Ella Mariz E.

Millare

*Lawmaking body is the only one which can grant tax exemption.

TAX EXEMPTION CASES:

Lung Center of the Phils. vs. Quezon City (2004)
SC: The petitioner failed to discharge its burden to prove that the
entirety of its real property is actually, directly and exclusively used
for charitable purposes. While portions of the hospital are used for the
treatment of patients and the dispensation of medical services to them,
whether paying or non-paying, other portions thereof are being leased
to private individuals for their clinics and a canteen. Further, a portion
of the land is being leased to a private individual for her business
enterprise under the business name "Elliptical Orchids and Garden
Center."

CIR vs. DLSU (2016)

SC: A plain reading of the Constitution would show that Article XIV,
Section 4 (3) does not require that the revenues and income must have
also been sourced from educational activities or activities related to the
purposes of an educational institution. The phrase all revenues is
unqualified by any reference to the source of revenues. Thus, so long
as the revenues and income are used actually, directly and exclusively
for educational purposes, then said revenues and income shall be
exempt from taxes and duties.

Note: BIR cannot revoke tax exemption, but it can suspend.

-Tax exemption is not perpetual.

The government grants tax exemption in 2 different capacities:

1. Governmental function
Franchise -always revocable; not protected by non-impairment clause

GOCCs exempt from tax under Tax Code:

GSIS, SSS, PHILHEALTH, PCSO, PAGCOR, Local Water District
Note: PAGCOR is exempt from all Internal Revenue Taxes except
Income Tax. (PAGCOR pays 5% preferential tax rate for its income tax
from its gaming activities.)
PCSO’s tax exemption has been revoked by the Train Law.

2. Proprietary function

PEZA-Registered Enterprise - 5% inside export processing zone

-If outside EPZ/ customs territory - 30%
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-Tax exemption is not automatic.

-Tax exemption is non-transferable.

Q: What are the documents that are subject to Documentary Stamp

Tax?
A: All documents evidencing transfer of:
1. Rights
2. Obligations
3. Properties
4. Interest

Q: Who are the persons primarily liable to pay DST?

A:
1. Maker
2. Assignor
3. Signor
4. Transferor
5. Issuer

*If the person primarily liable is tax exempt; the DST will be borne by
the person who will use the document. (Reason: Tax exemption is non-
transferable.)

Tax laws are not penal, but civil in character.

Tax laws are not suspended even in times of war.

Double taxation:
The same property must be taxed twice when it should be taxed once.

The requisites are:

1. Both taxes must be imposed on the same property or subject matter;
2. For the same purpose;
3. By the same State, Government, or taxing authority;
4. Within the same territory, jurisdiction or taxing district;
5. During the same taxing period; and
6. Of the same kind or character of tax.

International Double Taxation - One of the imposing authorities is the

foreign government.

*Double Taxation is not prohibited. Prevent Direct Double Taxation.

Remedies against Double Taxation:

1. Tax Credit
2. Principle of Reciprocity
3. Tax Exemption
4. Tax Discounts/Tax Deduction
5. Tax Incentive
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6. Tax Treaty
7. Apply for Franchise

Principle of Reciprocity- Only used by foreigners.

Requisites:
1. There is the same or similar tax being imposed in that foreign
country;
2. That the privilege shall not disturb our own standard.

Tax incentive is a tax exemption given before the commencement of

business operation.

CANONS OF A SOUND TAX SYSTEM:

1. Fiscal Adequacy - The sources of tax revenue should coincide with,
and approximate the needs of, government expenditures.

2. Administrative Feasibility - Tax laws should be capable of

convenient, just and effective administration.

3. Theoretical Justice - The tax burden should be in proportion to the

taxpayer’s ability to pay. This is the so-called ability to pay principle.

Principle of Exhaustion of Administrative Remedies

- Taxpayer must exhaust the Administrative remedies before going to
court.

*Revenue Regulation cannot be bigger than the law it seeks to

implement.

To question the validity of Revenue Regulation:

1. Request for Ruling Review before the Secretary of Finance
-if Denied
2. Go to court - Petition for Review before the CTA.

To question BIR Ruling:

1. Go to court. Principle of Exhaustion of Administrative Remedies does
not apply because it is merely an opinion. It does not have the force and
effect of law.

Constitutional Limitations of Taxation:

1. Progressive scheme of taxation - based on Ability to Pay Principle.
2. Equality and Uniformity in Taxation
Uniformity - refers to rates; if everything is the same, same
condition/circumstance
Equality - applies to same privileges; everything is the same
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Equitable - The distribution of benefits to the people should be based on

needs.

Test of Valid Classification: Classification, to be valid, must be

reasonable and this requirement is not deemed satisfied unless:
a. It is based upon substantial distinctions which make real
differences;
b. These are germane to the purpose of the legislation or ordinance;
c. The classification applies not only to present conditions but also to
future conditions substantially identical to those of the present; and
d. The classification applies equally to all those who belong to the
same class.

3. Free Worship Clause

- No law shall be made prohibiting the establishment of religion;
-Free exercise of a religious belief;
-The exercise of a religious belief is non-taxable

Sec. 29, Art. VI, 1987 Constitution

No public money or property shall be appropriated, applied, paid, or
employed, directly or indirectly, for the use, benefit, or support of any
sect, church, denomination, sectarian institution, or system of religion,
or of any priest, preacher, minister, other religious teacher, or dignitary
as such, except when such priest, preacher, minister, or dignitary is
assigned to the armed forces, or to any penal institution, or
government orphanage or leprosarium.

Inherent Limitations:
1. Doctrine of Territoriality
2. Government is exempt from taxation
3. Public purpose
4. Doctrine of International Comity - cannot tax foreign gov’t
performing governmental functions
5. Non-Delegability of Power to Tax
- if Congress will enact law supporting the delegation. The
delegation should always contain valid standards.

Tax Amnesty Program- A scheme that can expedite tax collection.

Requisites:
1. Voluntarily come out and honestly declare undeclared income
2. Submit financial statements or supporting documents for that
undeclared income.

-All previous infractions will be overlooked. No surcharge, no interest,

no penalties. Low rate. Exempt from tax assessment and investigation.

Taxpayers not qualified to avail of tax amnesty:

1. Taxpayers paying their taxes religiously
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2. Withholding tax agents

3. All government employees that are charged with graft and
corruption, hidden wealth, etc.
4. Government employees facing impeachment cases
5. Those being investigated by PCGG
6. Those who violated AMLA
7. Those with pending tax fraud cases
8. Those with cases already decided by the court.

Taxpayer’s Suit -
A class suit filed if the government is misappropriating funds.