considered uniform when it operates with the same force and effect in every place
where the subject may be found.”; "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. The taxing power has the authority to make reasonable
and natural classifications for purposes of taxation; . . . . “; that the statute or ordinance in question "applies equally
to all persons, firms and corporations placed in similar situation."
FACTS: In this appeal, a lower court decision upholding the validity of an ordinance 1 of the City of Baguio imposing
a license fee on any person, firm, entity or corporation doing business in the City of Baguio is assailed by defendant-
appellant Fortunato de Leon.
He was held liable as a real estate dealer with a property therein worth more than P10,000, but not in excess of
P50,000, and therefore obligated to pay under such ordinance the P50 annual fee. That is the principal question.
In its decision of December 19, 1964, it declared the above ordinance as amended, valid and subsisting, and held
defendant- appellant liable for the fees therein prescribed as a real estate dealer. Hence, this appeal.
The source of authority for the challenged ordinance is supplied by Republic Act No. 329, amending the city charter
of Baguio 2 empowering it to fix the license fee and regulate "businesses, trades and occupations as may be
established or practiced in the City.”
ISSUE/S: WON
1. the City of Baguio, through its ordinance, has the authority to to impose a license fee and to levy a tax for
purposes of revenue? — YES
2. the ordinance is valid and constitutional even if it imposed double taxation? — YES
3. the ordinance violated the rule on uniformity in taxation? — NO
RULING: Unless it can be shown then that such a grant of authority is not broad enough to justify the enactment of
the ordinance now assailed, the decision appealed from must be affirmed.
1. In Medina v. City of Baguio, 3 the effect of the amendatory section insofar as it would expand the previous power
vested by the city charter was clarified in these terms: "Appellants apparently have in mind Section 2553, paragraph
(c) of the revised Administrative Code, which empowers the City of Baguio merely to impose a license fee for
purpose of regulating the business that may be established in the city. The power as thus conferred is indeed limited,
as it does not include the power to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted amending the
charter of said city and adding to its power to license the power to tax and to regulate. And it is precisely having in
view this amendment that Ordinance No. 99 was approved in order to increase the revenues of the city. In our
opinion, the amendment above adverted to empowers the city council not only to impose a license fee but also to
levy a tax for purposes of revenue, more so when in amending Section 2553 (b), the phrase `as provided by law' has
been removed by Section 2 of the Republic Act No. 329. The city council of Baguio, therefore, has now the power to
tax, to license and to regulate provided that the subjects affected be one of those included in the charter. In this
sense, the ordinance under consideration cannot be considered ultra vires whether its purpose be to levy a tax or
impose a license fee. The terminology used is of no consequence.”
It would be an undue and unwarranted emasculation of the above power thus granted if defendant-appellant were to
be sustained in his contention that no such statutory authority for the enactment of the challenged ordinance could
be discerned from the language used in the amendatory act. That is about all that needs to be said in upholding the
lower court, considering that the City of Baguio was not devoid of authority in enacting this particular ordinance.
2. To repeat the challenged ordinance cannot be considered ultra vires as there is more than ample statutory
authority for the enactment thereof. Nonetheless, its validity on constitutional grounds is challenged because of the
allegation that it imposed double taxation, which is repugnant to the due process clause, and that it violated the
requirement of uniformity. We do not view the matter thus.
An “argument against double taxation may not be invoked where one tax is imposed by the state and the other is
imposed by the city . . ., it being widely recognized that there is nothing inherently obnoxious in the requirement that
license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the
political subdivisions thereof.”
The above would clearly indicate how lacking in merit is this argument based on double taxation.
3. A tax is considered uniform when it operates with the same force and effect in every place where the subject may
be found.” "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class
shall be taxed at same rate. The taxing power has the authority to make reasonable and natural classifications for
purposes of taxation; . . . .
To satisfy this requirement then, all that is needed as held in another case decided two years later, 15 is that the
statute or ordinance in question "applies equally to all persons, firms and corporations placed in similar situation."
This Court is on record as accepting the view in a leading American case 16 that "inequalities which result from a
singling out of one particular class for taxation or exemption infringe no constitutional limitation." 17
It is thus apparent from the above that in much the same way that the plea of double taxation is unavailing, the
allegation that there was a violation of the principle of uniformity is inherently lacking in persuasiveness. There is no
need to pass upon the other allegations to assail the validity of the above ordinance, it being maintained that the
license fees therein imposed "is excessive, unreasonable and oppressive" and that there is a failure to observe the
mandate of equal protection. A reading of the ordinance will readily disclose their inherent lack of plausibility.
CIR V. ESTATE OF BENIGNO TODA JR.
DOCTRINE/S:
Tax Evasion — 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 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," "willful," or "deliberate and not accidental"; and (3) a course of action or failure of action which is unlawful.
Tax Avoidance — 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.
FACTS: The case at bar stemmed from a Notice of Assessment sent to Cibeles Insurance Corporation (CIC) by the
Commissioner of Internal Revenue for deficiency income tax arising from an 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. These two transactions were evidenced by
Deeds of Absolute Sale notarized on the same day by the same notary public.
For the sale of the property to RMI, Altonaga paid capital gains tax in the amount of P10 million.
On 16 April 1990, CIC filed its corporate annual income tax return 7 for the year 1989, declaring, among other things,
its gain from the sale of real property in the amount of P75,728.021. After crediting withholding taxes of P254,497.00,
it paid P26,341,207 8 for its net taxable income of P75,987,725.
On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for P12.5 million, as evidenced by a
Deed of Sale of Shares of Stocks. 9 Three and a half years later, or on 16 January 1994, Toda died.
On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an assessment notice 10 and demand letter to the
CIC for deficiency income tax for the year 1989 in the amount of P79,099,999.22. The new CIC asked for a
reconsideration, asserting that the assessment should be directed against the old CIC, and not against the new CIC,
which is owned by an entirely different set of stockholders; moreover, Toda had undertaken to hold the buyer of his
stockholdings and the CIC free from all tax liabilities for the fiscal years 1987–1989.
The Estate of Benigno P. Toda, Jr., represented by special co-administrators Lorna Kapunan and Mario Luza
Bautista, received a Notice of Assessment 12 dated 9 January 1995 from the Commissioner of Internal Revenue for
deficiency income tax for the year 1989 in the amount of P79,099,999.22. The Estate thereafter filed a letter of
protest.
CIR: ruled in favor of the petitioner and dismissed the protest stating that a fraudulent scheme was deliberately
perpetuated by the CIC
CTA: reversed CIR and held that respondent Toda is NOT liable for the deficiency income tax of Cibeles Insurance
Corporation (CIC)
CA: affirmed CTA
MAIN ISSUE: WON tax planning scheme adopted by a corporation constitutes tax evasion that would justify an
assessment of deficiency income tax? — YES
1. WON the CA erred in holding that respondent committed no fraud with intent to evade the tax on the sale
of the properties of Cibeles Insurance Corp? — YES
2. WON the CA erred in holding that the right if petitioner to assess respondent for deficiency income tax for
the year 1989 had prescribed — YES
RULING: Petition is hereby GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE, and
another one is hereby rendered ordering respondent Estate of Benigno P. Toda Jr. to pay P79,099,999.22 as
deficiency income tax of Cibeles Insurance Corporation for the year 1989, plus legal interest from 1 May 1994 until
the amount is fully paid.
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 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," "willful," or "deliberate and not
accidental"; and (3) a course of action or failure of action which is unlawful.
1. All these factors are present in the instant case. It is significant to note that as early as 4 May 1989, prior to the
purported sale of the Cibeles property by CIC to Altonaga on 30 August 1989, CIC received P40 million from RMI, 25
and not from Altonaga. That P40 million was debited by RMI and reflected in its trial balance 26 as "other inv. —
Cibeles Bldg." Also, as of 31 July 1989, another P40 million was debited and reflected in RMI's trial balance as "other
inv. — Cibeles Bldg." This would show that the real buyer of the properties was RMI, and not the intermediary
Altonaga.
The admission of the respondent Estate that the sale to Altomaga was part of the tax planning scheme of CIC which
is borne by the records. The scheme resorted to by CIC in making it appear that there were two sales of the subject
properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning.
Such scheme is tainted with fraud.
In the case at bar, it is obvious that the sale to Altonaga was to reduce the amount of tax to be paid especially 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.
In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of
tax liabilities than for legitimate business purposes constitutes one of tax evasion.
Generally a sale or exchange of assets will have an income tax incidence only when it is consummated. 32 The
incidence of taxation depends upon the substance of a transaction. The tax consequences arising from gains from a
sale of property are not finally to be determined solely by the means employed to transfer legal title. Rather, the
transaction must be viewed as a whole, and each step from the commencement of negotiations to the consummation
of the sale is relevant. A sale by one person cannot be transformed for tax purposes into a sale by another by using
the latter as a conduit through which to pass title. 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. 33
To allow a taxpayer to deny tax liability on the ground that the sale was made through another and distinct entity
when it is proved that the latter was merely a conduit is to sanction a circumvention of our tax laws. Hence, the sale
to Altonaga should be disregarded for income tax purposes. 34 The two sale transactions should be treated as a
single direct sale by CIC to RMI.
2. In cases of (1) fraudulent returns; (2) false returns with intent to evade tax; and (3) failure to file a return, the
period within which to assess tax is ten years from discovery of the fraud, falsification or omission, as the case may
be.
The prescriptive period to assess the correct taxes in case of false returns is ten years from the discovery of the
falsity. The false return was filed on 15 April 1990, and the falsity thereof was claimed to have been discovered only
on 8 March 1991. 37 The assessment for the 1989 deficiency income tax of CIC was issued on 9 January 1995.
Clearly, the issuance of the correct assessment for deficiency income tax was well within the prescriptive period.
Sec. 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) read:
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes. — (a) In the case of
a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or
a proceeding in court after the collection of such tax may be begun without assessment, at any time within
ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which
has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for collection thereof . . .
CIR V. SC JOHNSON AND SON, INC.
FACTS: Respondent a domestic corporation organized and operating under the Philippine laws, entered into a
license agreement with SC Johnson and Son, United States of America (USA), a non-resident foreign corporation
based in the U.S.A. pursuant to which the [respondent] was granted the right to use the trademark, patents and
technology owned by the latter including the right to manufacture, package and distribute the products covered by
the Agreement and secure assistance in management, marketing and production from SC Johnson and Son, U.S.A.
The said License Agreement was duly registered with the Technology Transfer Board of the Bureau of Patents,
Trade Marks and Technology Transfer.
For the use of the trademark or technology, [respondent] was obliged to pay SC Johnson and Son, USA royalties
based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which
[respondent] paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00.
Respondent filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid
withholding tax on royalties arguing that, 'the antecedent facts attending [respondent's] case fall squarely within the
same circumstances under which said MacGeorge and Gillete rulings were issued. Since the agreement was
approved by the Technology Transfer Board, the preferential tax rate of 10% should apply to the [respondent]. We
therefore submit that royalties paid by the [respondent] to SC Johnson and Son, USA is only subject to 10%
withholding tax pursuant to the most-favored nation clause of the RP-US Tax Treaty [Article 13, paragraph 2(b)(iii)] in
relation to the RP-West Germany Tax Treaty [Article 12(2)(b)]’.
CIR: did not act on the said claim for refund
CTA: rendered its decision in favor of SC Johnson and Son and ordered the CIR to issue a tax credit certificate in the
amount of P963,266.00 representing overpaid withholding tax on royalty payments beginning July, 1992 to May,
1993.
CA: affirmed CTA
The CIR filed a petition for review with the Court of Appeals which found no merit in the petition and affirmed in toto
the CTA ruling.
ISSUE/S: WON CA erred in ruling that SC Johnson and Son, USA is entitled to the “Most Favored Nation” tax rate of
10% on royalties as provided in the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty? — YES
RULING: Petition is GRANTED, decisions of CTA and CA are SET ASIDE.
According to petitioner, the taxes upon royalties under the RP-US Tax Treaty are not paid under circumstances
similar to those in the RP-West Germany Tax Treaty since there is no provision for a 20 percent matching credit in
the former convention and private respondent cannot invoke the concessional tax rate on the strength of the most
favored nation clause in the RP-US Tax Treaty. Petitioner's position is explained thus:
“Under the foregoing provision of the RP-West Germany Tax Treaty, the Philippine tax paid on income from sources
within the Philippines is allowed as a credit against German income and corporation tax on the same income. In the
case of royalties for which the tax is reduced to 10 or 15 percent according to paragraph 2 of Article 12 of the RP-
West Germany Tax Treaty, the credit shall be 20% of the gross amount of such royalty. To illustrate, the royalty
income of a German resident from sources within the Philippines arising from the use of, or the right to use, any
patent, trade mark, design or model, plan, secret formula or process, is taxed at 10% of the gross amount of said
royalty under certain conditions. The rate of 10% is imposed if credit against the German income and corporation tax
on said royalty is allowed in favor of the German resident. That means the rate of 10% is granted to the German
taxpayer if he is similarly granted a credit against the income and corporation tax of West Germany. The clear intent
of the 'matching credit' is to soften the impact of double taxation by different jurisdictions.
The RP-US Tax Treaty contains no similar 'matching credit' as that provided under the RP-West Germany Tax
Treaty. Hence, the tax on royalties under the RP-US Tax Treaty is not paid under similar circumstances as those
obtaining in the RP-West Germany Tax Treaty. Therefore, the 'most favored nation' clause in the RP-West Germany
Tax Treaty cannot be availed of in interpreting the provisions of the RP-US Tax Treaty."
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. 9 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. 10 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. 11 The apparent rationale for doing away
with double taxation is to encourage the free 􀁋ow of goods and services and the movement of capital, technology
and persons between countries, conditions deemed vital in creating robust and dynamic economies. 12 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.
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 relief — the 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 taxpayer's 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.
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. 16
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.”
In the case at bar, the state of source is the Philippines because the royalties are paid for the right to use property or
rights, i.e. trademarks, patents and technology, located within the Philippines. 17 The United States is the state of
residence since the taxpayer, S. C. Johnson and Son, U.S.A., is based there. Under the RP-US Tax Treaty, the state
of residence and the state of source are both permitted to tax the royalties, with a restraint on the tax that may be
collected by the state of source. 18 Furthermore, the method employed to give relief from double taxation is the
allowance of a tax credit to citizens or residents of the United States (in an appropriate amount based upon the taxes
paid or accrued to the Philippines) against the United States tax, but such amount shall not exceed the limitations
provided by United States law for the taxable year. 19 Under Article 13 thereof, the Philippines may impose one of
three rates — 25 percent of the gross amount of the royalties; 15 percent when the royalties are paid by a
corporation registered with the Philippine Board of Investments and engaged in preferred areas of activities; or 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.
GELO
PHILEX MINING CORPORATION V. CIR
Facts:
The BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as
the 1st and 2nd quarter of 1992 in the total amount of P123,821,982.52 Philex protested the demand for payment of
the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989
to 1991 in the amount of P119,977,037.02 plus interest. Therefore, these claims for tax credit/refund should be
applied against the tax liabilities.
In reply, the BIR, in a letter found no merit in Philex's position. Since these pending claims have not yet been
established or determined with certainty, it follows that no legal compensation can take place.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax
obligation, Philex raised the issue to the Court of Tax Appeals. In the course of the proceedings, the BIR issued Tax
Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of
P123,821,982.52; effectively lowered the latter's tax obligation to P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of
P110,677,688.52 plus interest. Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on
compensation since claim for taxes is not a debt or contract."
Aggrieved with the decision, Philex appealed the case before the Court of Appeals. Nonetheless the Court of
Appeals affirmed the Court of Tax Appeals observation.
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input
credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994,
In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its
excise tax liabilitiessince both had already become "due and demandable, as well as fully liquidated;"hence, legal
compensation can properly take place.
Issue: Whether or not an offset may be allowed in this case, given that A refund has already been approved
Held:
We see no merit in this contention.
In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of
each other.There is a material distinction between a tax and debt. Debts are due to the Government in its corporate
capacity, while taxes are due to the Government in its sovereign capacity
In Francia v. Intermediate Appellate Court, "We have consistently ruled that there can be no off-setting 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."
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines. Inc., wherein
we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet
been approved by the Commissioner,is no longer without any support in statutory law.
It is important to note that the premise of our ruling in the aforementioned case was anchored on Section 51(d) of the
National Internal Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted,
the same provision upon
which the Itogon-Suyoc pronouncement was based was omitted. Accordingly, the doctrine enunciated in Itogon-
Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and
interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory
that it had no obligation to pay the excise tax liabilities within the prescribed period since, after all, it still has pending
claims for VAT input credit/refund with BIR.
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that
taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance.Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system.
Too simplistic, it finds no support in law or in jurisprudence.
It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain.Hence, a tax does not depend upon the consent of the taxpayer.If any taxpayer can defer the
payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would
adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due
simply because he has a claim against the government or that the collection of the tax is contingent on the result of
the lawsuit it led against the government.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for
the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The
payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection
thereof.
Finally, Philex asserts that the BIR violated Section 106(e) of the National Internal Revenue Code of 1977, which
requires the refund of input taxes within 60 days, when it took five years for the latter to grant its tax claim for VAT
input credit/refund.
In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish
the factual basis of his or her claim for tax credit or refund, however, once the claimant has submitted all the
required documents, it is the function of the BIR to assess these documents with purposeful dispatch. After
all, since taxpayers owe honesty to government it is but just that government render fair service to the taxpayers.
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid
taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it
could have granted the refund earlier.We need not remind the BIR that simple justice requires the speedy refund
of wrongly- held taxes.
Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled
rule that in the performance of governmental function, the State is not bound by the neglect of its agents
and officers. Nowhere is this more true than in the field of taxation.Again, while we understand Philex's
predicament, it must be stressed that the same is not a valid reason for the non-payment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees, especially
BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in
acting upon the taxpayer's claim for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the
manner prescribed by law. Second, if the inaction can be characterized as willful neglect of duty, then recourse
under the Civil Code and the Tax Code can also be availed of.
Simply put, both provisions(Article 27 of the Civil Code and Section 269 of the National Internal Revenue Act of
1997) abhor official inaction, willful neglect and unreasonable delay in the performance of official duties. In no
uncertain terms must we stress that every public employee or servant must strive to render service to the people with
utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the
government collecting arm, must and should do no less.
In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot
justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should
have guided Philex's action.
DOMINGO V. GARLITOS
Facts:
This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Hon. Lorenzo
C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing the
respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price
for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso this Court declared as final and executory the
order for the payment by the estate of the estate and inheritance taxes, charges and penalties amounting to
P40,058.55, issued by the Court of First Instance of Leyte entitled "In the Matter of the Intestate Estate of the Late
Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21,
1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which
held that the execution is not justifiable as the Government is indebted to the estate under administration in the
amount of P262,200. The orders of the court are:
"Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her
late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands to Executive Secretary De Leon
dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2,
1958, directing the latter to pay to Mrs. Price the sum of P368,140.00, and an extract of page 765 of Republic Act
No. 2700 appropriating the sum of P262,200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by
the administratrix Simeona K. Price, as directed in the above note of the President. Considering these facts, the
Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue
as ordered paid by this Court be deducted from the amount of P262,200.00 due and payable to the administratrix
Simeona K. Price, in this estate, the balance to be paid by the Government to her without further delay." (Order of
August 20, 1960)
"The Court has nothing further to add to its order and it orders that the payment of the claim of the Collector of
Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein
amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government as a debtor, to pay its
accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking
into consideration that the amount due the Government draws interests while the credit due to the present estate
does not accrue any interest."
Issue: Whether or not the petition to set aside the above orders must be upheld and whether or not there must be an
execution
Held:
It must be denied for lack of merit. The ordinary procedure by which to settle claims or indebtedness against
the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the
probate court so that said court may order the administrator to pay the amount thereof.
In Aldamiz v. Judge of CFI of Mindoro, a writ of execution is not the proper procedure allowed by the Rules of Court
for the payment of debts and expenses of administration. The proper procedure is for the court to order the sale of
personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administration
should be paid out of the proceeds of the sale or mortgage.
The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the
estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court
and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto.
During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to
allow the sheriff, in case of a court judgment, to seize the properties but to ask the court for an order to
require the administrator to pay the amount due from the estate and required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the
estate had found that the claim of the estate against the Government has been recognized and an amount of
P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the
above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for
services rendered have already become overdue and demandable as well as fully liquidated. Compensation,
therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil
Code, and both debts are extinguished to the concurrent amount, thus:
"Art. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of
the compensation."
It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the
estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the
proper remedy for the petitioner.
Appeal is the remedy.
PAGCOR v. BIR
Facts:
PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A. Simultaneous to its creation, P.D. No.
1067-B (supplementing P.D. No. 1067-A) was issued exempting PAGCOR from the payment of any type of tax,
except a franchise tax of 5% of the
gross revenue.Thereafter, P.D. No. 1399 was issued expanding the scope of PAGCOR's exemption.
To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 1869was issued.
Then, PAGCOR's tax exemption was removed in June 1984 through P.D. No. 1931, but it was later restored by
Letter of Instruction No. 1430.
The National Internal Revenue Code of 1997, took effect. Section 27 (c) of R.A. No. 8424 provides that government-
owned and controlled corporations (GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the
Government Service and Insurance Corporation, the Social Security System, the Philippine Health Insurance
Corporation, and the Philippine Charity Sweepstakes Office
With the enactment of R.A. No. 9337, certain sections of the National Internal Revenue Code of 1997 were
amended. The particular amendment that is at issue in this case is Section 1 of R.A. No. 9337, which amended
Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR from the enumeration of
GOCCs that are exempt from payment of corporate income tax,
Different groups came to this Court via petitions for certiorari and prohibition assailing the validity and
constitutionality of R.A. No. 9337, in particular:
1. Sections 4-6 all contain a uniform proviso authorizing the President, upon the recommendation of the
Secretary of Finance, to raise the VAT rate to 12%. The said provisions were alleged to be violative of Section
28 (2), Article VI of the Constitution, which section vests in Congress the exclusive authority to x the rate of
taxes, and of Section 1, Article III of the Constitution on due process, as well as of Section 26 (2), Article VI of
the Constitution, which section provides for the "no amendment rule" upon the last reading of a bill;
2. Sections 8 and 12 were alleged to be violative of Section 1, Article III of the Constitution, or the guarantee of
equal protection of the laws, and Section 28 (1), Article VI of the Constitution Court dismissed all the petitions
and upheld the constitutionality of R.A. No. 9337.
BIR issued Revenue Regulations (RR) No. 16-2005,specifically identifying PAGCOR as one of the franchisees
subject to 10% VAT imposed under Section 108 of the National Internal Revenue Code of 1997, as amended by
R.A. No. 9337.
Hence, this petition for certiorari.
Issue: Whether or not PAGCOR is exempt from payment of corporate income tax and VAT
Held: PARTLY MERITORIOUS
A. Exemption issue
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code of 1977,
petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs
that are exempt from it. A perusal of the legislative records of the Bicameral Conference Meeting of the Committee
on Ways on Means dated October 27, 1997 would show that the exemption of PAGCOR from the payment of
corporate income tax was due to the acquiescence of the Committee on Ways on Means to the request of PAGCOR
that it be exempt from such tax.
With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been excluded from the
enumeration of GOCCs that are exempt from paying corporate income tax. The records of the Bicameral Conference
Meeting dated April 18, 2005, of the Committee on the Disagreeing Provisions of Senate Bill No. 1950 and House
Bill No. 3555, show that it is the legislative intent that PAGCOR be subject to the payment of corporate income tax
Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to
prove that it is, in fact, covered by the exemption so claimed. As a rule, tax exemptions are construed strongly
against the claimant. Exemptions must be shown to exist clearly and categorically, and supported by clear legal
provision.
In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate income tax, considering
that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal Revenue Code of 1997 by omitting
PAGCOR from the exemption.
It is a basic precept of statutory construction that the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim expressio unius est exclusio alterius.Thus, the express
mention of the GOCCs exempted from payment of corporate income tax excludes all others. Not being excepted,
petitioner PAGCOR must be regarded as coming within the purview of the general rule that GOCCs shall pay
corporate income tax, PAGCOR cannot find support in the equal protection clause of the Constitution, as the
legislative records of the Bicameral Conference Meeting, of the Committee on Ways and Means, show that
PAGCOR's exemption from payment of corporate income tax was based on PAGCOR's own request to be
exempted.
B. Non impairment clause issue
Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for violating the non-
impairment clause of the Constitution. Petitioner avers that laws form part of, and is read into, the contract even
without the parties expressly saying so.
Petitioner states that the private parties/investors transacting with it considered the tax exemptions, which inure to
their benefit, as the main consideration and inducement for their decision to transact/invest with it.
Petitioner's contention lacks merit.
The non-impairment clause is limited in application to laws that derogate from prior acts or contracts by enlarging,
abridging or in any manner changing the intention of the parties.There is impairment if a subsequent law changes the
terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws
remedies for the enforcement of the rights of the parties.
As regards franchises, Section 11, Article XII of the Constitution provides that no franchise or right shall be granted
except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires.
In Manila Electric Company v. Province of Laguna,the Court held that a franchise partakes the nature of a grant,
which is beyond the purview of the non-impairment clause of the Constitution.
C. Validity of RR NO. 16-2005
Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10% VAT is invalid
for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that petitioner can be subjected to VAT.
R.A. No. 9337 is clear only as to the removal of petitioner's exemption from the payment of corporate income tax,
which was already addressed above by this Court.
As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7 (k) thereof, which
reads:
“(k)Transactions which are exempt under international agreements to which the Philippines is a signatory or under
special laws”
Petitioner is exempt from the payment of VAT, because PAGCOR's charter, P.D. No. 1869, is a special law that
grants petitioner exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained Section
108 (B) (3) of R.A. No. 8424.
Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and extensively
discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation:
“Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The Commissioner of Internal
Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of the 1977 Tax Code, as amended, which
section was retained as Section 108 (B) (3) in R.A. No. 8424,it is still applicable to this case, since the provision
relied upon has been retained in R.A. No. 9337.
It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to implement said
law, the basic law prevails, because the said rule or regulation cannot go beyond the terms and provisions of the
basic law.RR No. 16- 2005, therefore, cannot go beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt
from VAT under R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-
2005; hence, the said regulatory provision is hereby nullified. “
BLOOMBERRY V. BIR
Facts:
PAGCOR granted to petitioner a provisional license to establish and operate an integrated resort and casino
complex at the Entertainment City project site of PAGCOR. Petitioner and its parent company, Sureste Properties,
Inc., own and operate Solaire Resort & Casino. Thus, being one of its licensees, petitioner only pays PAGCOR
license fees, in lieu of all taxes, as contained in its provisional license and consistent with the PAGCOR Charter or
Presidential Decree (PD) No. 1869,which provides the exemption from taxes of persons or entities contracting with
PAGCOR in casino operations.
However, when Republic Act (R.A.) No. 9337 took effect,it amended Section 27 (C) of the NIRC of 1997, which
excluded PAGCOR from the enumeration of government- owned or controlled corporations (GOCCs) exempt from
paying corporate income tax. The enactment of the law led to the case of PAGCOR v. The Bureau of Internal
Revenue, et al., where PAGCOR questioned the validity or constitutionality of R.A. No. 9337 removing its exemption
from paying corporate income tax, and therefore alleging the same to be void for being repugnant to the equal
protection and the non-impairment clauses embodied in the 1987 Philippine Constitution. Subsequently, the Court
articulated that Section 1 of RA No. 9337, amending Section 27 (C) of the NIRC of 1997, which removed PAGCOR's
exemption from corporate income tax, was indeed valid and constitutional.
Consequently, in implementing the aforesaid amendments made by R.A. No. 9337, respondent issued RMC No.
33-2013dated 17 April 2013 declaring that PAGCOR, in addition to the 5% franchise tax of its gross revenue
under Section 13 (2) (a) of PD No. 1869, is now subject to corporate income tax under the NIRC of 1997, as
amended. In addition, a provision therein states that PAGCOR's contractees and licensees, being entities duly
authorized and licensed by it to perform gambling casinos, gaming clubs and other similar recreation or
amusement places, and gaming pools, are likewise subject to income tax under the NIRC of 1997, as
amended.
Aggrieved, petitioner immediately elevated the matter through a petition for certiorari and prohibition before this
Court asserting the following arguments:
(i) PD No. 1869, as amended by R.A. No. 9487, is an existing valid law, and expressly and clearly
exempts the contractees and licensees of PAGCOR from the payment of all kinds of taxes except
the 5% franchise tax on its gross gaming revenue;
(ii) This clear exemption from taxes of PAGCOR's contracting parties was not repealed by the deletion
of PAGCOR in the list of tax-exempt entities under the NIRC;
(iii) Respondent CIR acted with GADALEJ when she issued the assailed provision in RMC No. 33-
2013 which, in effect, repealed or amended PD No. 1869; and
(iv) Respondent CIR, in issuing the assailed provision in RMC No. 33-2013, will adversely affect an
industry which seeks to create income for the government, promote tourism and generate jobs for
the Filipino people.
It is the contention of petitioner that although Section 4 of the NIRC of 1997, gives respondent CIR the power to
interpret the provisions of tax laws through administrative issuances, she cannot, in the exercise of such power,
issue administrative rulings or circulars not consistent with the law sought to be applied since administrative
issuances must not override, supplant or modify the law, but must remain consistent with the law they intend to carry
out.
Since the assailed provision in RMC No. 33-2013 subjecting the contractees and licensees of PAGCOR to income
tax under the NIRC of 1997, contravenes the provision of the PAGCOR Charter granting tax exemptions to
corporations, associations, agencies, or individuals with whom PAGCOR has any contractual relationship in
connection with the operations of the casinos authorized to be conducted under the PAGCOR Charter, it is
petitioner's position that the assailed provision was issued by respondent CIR with GADALEJ
Issue: Whether or not pagcor remains exempt from payment of tax other than franchise tax
Held:
The determination of the submissions of petitioner will have to follow the case of PAGCOR v. The Bureau of Internal
Revenue, et al.,
It is stated in the case that income from gaming operations is subject only to 5% franchise tax under P.D. No. 1869
First. Under P.D. No. 1869, as amended, [PAGCOR] is subject to income tax only with respect to its operation of
related services. Accordingly, the income tax exemption ordained under Section 27(c) of R.A. No. 8424 clearly
pertains only to [PAGCOR's] income from operation of related services.
Such income tax exemption could not have been applicable to [PAGCOR's] income from gaming operations as it is
already exempt therefrom under P.D. No. 1869
“No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether
National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of
tax or charge attach in any way to the earnings of the Corporation, except a Franchise Tax of 5% percent of the
gross revenue or earnings derived by the Corporation from its operation under this Franchise.”
Indeed, the grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to
tax. This is the most sound and logical interpretation because [PAGCOR] could not have been exempted from
paying taxes which it was not liable to pay in the first place. This is clear from the wordings of P.D. No. 1869, as
amended, imposing a franchise tax of 5% on its gross revenue or earnings derived by [PAGCOR] from its operation
under the Franchise in lieu of all taxes of any kind or form, as well as fees, charges or levies of whatever nature,
which necessarily include corporate income tax.
In other words, there was no need for Congress to grant tax exemption to [PAGCOR] with respect to its income from
gaming operations as the same is already exempted from all taxes of any kind or form, income or otherwise, whether
national or local, under its Charter, save only for the 5% franchise tax.
The exemption attached to the income from gaming operations exists independently from the enactment of R.A. No.
8424. To adopt an assumption otherwise would be downright ridiculous, if not deleterious, since [PAGCOR] would be
in a worse position if the exemption was granted (then withdrawn) than when it was not granted at all in the first
place.
As we see it, there is no conflict between P.D. No. 1869, as amended, and R.A. No. 9337.
With the enactment of R.A. No. 9337, which withdrew the income tax exemption under R.A. No. 8424,
[PAGCOR's] tax liability on income from other related services was merely reinstated.
Third. Even assuming that an inconsistency exists, P.D. No. 1869, as amended, which expressly provides the tax
treatment of [PAGCOR's] income prevails over R.A. No. 9337, which is a general law. It is a canon of statutory
construction that a special law prevails over a general law — regardless of their dates of passage — and the special
is to be considered as remaining an exception to the general.
In this regard, we agree with [PAGCOR] that if the lawmakers had intended to withdraw [PAGCOR's] tax exemption
of its gaming income, then Section 13(2)(a) of P.D. 1869 should have been amended expressly in R.A. No. 9487, or
the same, at the very least, should have been mentioned in the repealing clause of R.A. No. 9337. However, the
repealing clause never mentioned [PAGCOR's] Charter as one of the laws being repealed.
When [PAGCOR's] franchise was extended on June 20, 2007 without revoking or withdrawing its tax exemption, it
effectively reinstated and reiterated all of [PAGCOR's] rights, privileges and authority granted under its Charter.
Otherwise, Congress would have painstakingly enumerated the rights and privileges that it wants to withdraw, given
that a franchise is a legislative grant of a special privilege to a person. Thus, the extension of [PAGCOR's] franchise
under the same terms and conditions means a continuation of its tax exempt status with respect to its income from
gaming operations.
Given that [PAGCOR's] Charter is not deemed repealed or amended by R.A. No. 9337, [PAGCOR's] income derived
from gaming operations is subject only to the five percent (5%) franchise tax, in accordance with P.D. 1869, as
amended.
Thus, income derived by PAGCOR from its gaming operations such as the operation and licensing of gambling
casinos, gaming clubs and other similar recreation or amusement places, gaming pools and related operations is
subject only to 5% franchise tax, in lieu of all other taxes, including corporate income tax. The Court concluded that
the CIR committed grave abuse of discretion amounting to lack or excess of jurisdiction when it issued RMC No. 33-
2013 subjecting both income from gaming operations and other related services to corporate income tax and 5%
franchise tax considering that it unduly expands the Court's Decision dated 15 March 2011 without due process,
which creates additional burden upon PAGCOR.
Bearing in mind the parties involved and the similarities of the issues submitted in the present case, we are now
presented with the prospect of finally resolving the confusion caused by the amendments introduced by RA No. 9337
to the NIRC of 1997, and the subsequent issuance of RMC No. 33-2013, affecting the tax regime not only of
PAGCOR but also its contractees and licensees under the existing laws and prevailing jurisprudence.
Section 13 of PD No. 1869 evidently states that payment of the 5% franchise tax by PAGCOR and its contractees
and licensees exempts them from payment of any other taxes, including corporate income tax, quoted hereunder for
ready reference:
As previously recognized, the above-quoted provision providing for the said exemption was neither amended nor
repealed by any subsequent laws (i.e., Section 1 of R.A. No. 9337 which amended Section 27 (C) of the NIRC of
1997); thus, it is still in effect. Guided by the doctrinal teachings in resolving the case at bench, it is without a doubt
that, like PAGCOR, its contractees and licensees remain exempted from the payment of corporate income tax and
other taxes since the law is clear that said exemption inures to their benefit.
As the PAGCOR Charter states in unequivocal terms that exemptions granted for earnings derived from the
operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as
any form of charges, fees or levies, shall inure to the bene t of and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the PAGCOR or operator has any contractual relationship in connection with
the operations of the casino(s) authorized to be conducted under this Franchise, so it must be that all contractees
and licensees of PAGCOR, upon payment of the 5% franchise tax, shall likewise be exempted from all other taxes,
including corporate income tax realized from the operation of casinos.
EARL
PHILIPPINE NATIONAL OIL COMPANY V CA
Topic/s: Compromise Agreement;
Facts:
· June 24, 1986: Savellano informed the BIR through a sworn statement that PNB had failed to
withhold the 15% final tax on interest earnings and/or yields from the money placements of PNOC
with the same bank, in violation of PD 1931
· August 8 of the same year: BIR requested PNOC to settle its liability for taxes on the interests
earned by its money placements with PNB and which PNB did not withhold
· Sept. 25: PNOC made an offer to compromise its tax liability with the BIR and proposed to set-off its
tax liability against a claim for tax refund/credit with the NAPOCOR amounting to P335,259,450.21
 (Accounts receivable of PNOC from NAPOCOR,) which was later on denied by the BIR for being
premature
· June 9, 1987: PNOC made another offer wherein the later proposed to pay P91,003,129.89,
representing 30% of the P303,343,766.29 basic tax in accordance with EO No. 44
· June 22 of the same year: BIR Commissioner Tan accepted the compromise
· Savellano (the informer) demanded BIR to pay him the balance of his informer’s award, which
amounted to 43,800,915.25
· Savellano argued that his reward (which is 15% of the assessed tax) should be computed from the
BIR tax assessment amounting to P385,961,580.82 and not from the tax actually collected by the
BIR amounting to 93,955,479.12 pursuant to the compromise agreement between the BIR and
PNOC
· Savellano filed a Petition for review ad cautelam with the CTA and questioned the legality of the
compromise agreement entered into by the BIR and PNOC and claimed that the tax liability should
have been collected in full
· BIR Comissioner Tan’s defense: No cause of action and the BIR already paid Savellano in full
· PNOC and PNB’s argument: the BIR commissioner has the discretion in entering into a compromise
agreement under E.O. 44
· January 16, 1991: The new BIR commissioner Ong demanded PNB to pay the deficiency
withholding tax on the interest earnings and/or yields from PNOC’s money placements amounting to
P294,958,450.73
· April 11, 1991: PNB filed a protest with the BIR, but was later on denied on the ground that it was
filed out of time and the assessment had already become final
· May 28, 1992: CTA ruled that the compromise agreement entered into by BIR and PNOC was
without force and effect
· CA: Affirmed the decision of the CTA
· Thus, the petition for review with the SC
Issue: W/N the compromise agreement entered into by BIR and PNOC was valid
Ruling: No
· EO 44 granted the BIR Commissioner or his duly authorized representatives the power to compromise any
disputed assessment or delinquent account pending as of Dec. 31, 1985
· E0 44 took effect on Sept. 4 1986 until March 31, 1987
· The disputed assessments or delinquent accounts that the BIR Commissioner could compromise under
E.O. No. 44 are defined under Revenue Regulation (RR) No. 17-86, as follows:
a) Delinquent account Refers to the amount of tax due on or before December 31, 1985 from a taxpayer who failed
to pay the same within the time prescribed for its payment arising from (1) a self assessed tax, whether or not a tax
return was filed, or (2) a deficiency assessment issued by the BIR which has become final and executory.
Where no return was filed, the taxpayer shall be considered delinquent as of the time the tax on such return was
due, and in availing of the compromise, a tax return shall be filed as a basis for computing the amount of
compromise to be paid.
b) Disputed assessment refers to a tax assessment disputed or protested on or before December 31, 1985 under
any of the following categories:
1) if the same is administratively protested within thirty (30) days from the date the taxpayer received the
assessment, or
2.) if the decision of the BIR on the taxpayers administrative protest is appealed by the taxpayer before an
appropriate court.
· PNOC’s tax liability could not be considered a delinquent account because the BIR conducted the
investigation and the demand letter issued against the former on Aug. 8, 1986 could not have been a deficiency
assessment that became final and executory by Dec. 31, 1985
· Dissenting opinion: The tax liability of PNOC was a self-assessed tax, thus, a delinquent account. The
internal revenue taxes are in its nature, self-assessing as cited in the case of Tupaz v Ulep Court’s argument on the
dissenting opinion: E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed. The phrase whether
or not a tax return was filed only refers to the compliance by the taxpayer with the obligation to file a return on the
dates specified by law, but it does not do away with the requisite that the tax must be self-assessed in order for the
taxpayer to avail of the compromise. The second paragraph of Section 2(a) of RR No. 17-86 expressly commands,
and still imposes upon the taxpayer, who is availing of the compromise under E.O. No. 44, and who has not
previously filed any return, the duty to conduct self-assessment by filing a tax return that would be used as the basis
for computing the amount of compromise to be paid.
Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after conducting a self-assessment,
discovers or becomes aware that he had failed to pay a tax due on or before 31 December 1985, regardless of
whether he had previously filed a return to reflect such tax; voluntarily comes forward and admits to the BIR his tax
liability; and applies for a compromise thereof. In case the taxpayer has not previously filed any return, he must fill
out such a return reflecting therein his own declaration of the taxable amount and computation of the tax due. The
compromise payment shall be computed based on the amount reflected in the tax return submitted by the taxpayer
himself.
Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conducted self-assessment in this
case. There is no showing that in the absence of the tax assessment issued by the BIR against them, that PNOC
and/or PNB would have voluntarily admitted their tax liabilities, already amounting to P385,961,580.82, as of 15
November 1986, and would have offered to compromise the same. In fact, both PNOC and PNB were conspicuously
silent about their tax liabilities until they were assessed thereon.
· E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so that they are harmonized
and consistent with each other. Accordingly, this Court finds that the different types of assessments mentioned in
RMO No. 39-86 would still have to qualify as delinquent accounts or disputed assessments as of 31 Dcember 1985,
so that they could be compromised under E.O. No. 44.
· The BIR had first written to PNOC on 08 August 1986, demanding payment of the income tax on the interest
earnings and/or yields from PNOCs money placements with PNB from 15 October 1984 to 15 October 1986. This
demand letter could be regarded as the first assessment notice against PNOC.
· Such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31
December 1985 so as to constitute a delinquent account. Neither was the assessment against PNOC an
assessment that could have been disputed or protested on or before 31 December 1985, having been issued on a
later date.
· Given that PNOCs tax liability did not constitute a delinquent account or a disputed assessment as of 31
December 1985, then it could not be compromised under E.O. No. 44.
· Even assuming arguendo that PNOC and/or PNB qualified under EO 44, their application for compromise was
filed beyond the deadline
· The deadline for such applications was only until March 31, 1987
· PNOC was claiming that it had already written a letter to the BIR as early as Sept. 25, 1986 offering to
compromise its tax liability, but the said letter did not offer to pay outright 30% of the basic tax assessed against it as
required by E.O. 44
· It was only on June 9, 1987 when PNOC actually offered to compromise its tax liability by paying the 30% of the
basic tax assessed, which was already way beyond the deadline under EO 44
· Finally, the defense of prescription made by PNOC and PNB was never raised and should be considered
waived under Sec. 1, Rule 9 of the Rules of Civil Procedure
WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No. 109976 and G.R. No. 112800,
respectively, are hereby DENIED. This Court AFFIRMS the assailed Decisions of the Court of Appeals in CA-G.R.
SP No. 29583 and CA-G.R. SP No. 29526, which affirmed the decision of the CTA in CTA Case No. 4249, with
modifications, to wit:
(1) The compromise agreement between PNOC and the BIR, dated 22 June 1987, is declared void
for being contrary to law and public policy, and is without force and effect;
(2) Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;
(3) The withholding tax assessment against PNB, dated 08 October 1986, had become final and
unappealable. The BIR Commissioner is ordered to enforce the said assessment and collect the
amount of P294,958,450.73, the balance of tax assessed after crediting the previous payment
made by PNOC pursuant to the compromise agreement, dated 22 June 1987; and
(4) Private respondent Savellano shall be paid the remainder of his informers reward, equivalent to
15% of the deficiency withholding tax ordered collected herein, or P 44,243,767.61.
SO ORDERED.
CS GARMENTS V CIR
Topic: Tax Amnesty
Facts:
· CS Garments is a domestic corporation engaged in the business of manufacturing garments for sale
abroad
· The company is also registered with the Philippine Economic Zone Authority (PEZA)
· The company received from CIR a Letter of Authority authorizing the examination of petitioner’s
books of accounts and other accounting records for all internal revenue taxes covering the period of
January 1, 1998 to Dec. 31, 1998
· The company, in 2001, received 5 formal demand letters requiring it to pay the alleged deficiency
VAT, Income, DST, and withholding tax assessments for taxable year 1998 in the aggregate amount
of P2,046,580.10
· The company filed a protest with the CIR within the allowable period, but the latter failed to act with
finality
· This made the company pursue an appeal with the CTA via a Petition for Review
· Second Division of the CTA: Cancelled the CIR’s assessment against the company for deficiency
expanded withholding taxes for CY 1998, partially cancelled the deficiency DST assessment, but
upheld the validity of the deficiency income tax assessments
· The total tax liability of CS Garments amounted to P2,029,570.12 plus 20% delinquency interest
· The company appealed to the CTA en banc, but the en banc affirmed the decision of the CTA second
division
· The company subsequently filed a Petition for Review with the SC, but while the case was still
pending in court, the company filed a Manifestation and Motion stating that it had availed itself of the
government’s tax amnesty program
· The Office of the Solicitor General objected to the manifestation and asserted that the filing of an
application for tax amnesty does not by itself entitle the company to the benefits of the law, as the BIR
must still assess whether the company was eligible for these benefits and whether all the conditions
for the availment of tax amnesty had been satisfied
· The OSG also claimed that the BIR is given a 1-year period to contest the correctness of the SALN
filed by the company, thus making the company’s motion premature
· Moreover, the OSG also alleged that the company is disqualified from enjoying the benefits of the
Tax Amnesty Law, since judgment was already rendered in favor of the BIR prior to the tax amnesty
availment
· Lastly, the OSG contends that the company submitted its application for tax amnesty only on March
6, 2008, which was almost 2 months after the CTA en banc issued its decision and more than 1 year
after the CTA Second Division issued the same
· However, when the SC required the parties to submit their respective memorandums, it was noted by
the SC that the OSG did not raise any argument with respect to the company’s availment of tax
amnesty nor did the OSG deny the authenticity of the documents submitted by the company
· On Nov. 29, 2013, the OSG manifested to the court that the company has already complied with all
documentary requirements of the 2007 Tax Amnesty Law. However, the OSG also stated that the
CIR was still interested in pursuing the case
Issue: W/N CS Garment is already immune from paying the deficiency taxes stated in the 1998 tax assessments of
the CIR
Ruling: YES
· Tax amnesty refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and
14
power to impose penalties on persons or entities guilty of violating a tax law. Tax amnesty aims to grant a
general reprieve to tax evaders who wish to come clean by giving them an opportunity to straighten out their
records.
· Amnesty taxpayers may immediately enjoy the privileges and immunities under the 2007 Tax Amnesty
Law, as soon as they fulfill the suspensive conditions imposed therein
The imposition of a suspensive condition under the 2007 Tax Amnesty Law is evident from the following provisions
of the law:
2007 Tax Amnesty Law – Republic Act No. 9480
SECTION 2. Availment of the Amnesty. — Any person, natural or juridical, who wishes to avail himself of the tax
amnesty authorized and granted under this Act shall file with the Bureau of Internal Revenue (BIR) a notice and Tax
Amnesty Return accompanied by a Statement of Assets, Liabilities and Networth (SALN) as of December 31, 2005,
in such form as may be prescribed in the implementing rules and regulations (IRR) of this Act, and pay the applicable
amnesty tax within six months from the effectivity of the IRR.
SECTION 4. Presumption of Correctness of the SALN. — The SALN as of December 31, 2005 shall be considered
as true and correct except where the amount of declared networth is understated to the extent of thirty percent (30%)
or more as may be established in proceedings initiated by, or at the instance of, parties other than the BIR or its
agents: Provided, That such proceedings must be initiated within one year following the date of the filing of the tax
amnesty return and the SALN. Findings of or admission in congressional hearings, other administrative agencies of
government, and/or courts shall be admissible to prove a thirty percent (30%) under-declaration.
SECTION 6. Immunities and Privileges. — Those who availed themselves of the tax amnesty under Section 5
hereof, and have fully complied with all its conditions shall be entitled to the following immunities and privileges:
(a) The taxpayer shall be immune from the payment of taxes, as well as additions thereto, and the
appurtenant civil, criminal or administrative penalties under the National Internal Revenue Code of 1997,
as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.
(b) The taxpayer’s Tax Amnesty Return and the SALN as of December 31, 2005 shall not be admissible as
evidence in all proceedings that pertain to taxable year 2005 and prior years, insofar as such proceedings
 relate to internal revenue taxes, before judicial, quasi-judicial or administrative bodies in which he is a
defendant or respondent, and except for the purpose of ascertaining the networth beginning January 1,
2006, the same shall not be examined, inquired or looked into by any person or government office.
However, the taxpayer may use this as a defense, whenever appropriate, in cases brought against him.
(c) The books of accounts and other records of the taxpayer for the years covered by the tax amnesty
availed of shall not be examined: Provided, That the Commissioner of Internal Revenue may authorize in
writing the examination of the said books of accounts and other records to verify the validity or correctness
of a claim for any tax refund, tax credit (other than refund or credit of taxes withheld on wages), tax
incentives, and/or exemptions under existing laws.
All these immunities and privileges shall not apply where the person failed to file a SALN and the Tax Amnesty
Return, or where the amount of networth as of December 31, 2005 is proven to be understated to the extent of thirty
percent (30%) or more, in accordance with the provisions of Section 3 hereof.
SECTION 7. When and Where to File and Pay. — The filing of the Tax Amnesty Return and the payment of the
amnesty tax for those availing themselves of the tax amnesty shall be made within six months starting from the
effectivity of the IRR. It shall be filed at the office of the Revenue District Officer which has jurisdiction over the legal
residence or principal place of business of the filer. The Revenue District Officer shall issue an acceptance of
payment form authorizing an authorized agent bank, or in the absence thereof, the collection agent or municipal
treasurer concerned, to accept the amnesty tax payment.
Department of Finance Order No. 29-07: Rules and Regulations to Implement R.A. 9480
SECTION 6. Method of Availment of Tax Amnesty. —
xxxx
3. Payment of Amnesty Tax and Full Compliance. — Upon filing of the Tax Amnesty Return in accordance with Sec.
6 (2) hereof, the taxpayer shall pay the amnesty tax to the authorized agent bank or in the absence thereof, the
Collection Agent or duly authorized Treasurer of the city or municipality in which such person has his legal residence
or principal place of business.
The RDO shall issue sufficient Acceptance of Payment Forms, as may be prescribed by the BIR for the use of — or
to be accomplished by — the bank, the collection agent or the Treasurer, showing the acceptance of the amnesty tax
payment. In case of the authorized agent bank, the branch manager or the assistant branch manager shall sign the
acceptance of payment form.
The Acceptance of Payment Form, the Notice of Availment, the SALN, and the Tax Amnesty Return shall be
submitted to the RDO, which shall be received only after complete payment. The completion of these requirements
shall be deemed full compliance with the provisions of R.A. 9480. (Emphases supplied)
In availing themselves of the benefits of the tax amnesty program, taxpayers must first accomplish the following
forms and prepare them for submission: (1) Notice of Availment of Tax Amnesty Form; (2) Tax Amnesty Return Form
(BIR Form No. 2116); (3) Statement of Assets, Liabilities and Net worth (SALN) as of December 31, 2005; and (4)
Tax Amnesty Payment Form (Acceptance of Payment Form or BIR Form No. 0617). 18
The taxpayers must then compute the amnesty tax due in accordance with the rates provided in Section 5 of the
law,19 using as tax base their net worth as of 31 December 2005 as declared in their SALNs. At their option, the
revenue district office (RDO) of the BIR may assist them in accomplishing the forms and computing the taxable base
and the amnesty tax due.20 The RDO, however, is disallowed from looking into, questioning or examining the veracity
of the entries contained in the Tax Amnesty Return, SALN, and other documents they have submitted. 21Using the
Tax Amnesty Payment Form, the taxpayers must make a complete payment of the computed amount to an
authorized agent bank, a collection agent, or a duly authorized treasurer of the city or municipality. 22
Thereafter, the taxpayers must file with the RDO or an authorized agent bank the (1) Notice of Availment of Tax
Amnesty Form; (2) Tax Amnesty Return Form (BIR Form No. 2116); (3) SALN; and (4) Tax Amnesty Payment
Form.23 The RDO shall only receive these documents after complete payment is made, as shown in the Tax Amnesty
Payment Form.24 It must be noted that the completion of these requirements "shall be deemed full compliance with
the provisions of R.A. 9480."25 In our considered view, this rule means that amnesty taxpayers may immediately
enjoy the privileges and immunities under the 2007 Tax Amnesty Law as soon as the aforementioned documents are
duly received.
- The OSG has already confirmed to this Court that CS Garment has complied with all of the documentary
requirements of the law. Consequently, and contrary to the assertion of the OSG, no further assessment
by the BIR is necessary. CS Garment is now entitled to invoke the immunities and privileges under Section
6 of the law.
- The court rejected the OSG’s assertion that the BIR has to be given 1-year to examine the SALN before
the company can enjoy its tax amnesty. The court stated that law intended the immediate enjoyment of the
immunities and privileges of tax amnesty upon fulfilment of the requirements
- Congress has adopted a "no questions asked" policy, so long as all the requirements of the law and the
rules are satisfied. The one-year period referred to in the law should thus be considered only as a
prescriptive period within which third parties, meaning "parties other than the BIR or its agents," can
question the SALN – not as a waiting period during which the BIR may contest the SALN and the taxpayer
prevented from enjoying the immunities and privileges under the law.
- Considering the completion of the aforementioned requirements, we find that petitioner has successfully
availed itself of the tax amnesty benefits granted under the Tax Amnesty Law. Therefore, we no longer see
any need to further discuss the issue of the deficiency tax assessments. CS Garment is now deemed to
have been absolved of its obligations and is already immune from the payment of taxes – including the
assessed deficiency in the payment of VAT, DST, and income tax as affirmed by the CTA en banc – as
well as of the additions thereto (e.g., interests and surcharges). Furthermore, the tax amnesty benefits
include immunity from "the appurtenant civil, criminal, or administrative penalties under the NIRC of 1997,
as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years."
WHEREFORE, the instant Petition for Review is GRANTED. The 14 January 2008 Decision and 2 April 2008
Resolution of the Court of Tax Appeals en banc in CTA EB Case No. 287 is hereby SET ASIDE, and the remaining
assessments for deficiency taxes for taxable year 1998 are hereby CANCELLED solely in the light of the availment
by CS Garment, Inc. of the tax amnesty program under Republic Act No. 9480.
SO ORDERED.
SAGUISAG V OCHOA, JR.
Topics: Locus Standi; Doctrine of Transcendental importance; Taxpayer’s suit; ripeness for judicial determination
Facts:
· On June 6, 2014, Former President Benigno Aquino III ratified the Enhanced Defense Cooperation
Agreement with the United States, which allows the US military to have access to and conduct activities within
certain ‘Agreed Locations’ in the country
· Such agreement was no longer transmitted to the Senate because the government said that it was no
longer necessary
· Petitions were thereafter filed by Saguisag, Tanada, et al with the Supreme Court questioning the validity
of such agreement and that such should have been concurred by the senate as it was not an executive
agreement
· The petitioners mainly seek a declaration that the Executive Department committed grave abuse of
discretion in entering the EDCA in the form of an executive agreement
Issues:
1) Whether the essential requisites for Judicial Review are present
2) Whether the President may enter into an executive agreement on foreign military bases, troops, or facilities
Ruling:
FIRST ISSUE: Whether the essential requisites for Judicial Review are present- YES
· The power of judicial review specially refers to both the authority and the duty of this Court to determine
whether a branch or an instrumentality of government has acted beyond the scope of the latter's constitutional
powers.
· Requisites of judicial review:
o There is an actual case or controversy
o Petitioners possess locus standi
o The question of constitutionality is raised at the earlies opportunity
o The issue of constitutionality is the lis mota of the case
· All of the requisites were present
· There was an actual case or controversy that is ripe for adjudication
o The Executive Department has already sent an official confirmation to the U.S. Embassy that
113
"all internal requirements of the Philippines x x x have already been complied with." By
this exchange of diplomatic notes, the Executive Department effectively performed the last
act required under Article XII(l) of EDCA before the agreement entered into force. Section
25, Article XVIII of the Constitution, is clear that the presence of foreign military forces in
the country shall only be allowed by virtue of a treaty concurred in by the Senate. Hence,
the performance of an official act by the Executive Department that led to the entry into
force of an executive agreement was sufficient to satisfy the actual case or controversy
requirement.
· Petitioners did not possess locus standi, but they nonetheless raise issues involving matters of
transcendental importance:
o The question of locus standi or legal standing focuses on the determination of whether those
assailing the governmental act have the right of appearance to bring the matter to the court
for adjudication. They must show that they have a personal and substantial interest in the
case, such that they have sustained or are in immediate danger of sustaining, some direct
injury as a consequence of the enforcement of the challenged governmental act.
o The petitioners suing as citizens—The petitioners argue that they are suing as citizens
because such issue involves the protection of a public right, but the Court ruled that the
latter cannot consider the case as a citizens’ suit because they failed in establishing that
they had a direct and personal interest and that the act affects a public right
o The petitioners suing as taxpayers—They argue that the implementation of EDCA would
result in the unlawful use of public funds because the agreement includes an appropriation
of funds and that it entails a waiver of the payment of taxes, fees, and rentals. The court
explained that:
A taxpayer's suit concerns a case in which the official act complained of directly
involves the illegal disbursement of public funds derived from taxation. 125 Here, those
challenging the act must specifically show that they have sufficient interest in
preventing the illegal expenditure of public money, and that they will sustain a direct
injury as a result of the enforcement of the assailed act.126 Applying that principle to
this case, they must establish that EDCA involves the exercise by Congress of its
taxing or spending powers.127
We agree with the OSG that the petitions cannot qualify as taxpayers' suits. We
emphasize that a taxpayers' suit contemplates a situation in which there is already an
appropriation or a disbursement of public funds. 128 A reading of Article X(l) of EDCA
would show that there has been neither an appropriation nor an authorization of
disbursement of funds. The cited provision reads:
All obligations under this Agreement are subject to the availability of appropriated
funds authorized for these purposes. (Emphases supplied)
This provision means that if the implementation of EDCA would require the
disbursement of public funds, the money must come from appropriated funds that are
specifically authorized for this purpose. Under the agreement, before there can even
be a disbursement of public funds, there must first be a legislative action. Until and
unless the Legislature appropriates funds for EDCA, or unless petitioners can
pinpoint a specific item in the current budget that allows expenditure under the
agreement, we cannot at this time rule that there is in fact an appropriation or a
disbursement of funds that would justify the filing of a taxpayers' suit.
o Suing as legislators- Petitioners Bayan et al argued that their co-petitioners who are party-list
representatives have the standing to challenge the act of the executive department,
especially if it impairs the constitutional prerogatives, powers, and privileges of their office.
While they admit that there is no incumbent Senator who has taken part in the petition, they
nonetheless assert that they also stand to sustain a derivative but substantial injury as
legislators. However, the court ruled that the power to concur in a treaty or an international
agreement is an institutional prerogative granted by the Constitution to the Senate, not the
entire Legislature. Provided that none of them are incumbent Senators, they don’t have the
legal standing for a legislators’ suit
o The present petitions cannot qualify as citizens', taxpayers', or legislators' suits; the Senate
as a body has the requisite standing, but considering that it has not formally filed a
pleading to join the suit, as it merely conveyed to the Supreme Court its sense that EDCA
needs the Senate's concurrence to be valid, petitioners continue to suffer from lack of
standing.
o However, petitioners raise issues involving matters of transcendental importance
o The petitioners pointed out that the EDCA would cause grave injustice, as well as irreparable
violation of the Constitution and of the Filipino people’s rights
o SC: While this Court has yet to thoroughly delineate the outer limits of this doctrine, we
emphasize that not every other case, however strong public interest may be, can qualify as
an issue of transcendental importance. Before it can be impelled to brush aside the
essential requisites for exercising its power of judicial review, it must at the very least
consider a number of factors: (1) the character of the funds or other assets involved in the
case; (2) the presence of a clear case of disregard of a constitutional or statutory
prohibition by the public respondent agency or instrumentality of the government; and (3)
the lack of any other party that has a more direct and specific interest in raising the present
questions.141
An exhaustive evaluation of the memoranda of the parties, together with the oral arguments,
shows that petitioners have presented serious constitutional issues that provide ample
justification for the Court to set aside the rule on standing. The transcendental importance of the
issues presented here is rooted in the Constitution itself. Section 25, Article XVIII thereof, cannot
be any clearer: there is a much stricter mechanism required before foreign military troops,
facilities, or bases may be allowed in the country. The DFA has already confirmed to the U.S.
Embassy that "all internal requirements of the Philippines x x x have already been complied
with."142 It behooves the Court in this instance to take a liberal stance towards the rule on
standing and to determine forthwith whether there was grave abuse of discretion on the part of
the Executive Department.
SECOND ISSUE: Whether the President may enter into an executive agreement on foreign military bases, troops, or
facilities—YES
o The role of the President as the executor of the law includes the duty to defend the State, for which
purpose he may use that power in the conduct of foreign relations. The SC has interpreted the faithful
execution clause (The oath of the president prescribed by the 1987 constitution) as an obligation
imposed on the President, and not a separate grant of power
o Knowing that the President must take necessary steps to execute and enforce the law, it is the
President’s prerogative to do whatever is legal and necessary for Philippine defense interests
o The President’s duty to execute the laws and protect the Philippines is inextricably interwoven with
his foreign affairs powers, such that he must resolve issues imbued with both concerns to the full
extent of his powers, subject only to the limits supplied by law
o While it is provided in the Constitution (Sec. 25 of the Transitory Provisions) that the entry of foreign
military bases, troops, or facilities, except by way of a treaty concurred in by the senate, The
President nevertheless may enter into an executive agreement on foreign military bases, troops, or
facilities, if (a) it is not the instrument that allows the presence of foreign military bases, troops, or
facilities; or (b) it merely aims to implement an existing law or treaty
o Culling from the foregoing discussions, we reiterate the following pronouncements to guide us in
resolving the present controversy:
o 1. Section 25, Article XVIII of the Constitution, contains stringent requirements that must be
fulfilled by the international agreement allowing the presence of foreign military bases,
troops, or facilities in the Philippines: (a) the agreement must be in the form of a treaty, and
(b) it must be duly concurred in by the Senate.
o 2. If the agreement is not covered by the above situation, then the President may choose
the form of the agreement (i.e., either an executive agreement or a treaty), provided that
the agreement dealing with foreign military bases, troops, or facilities is not the principal
agreement that first allows their entry or presence in the Philippines.
 o 3. The executive agreement must not go beyond the parameters, limitations, and standards
set by the law and/or treaty that the former purports to implement; and must not unduly
expand the international obligation expressly mentioned or necessarily implied in the law or
treaty.
o 4. The executive agreement must be consistent with the Constitution, as well as with
existing laws and treaties.
o The VFA has already allowed the entry of troops in the Philippines. The SC stated that there are
existing treaties between the Philippines and the US that have already been concurred in by the
Senate and have thereby met the requirements of Sec. 25 of the Transitory Provisions of the
Constitution. Thus, the EDCA need not be transmitted to the Senate
o Despite the power of the President to enter into executive agreements, it still has its limitations:
o 1. The policy of freedom from nuclear weapons within the Philippines
o 2. The fixing of tariff rates, import and export quotas, tonnage and wharfage dues, and
other duties or imposts, which must be pursuant to the authority granted by Congress
o 3. The grant of any tax exemption, which must be pursuant to a law concurred by Congress

WHEREFORE, we hereby DISMISS the petitions.

SO ORDERED.