INCOME TAX (part2) Taxation power can be used as an instrument of

police power. It can be used to discourage or

by: Sir Rene Jayme
prohibit undesirable activities or occupation.
General Principles of Individual Taxation
2. Holme's Doctrine
a. A citizen of the Philippines residing therein is
"Taxation power is not the power to destroy while
taxable on all income derived from sources within
the court sits."
and without the Philippines;
Taxation power may be used to build or encourage
b. A non-resident citizen is taxable only on income
beneficial activities or industries by the grant of tax
derived from sources within the Philippines
incentives.
c. An individual citizen who is working and deriving
3. Prospectivity of tax laws
income abroad as an OFW is taxable only on
Tax laws are generally prospective in operation. An
income from sources within the Philippines
ex post facto law or a law that retroacts is
provided, that the OFW, who is a citizen of the
prohibited by the Constitution.
Philippines and who receives compensation for
Exceptionally, income tax laws may operate
services rendered abroad as a member of the
retrospectively if intended by the Congress under
complement vessel engaged exclusively in
certain justifiable conditions.
international trade shall be treated as an OFW.
4. Non-compensation or set-off
d. An alien individual, whether a resident or not of
Taxes are not subject to automatic set-off or
the Philippines, is taxable only on income derived
compensation. The taxpayer cannot delay payment
from sources within the Philippines.
of tax to wait for the resolution of a lawsuit involving
his pending claim against the government.
Situs of Taxation
Tax is not a debt; hence, it is not subject to set-off.
Situs is the place of taxation. It is the tax jurisdiction
Exceptions:
that has the power to levy taxes upon the tax
a. Where the taxpayer's claim has already become
object. Situs rules serve as the frames of reference
due and demandable such as when the
in gauging whether the tax object is within or
government already recognized the same and an
outside the tax jurisdiction of the taxing authority.
appropriation for refund was made
Examples of Situs Rules
b. Cases of obvious overpayment of taxes
Business Tax Situs
c. Local taxes
Businesses are subject to tax in the place where
5. Non-assignment of taxes
the business is conducted.
Tax obligations cannot be assigned or transferred
Income Tax Situs on Services
to another entity by contract. Contracts executed by
Service fees are subject to tax where they are
the taxpayer to such effect shall not prejudice the
rendered.
right of the government to collect.
Income Tax Situs on Sale of Good
6. Imprescriptibility in Taxation
The gain of sale is subject to tax in the place of
Prescription is the lapsing of the right due to
sale.
passage of time. When one sleep on his right over
Property Tax Situs
an unreasonable period of time, he is presumed to
Properties are taxable in their location.
be waiving his right. The government's right to
Personal Tax Situs
collect taxes does not prescribe unless the law
Persons are taxable in their place of residence.
itself provides for such prescription.
7. Doctrine of Estoppel
Other Fundamental Doctrines in Taxation
Under the doctrine of estoppel, any
1. Marshall Doctrine
misrepresentation made by one party toward
"The power to tax involves the power to destroy"
another who relied therein in good faith will be held
true and binding against that person who made the
misrepresentation.
8. Judicial Non-interference
Generally, courts are not allowed to issue injunction
against the government's pursuit to collect tax as
this would unnecessarily defer tax collection. This
rule is anchored on the Lifeblood Doctrine.
9. Strict Construction of Tax Laws
When the law clearly provides for taxation, taxation
is the general rule unless there is a clear
exemption. Hence the maxim, "Taxation is the rule,
exemption is the exception."
Double Taxation
Double taxation occurs when the same taxpayer is
taxed twice by the same tax jurisdiction for the
same thing.
Elements of Double Taxation
Primary Element: Same object
Secondary Elements:
 Same type of tax
 Same purpose of tax
 Same taxing jurisdiction
 Same tax period
Types of Double Taxation
1. Direct Double Taxation. This occurs when all the
elements of double taxation exist for both
impositions.
2. Indirect Double Taxation. This occurs when at
least one of the secondary elements of double
taxation is not common for both impositions.
How can double taxation be minimized?
a. Provision of tax exemption
only one tax law is allowed to be applied to the tax
object while the other tax law exempts the same tax
object
b. Allowing foreign tax credit
both tax laws of the domestic country and a foreign
country tax the tax object, but the tax payments
made in the foreign tax law are deductible against
the tax due of the domestic tax law.
c. Allowing reciprocal tax treatment
provisions in tax laws imposing a reduced tax rates
or even tax or even exemption if the country of the
foreign taxpayer also gives the same treatment to
Filipino non-residents therein.
d. Entering into treaties or bilateral agreements
countries may stipulate for a lower tax-rates for
their residents if they engage in transactions that
are taxable by both of them
Escapes from Taxation
Escapes from taxation are the means available to
the taxpayer to limit or even avoid the impact of
taxation.
Categories of Escapes from Taxation
A. Those that result to loss of government revenue
-Tax Evasion, also known as tax dodging, refers to
any act or trick that tends to illegally reduce or
avoid the payment of tax.
-Tax avoidance, also known as tax minimization,
refers to any act or trick that reduces or totally
escapes taxes by any legally permissible means.
-Tax exemption, also known as tax holiday, refers
to the immunity, privilege or freedom from being
subject to a-tax which others are subject to. Tax
exemptions may be granted by the Constitution,
law, or contract.
B. Those that do not result to loss of government
revenue
SHIFTING. This is the process of transferring tax
burden to other taxpayers.
FORMS OF SHIFTING
Forward Shifting. This is the shifting of tax which
follows the normal flow of distribution. It is common
with essential commodities and services such as
food and fuel.
Backward Shifting. This is common with non-
essential commodities where buyers have
considerable market power and commodities with
numerous substitute products.
Onward Shifting. Refers to any tax shifting in the
distribution channel that exhibits forward or
backward shifting.
CAPITALIZATION. This pertains to the adjustment
of the value of an asset caused by changes in tax
rates.
TRANSFORMATION - This pertains to the
elimination of wastes or losses by the taxpayer to
form savings to compensate for the tax imposition
or increase in taxes.
Tax Amnesty
• Amnesty is a general pardon granted by the
government for erring taxpayers to give
them a chance to reform and enable them
to have a fresh start to be part of a society
with a clean slate.
Tax Condonation
• Tax condonation is forgiveness of the tax
obligation of a certain taxpayer under
certain justifiable grounds. This is also
referred to as tax remission.

Tax Amnesty vs. Tax Condonation

• Amnesty covers both civil and criminal
liabilities, but condonation covers only civil
liabilities of the taxpayer.
• Amnesty operates retrospectively by
forgiving past violations. Condonation
applies prospectively to any unpaid balance
of the tax; hence, the portion already paid
by the taxpayer will not be refunded.
• Amnesty is also conditional upon the
taxpayer paying the government a portion of
the tax whereas condonation requires no
payment.
• Amnesty covers both civil and criminal
liabilities, but condonation covers only civil
liabilities of the taxpayer.
• Amnesty operates retrospectively by
forgiving past violations. Condonation
applies prospectively to any unpaid balance
of the tax; hence, the portion already paid
by the taxpayer will not be refunded.
• Amnesty is also conditional upon the
taxpayer paying the government a portion of
the tax whereas condonation requires no
payment.