TAXATION LAW Theory
and protection
GENERAL PRINCIPLES
TAXATION
— the power by which the sovereign raises revenue to defray the necessary
expenses of government
 a method of apportioning the cost of government among those who in
some measure are privileged to enjoy its benefits and must, therefore,
bear its burdens
 as a power, it refers to the inherent power of the state to demand
enforced contributions for public purpose or purposes
The power of taxation is essential because the government can neither exist
nor endure without taxation.
THEORIES ON TAXATION
Necessity Theory taxation is a power predicated upon necessity [Phil.
Guaranty C., Inc. v. CIR, 13 SCRA 775]
it is a necessary burden to preserve the State’s
sovereignty and a means to give the citizenry an
army to resist aggression, a navy to defend its shores
from invasion, a corps of civil servants to serve,
public improvements for the enjoyment of the
citizenry, and those which come within the State’s
territory and facilities and protection which a
government is supposed to provide
Benefits-Protection this theory bases the power of the State to demand
and receive taxes on the reciprocal duties of support
the citizen supports the State by paying the portion
from his property that is demanded in order that he
may, by means thereof, be secured in the enjoyment
of the benefits of an organized society
Thus, the taxpayer cannot question the validity of
the tax law on the ground that payment of such tax
will render him impoverished, or lessen his financial
or social standing, because the obligation to pay
taxes is involuntary and compulsory, in exchange for
the protection and benefits one receives from the
government.
N.B. This theory spawned the Doctrine of Symbiotic
Relationship.
Doctrine of Symbiotic Relationship
“Taxes are what we pay for civilized society. Without taxes, the government
would be paralyzed for lack of 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 burden of running 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.” [CIR v. Algue, Inc., G.R. No. L-28896]
 LIABILITIES INVOLVED
 Taxes are personal to the taxpayer.
 A tax creates civil liability on the part of the delinquent taxpayer although
the non-payment thereof, due to failure or refusal to pay) creates a
criminal liability. To sum, in taxation, it is one’s failure to comply with the
civil liability to pay taxes which gives rise to the criminal liability. [Republic
v. Patanao, G.R. No. L-22356]
TAXES
— enforced proportional contributions from persons and property levied by
the law-making body of the State by virtue of its sovereignty for the support of
the government and all public needs.
Essential Characteristics of Tax
(1) It is an enforced contribution for its imposition is in no way dependent
upon the will or assent of the person taxed;
(2) It is generally payable in the form of money, although the law may provide
payment in kind;
(3) It is proportionate in character or is laid by some rule of apportionment
which is usually based on ability to pay;
(4) It is levied on persons, property, rights, acts, privileges, or transactions;
(5) It is levied by the State which has jurisdiction or control over the subject to
be taxed;
(6) It is levied by the law-making body of the State. The power to tax is a
legislative power but is also granted to local governments, subject to such
guidelines and limitations as law may provide [Sec. 5, Art. X, Constitution]; and
(7) It is levied for public purpose.
NATURE OF THE POWER OF TAXATION
(1) Inherent in sovereignty
- the power to tax is an attribute of sovereignty and is a power of
emanating from necessity
- it is a necessary burden to preserve the State’s sovereignty
The power of taxation is an essential and inherent attribute of
sovereignty, belonging as a matter of right to every independent
government, without being expressly conferred by the people. [Pepsi-Cola
Bottling Company of the Philippines v. Mun. of Tanauan, Leyte, G.R. No. L-31166]
However, the taxing power of provinces, cities, municipalities and
barangays is not clothed with inherent power of taxation unlike a
sovereign state. And the power, when granted, is to be construed in
strictissimi juris. [Pelizloy Realty Corp. v. Province of Benguet, G.R. No. 183137]
(2) Essentially a legislative function
- the power to tax is peculiarly and exclusively legislative and cannot be
exercised by the executive or judicial branch of the government
- hence, only Congress, our national legislative body, can impose taxes;
the levy of a tax, however, may also be made by a local legislative body
subject to such limitations as may be provided by law
This means that in the legislature primarily lies the discretion to
determine the nature (kind), object (purpose), extent (rate), coverage
(subjects) and situs (place) of taxation. The legislature wields the power to
define what tax shall be imposed, against whom (or what) it shall be
imposed, how much tax shall be imposed. [Chamber of Real Estate and
Builders’ Association, Inc. v. Romulo, G.R. No. 160756]
(3) Subject to constitutional and inherent limitations
 - these limitations are those provided in the fundamental law or implied
therefrom, while the rest spring from the nature of the taxing power itself
although they may or may not be provided in the Constitution
CHARACTERISTICS OF TAXING POWER
COMPREHENSIVE it covers persons, businesses, activities, professions,
rights, and privileges
UNLIMITED the power to tax is one so unlimited in force and so
searching in extent that the courts scarcely venture to
declare that it is subject to any restriction whatever,
except such as rest in the discretion of the authority
which exercises it [Tio v. Videogram Regulatory Board, G.R.
No. 75697]
PLENARY as it is complete; under the NIRC, the BIR may avail of
certain remedies to ensure the collection of taxes
SUPREME it is supreme insofar as the selection of the subject of
taxation is concerned since it has been repeatedly held
that inequities which result from a singling out of one
particular class for taxation or exemption infringe no
constitutional limitation
PURPOSES OF TAXATION
A. Primary purpose: REVENUE-RAISING
— to raise funds or property to enable the State to promote the general
welfare and protection of its citizens
A tax is imposed under the taxing power of the government principally for
the purpose of raising revenues to fund public expenditures.
B. Secondary purpose: NON-REVENUE or SUMPTUARY
Promotion of general welfare
Regulation
Reduction of social inequality
Encourage economic growth
Protectionism
PRINCIPLES OF A SOUND TAX SYSTEM
taxing power may be used as an implement
of police power [Gerochi v. DOE, G.R. No.
159796]
taxes may be levied with a regulatory
purpose to provide means for the
rehabilitation and stabilization of a
threatened industry which is affected with
public interest as to be within the police
power of the state [Caltex Philippines, Inc. v.
COA, G.R. No. 92585]
this is made possible through the
progressive system of taxation where the
objective is to prevent the undue
concentration of wealth in the hands of a
few individuals
Progressivity is based on the principle that
those who are able to pay should shoulder
bigger portion of the tax burden. This is also
known as compensatory purpose.
in the realm of tax exemptions and tax
reliefs, the purpose is to grant incentives or
exemptions in order to encourage
investments and thereby promote the
country’s economic growth
in case of foreign importations, protective
tariffs and customs are imposed for the
protection of local industries
Fiscal Adequacy — sources of revenues must be adequate to meet Authority may be exercised may be exercised 1) may be exercised
government expenditures, and other public needs; in consonance with the (who only by the only by the by the government
doctrine that taxes are the lifeblood of the government exercises the government; or its government; or its or its political
power) political political subdivisions; or
Theoretical Justice — a sound tax system must take into consideration the subdivisions subdivisions 2) may be granted
taxpayers’ ability to pay to public service
- taxes must be reasonable, just, fair, and conscionable companies or public
- the rule of taxation must be uniform an equitable [Art. VI, Sec. 28(1), 1987 utilities
Constitution] Purpose the property the use of the to facilitate the
- the state must evolve a progressive system of taxation (generally in the property is taking of private
form of money) is “regulated” for the property for public
taken for the purpose of use
Administrative Feasibility — tax laws must be capable of effective and
support of the promoting the
efficient enforcement; they must no obstruct business growth and economic
government general welfare; it
development
is not compensable
Persons operates upon a operates upon a operates on an
Affected community, or community, or class individual as the
class of individuals of individuals owner of a particular
property
Effect the money there is no transfer there is transfer of
POWER OF TAXATION AS DISTINGUISHED FROM POLICE POWER AND contributed of title; at most, the right to property
EMINENT DOMAIN becomes part of there is restraint on
the public funds the injurious use of
Power of Police Power Power of Eminent property
Taxation Domain Necessity of the power to make can be expressly can be expressly
Concept power to enforce power to make and power to take Delegation tax laws cannot be delegated to the delegated to the
contribution to implement laws for private property for delegated local government local government
raise government the general welfare public use with just units by the law units by the law
funds compensation making body making body
Scope plenary, broader in merely a power to Benefits protection and indirect benefits market value of the
comprehensive application; general take private Received benefits he - the persons property
and supreme power to make and property for public receives affected receives - he receives the
implement laws use - the enjoyment of indirect benefits as market value of the
 the privileges of may arise from the property taken from a. PUBLIC PURPOSE
living in an maintenance of a him
organized society, healthy economic The power to tax exists for the general welfare; hence, implicit in its power is
established and standard of society the limitation that it should be used only for public purpose.
safeguarded by the
devotion of taxes Public purpose does not only pertain to those purposes which are traditionally
to public purpose viewed as essentially government functions, such as building roads and
Amount of generally, there is amount imposed no amount imposed delivery of basic services, but also include those purposes designed to promote
imposition no limit on the should just be but rather the social justice.
amount of tax that commensurate to owner is paid the
may be imposed cover the cost of market value of
 The power to determine whether the purpose of taxation is public or
regulation, issuance property taken
private resides in the Congress. However, this will not prevent the court from
of a license or
questioning the propriety of such a statute on the ground that the law enacted
surveillance
is not for a public purpose; but once it is settled that the law is for a public
Relationship subject to inherent relatively free from bounded by public
to and constitutional constitutional purpose and just purpose, the court may no longer inquire into the wisdom, expediency or
Constitution limitations; inferior limitations; compensation; necessity of such tax measure.
to non-impairment superior to non- inferior to the
clause impairment clause impairment N.B. It is the purpose which determines the public character of the tax laws,
prohibition; not the number of persons benefited. As long as the ultimate result favors the
government cannot welfare of the public in general, the appropriation of a public revenue is
expropriate private deemed done for a public purpose.
property, which
under a contract had b. INHERENTLY LEGISLATIVE
previously bound
itself to purchase GR: The power to tax is exclusively vested in the legislative body.
from the other - it cannot be delegated
contracting party - this contemplates the power to determine kind, object, extent, amount,
coverage, and situs of tax
INHERENT AND CONSTITUTIONAL LIMITATIONS OF TAXATION
XPN:
INHERENT LIMITATIONS Delegation to local government.
 - in line with the principle that the power to create municipal
corporations for purposes of self-government carries with it the power
to confer the power to tax on such local governments
Delegation to the President.
- The Congress may, by law, authorize the President to impose tariff
rates, import and export quotas, etc., subject to the limitations and
guidelines as the Congress may impose, consistent with the national
development program of the government. [Sec. 28 (2), Art. VI, 1987
Constitution]
N.B. For a valid delegation of power, the law delegating the power:
1) must be complete in itself; it must set forth the policy to be executed by
the delegate;
2) must fix a standard, limits of which are sufficiently determinate or
determinable to which the delegate must conform
c. TERRITORIAL
GR: The power to tax is limited to the territorial jurisdiction of the taxing state.
It is the place or authority that has the right to impose and collect taxes. [CIR v.
Marubeni, G.R. No. 137377]
XPN: Where privity of relationship exists, the State can exercise its taxing
powers over its citizens outside its territory.
d. INTERNATIONAL COMITY
Basis: Sec. 2, Art. II, 1987 Constitution
Principle of Sovereign Equality Among States
— “states are juridically equal, enjoy the same rights, and have equal
capacity in their exercise. The right of each one do not depend upon the
power which it possesses to assure its exercise, but upon the single fact of
its existence as a person under international law.” [A provision from the
Montevideo Convention of 1993]
This principle, in turn, finds its roots in the rule of ‘par in parem non habet
imperium’, where even the strongest state cannot assume jurisdiction over
another state no mater how weak, or question the validity of its acts in so far
as they are made to take effect within its own territory.
N.B. A state must recognize the generally-accepted tents of international law
that limits the authority of a government to effectively impose taxes in a
sovereign state and its instrumentalities.
e. EXEMPTION FROM TAXATION OF GOVERNMENT AGENCIES AND
INSTRUMENTALITIES
The Constitution is silent on whether Congress is prohibited from taxing the
properties of the agencies of the government. However, Chief Justice Hilario G.
Davide, Jr. has stated that “nothing can prevent the Congress from decreeing
that even instrumentalities or agencies of the government performing
governmental functions may be subject to tax.” [MCIAA v. Marcos, 261 SCRA 667]
Rules:
 agencies performing governmental functions are tax-exempt unless
expressly taxed
 agencies performing proprietary functions are subject to tax unless
expressly exempted
GOCCs perform proprietary functions; hence, they are subject to taxation. taxed at the same rate all the persons and property subject
to it, so that no higher rate or greater
XPN: Certain corporations have been granted exemption under Sec. 27(c) of - a tax is uniform when it operates levy in proportion to value is imposed
RA 8424 as amended by RA 9337, to wit: with the same form and effect in upon one person or species or
1) Government System Insurance System (GSIS); every place where the subject of it property than upon others similarly
2) Social Security System (SSS); is found situated or of like character
3) Philippine Health Insurance Corporation (PHIC);
4) Philippine Charity Sweepstakes Office (PCSO) it requires that all taxable property
shall be alike subjected to the tax, and
Instrumentalities of the National Government is exempt from local taxation. this requirement is violated if
[MIAA v. CA, 495 SCRA 591] particular kinds, species or items of
property are selected to bear the
CONSTITUTIONAL LIMITATIONS whole burden of the tax, while others,
which should be equally subject to it,
Persons Directly Affecting Taxation are left untaxed

a. PROHIBITION AGAINST IMPRISONMENT FOR NON-PAYMENT OF POLL TAX N.B. Uniformity, Not Equality

Sec. 20, Art. III, 1987 Constitution: “No person shall be imprisoned for debt or The imposition of a single tax upon all persons, properties or transaction would
non-payment of a poll tax.” result in inequality.

While a person may not be imprisoned for non-payment of poll tax, he may be It was held that “a system which imposes the same taxation upon every
imprisoned for non-payment of other kinds of taxes where the law expressly so species of property, irrespective of its nature or condition or class” is well said
provides. to be “destructive of the principle of uniformity and equality of taxation, and of
a just adaptation of property to its burdens”.
b. UNIFORMITY AND EQUALITY OF TAXATION
— Sec. 28(1), Art. VI, 1987 Constitution: “The rule of taxation shall be uniform Taxation is equitable when the tax burden falls on those better able to pay.
and equitable. The Congress shall evolve a progressive system of taxation.”
c. PROGRESSIVE SYSTEM OF TAXATION
Uniformity in taxation Equality in taxation — Sec. 28(1), Art. VI, 1987 Constitution: “The rule of taxation shall be uniform
means that all taxable articles or kinds accomplished when the burden of the and equitable. The Congress shall evolve a progressive system of taxation.”
of property of the same class shall be tax falls equally and impartially upon
Taxation is progressive when its rate goes up depending on the resources of
the person affected.
- The Constitution does not prohibit the imposition of regressive taxes.
- The provision should be construed to mean that “direct taxes are to be
preferred and indirect taxes, as much as possible, should be minimized.”
[Abakada Guro Partylist v. Ermita, G.R. No. 168056]
- Indeed, the mandate to Congress is not to prescribe, but to evolve
progressive tax system. This is a mere directive upon Congress, not a
justiciable right or a legally enforceable one. We cannot avoid regressive
taxes but only minimize. [Tolentino v. Secretary of Finance, et. al.]
d. APPROPRIATION, REVENUE AND TARIFF BILLS MUST ORIGINATE
EXCLUSIVELY IN THE HOUSE OF REPRESENTATIVES
— Sec. 24, Art. VI, 1987 Constitution
Shall originate exclusively in the House of Representative:
i. all appropriation, revenue or tariff bills authorizing increase of the public
debt;
ii. bills of local application; and
iii. private bills
- Based on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local
needs and problems. On the other hand, the senators, who are elected at
large, are expected to approach the same problems from the national
perspective. Both views are thereby made to bear on the enactment of
such laws. [Abakada Guro Partylist v. Ermita, G.R. No. 168056]
- Both Houses of Congress may initiate bills, but only the Lower House
may propose tax measures.
Appropriation bills — one whose purpose is to set apart a certain sum from the
pubic revenue for a specified purpose
Revenue bills
Tariff bills
Tolentino vs. Secretary of Finance (Aug. 25, 1994)
        In the bicameral conference, the final draft of the EVAT Law was totally
different from the Senate and the House of Representatives.  So, it was
challenged that it did not originate from the House of Representatives.  Is that
contention correct?
        A bill originating in the House may undergo such extensive changes in
the Senate that the result may be a rewriting of the whole.  As a result of the
Senate action, a distinct bill may be produced. To insist that a revenue statute
— and not only the bill which initiated the legislative process culminating in the
enactment of the law — must substantially be the same as the House bill would
be to deny the Senate's power not only to "concur with amendments" but also
to "propose amendments." It would be to violate the co-equality of legislative
power of the two houses of Congress and in fact make the House superior to
the Senate. The revenue bills in question actually originated from the House of
Representatives and were amended by the Senate only after they were
transmitted to it. Perhaps, if the factual circumstances in those cases were
exactly the same as the ones at bench, then the subject revenue or tariff bill
may be upheld in this jurisdiction on the PRINCIPLE OF SUBSTANTIAL
COMPLIANCE, as they were in the United States, except possibly in instances
where the House bill undergoes what is now referred to as "AMENDMENT BY
SUBSTITUTION," for that would be in derogation of our Constitution which
vests solely in the House of Representatives the power to initiate revenue bills. authority;
A Senate amendment by substitution simply means that the bill in question did
not in effect originate from the lower chamber but from the upper chamber (4) The assessment and collection should be in consonance with the due
and not disguises itself as a mere amendment of the House version. process clause; and
        While Art. VI, §24 provides that all appropriation, revenue or tariff bills,
bills authorizing increase of the public debt, bills of local application, and (5) The tax must not infringe on the inherent and constitutional limitations of
private bills must "originate exclusively in the House of Representatives," it the power of taxation.
also adds, "but the Senate may propose or concur with amendments." In the
exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS
 
ABAKADA vs. ERMITA (469 SCRA 1) Tax and Special Assessment

        The rulings here (as to the RVAT law) are the same as those held in Tax Special Assessment
Tolentino vs. Secretary of Finance, with regard to VAT law, which is in The imposition of a charge on all A special assessment is in the nature
connection with the constitutional requirement that revenue measures should property, real and personal, in a of a tax upon property levied
originate in the House.  Even if the final bill is totally different from the House prescribed area, is a tax, not an according to benefits conferred on
bill, the fact that there is a similar bill initiated by the House, that satisfies a assessment, although the purpose is the property.
substantial compliance of that constitutional requirement that revenue to make a local improvement on a - it is based on the doctrine that
measures should emanate or originate from the House. street or highway. A charge imposed the property against which it is
only on property owners benefited is levied derives some special benefit
a special assessment rather than a from the improvement
e. VETO POWER OF THE PRESIDENT tax.
a) it can be levied only on land;
b) it cannot, as a rule, be made a
REQUISITES OF A VALID TAX personal liability of the person
assessed;
(1) The tax must be for a public purpose; c) it is based wholly on benefits;
and
(2) The rule of taxation should be uniform; d) it is exception both as to time
and locality
(3) The person or property taxed is within the jurisdiction of the taxing
 Tax and License
Tax License
i. levied in the exercise of the taxing i. emanate from the police power of
power; the state;
ii. if its primary purpose is to generate ii. imposed for regulatory purposes;
revenue, and regulation is merely
incidental; the amount of exaction or charge
iii. if regulation is the primary must only be of sufficient amount to
purpose, the fact that incidental include expenses of issuing a license;
revenue is also obtained does not cost of necessary inspection or police
make the imposition a tax surveillance
Tax and Toll
Tax Toll
a demand of sovereignty for the a demand of proprietorship, an
purpose of raising public revenues amount charged for the cost and
maintenance of the property used
Tax and Penalty
Tax Penalty
Tax is a civil liability. A person is a punishment for the commission of a
criminally liable in taxation only when crime
he fails to satisfy his civil obligation to
pay taxes
Tax and Debt
A tax is not a debt because it does not depend upon the consent of the
taxpayer and there is no express or implied contract to pay taxes.
Tax Debt
i. based on law i. based on contract
ii. taxpayer may be imprisoned fro his ii. no imprisonment for failure to pay
failure to pay the tax [XPN: poll tax] debt
iii. generally payable in money iii. payable in money, property or
iv. not assignable industry
v. does not draw interest unless iv. assignable
delinquent v. draws interest if stipulated or
vi. imposed by public authority delayed
vii. prescription is determined by NIRC vi. imposed by private individuals
vii. prescription is determined by the
Civil Code
KINDS OF TAXES
DIRECT TAX a tax for which a taxpayer is directly liable on the
transaction or business it engages in
those that are exacted from the very person who, it
is intended or desired, should pay them
INDIRECT TAX a tax primarily paid by persons who can shift the
burden upon someone else
those that are demanded, in the first instance, from,
or are paid by, one person in the expectation and
intention that he can shift the burden to someone
else

taxes wherein the liability for the payment of the
tax falls on one person but the burden thereof can
be shifted or passed on to another person
N.B.
- when the seller passes on the tax to his buyer, he,
in effect, shifts the tax burden, not the liability to
pay it, to the purchaser as part of the price of goods
sold or services rendered
- the liability for the payment of indirect taxes lies
only with the seller of the goods or services, not in
the buyer thereof
CIR v. PLDT Co., 478 SCRA 62:
“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 he purchased. Hence,
it is important to determine if the tax exemption granted to a
taxpayer specifically includes the indirect tax which is shifted
to him as part of the purchase price, otherwise it is
presumed that the tax exemption embraces only those taxes
for which the buyer is directly liable.”
SPECIFIC TAX a tax imposed and is based on weight or volume
capacity or any other unit of measurement [e.g.,
excise taxes on distilled spirits, tobacco products and
petroleum products]
AD VALROREM TAX a tax that is based on selling price or other specified
value of the goods [e.g., excise tax on automobiles and
non-essential gods]
GENERAL TAX a tax imposed solely to raise revenue for the
government [e.g., income tax, donor’s tax, estate tax and
value-added tax]
SPECIAL TAX a tax imposed and collected to achieve a particular
legitimate object of government [e.g., oil price
stabilization fund]
NATIONAL TAX a tax imposed by the national government [e.g.,
revenue taxes under the NIRC and custom duties]
a tax levied and collected by the local government
LOCAL TAX [e.g., real property tax and business tax]
PERSONAL TAX is of fixed amount imposed on individuals, whether
citizens or not, residing within a specified territory,
without regard to their property or occupation [e.g.,
community tax]
PROPERTY TAX a tax imposed on property, real or personal, in
proportion to its value [e.g. real estate tax]
PROGRESSIVE TAX one whereby the rate increases as the tax base
(amount) increases [e.g., income tax, estate and donor’s
tax]
REGRESSIVE TAX one where the tax rate decreases as the tax base
increases [value-added tax is a form of regressive tax
(Tolentino, et al. v. Secretary of Finance)]
DOCTRINES IN TAXATION
 CONSTRUCTION AND INTERPRETATION OF TAX LAWS, RULES AND General Powers and Duties
REGULATIONS
a. Assessment and collection of all national internal revenue taxes, fees and
PROSPECTIVITY OF TAX LAWS charges;
b. Enforcement of all forfeitures, penalties, and fines connected with the
IMPRESCRIPTIBILITY OF TAXES national internal revenue taxes, fees, and charges;
c. Execution of judgment in all cases decided in its favor by CTA and the
DOUBLE TAXATION ordinary courts; and
d. Give effect to and administer the supervisory and police powers conferred
ESCAPE FROM TAXATION to it by the NIRC or other laws;
e. Recommend to the Secretary of Finance all needful rules and regulations for
a) Shifting of Tax Burden the effective enforcement of the provision of the NIRC.
b) Tax Avoidance
c) Tax Evasion Chief Officials of the BIR

EXEMPTION FROM TAXATION a) Commissioner of Internal Revenue (1)

b) Assistant Chiefs known as Deputy Commissioners (4)
EQUITABLE RECOUPMENT - each in charge of (1) Operations, (2) Legal, (3) Information System and (4)
Resource Management of the BIR
PROHIBITION ON COMPENSATION AND SET-OFF
BIR Revenue Issuances
COMPROMISE AND TAX AMNESTY
Revenue Regulations issuance signed by the Secretary of Finance,
NATIONAL TAXATION upon recommendation of the Commissioner,
that specify, prescribe, or define rules and
TAXING AUTHORITY regulations for the effective enforcement of
the provisions of the NIRC and related statutes
BUREAU OF INTERNAL REVENUE — the lead government agency tasked with
the enforcement of revenue laws and the collection of taxes specifically those Revenue Memorandum issuances that provide directives or
under the NIRC, as amended Orders instructions; prescribe guidelines; and outline
- it is under the supervision of the Department of Finance (DOF) processes. operations, activities, workflows,
methods, and procedures necessary in the
 implementation of stated policies, goals,
objectives, plans, and programs of the BIR in all
areas of operations, except auditing
Revenue Memorandum issuances that publish pertinent and applicable
Circulars portions, as well as amplifications, of laws,
rules, regulations, and precedents issued by
the BIR and other agencies/offices
Revenue Administrative issuances that cover subject matters dealing
Orders strictly with the permanent administrative set-
up of the Bureau, more specifically, the
organizational structure, statements of
functions and/or responsibilities of BIR offices,
definitions and delegations of authority,
staffing and personnel requirements, and
standards of performance
Revenue Delegation of refer to functions delegated by the
Authority Orders Commissioner to revenue officials in
accordance with law
JURISDICTION, POWER, AND FUNCTIONS OF THE COMMISSIONER OF
INTERNAL REVENUE
a) Interpreting Tax Laws and Deciding Tax Cases
POWER TO INTERPRET TAX LAWS
Sec. 4, NIRC — “The power to interpret the provisions of this Code and other
tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.”
 the administrative power to issue needful rules and regulations [Revenue
Regulations] for the effective enforcement of the provisions of the NIRC is
with the Secretary of Finance, upon recommendation of the
Commissioner
 the RMO, RMC RAO, a RDAO are issued by the Commissioner himself
without the need of prior approval by the Secretary of Finance. These
issuances, including Revenue Regulations, are pursuant t the exercise of
the Commissioner of its quasi-legislative power [CTA EB No. 1023, September
16, 2014]
POWER TO DECIDE TAX CASES
Sec. 4, NIRC — “The power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or
other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of Court of Tax Appeals.”
 the exercise of this power is pursuant to the quasi-legislative power of the
BIR [CIR v. Avon Products Manufacturing, Inc., G.R. No. 201418-19]
 the ruling of the Commissioner is appealable to the Secretary of Finance
whose decision is also appealable to the regular courts.
Tax Rulings are official positions of the BIR on inquiries of taxpayers, who
request clarification on certain provisions of the NIRC, other tax laws, or their
implementing rules, usually for the facts and circumstances presented and are
interpretations of the law at a specific point in time.
BIR Rulings are official positions of the BIR to queries raised by taxpayers and
other stakeholders relative to clarification and interpretation of tax laws.
It may be classified into:
(1) rulings of first impression; or
(2) rulings with established precedents
Rulings of First Impression refer to those rulings, opinions, and
interpretations of the Commissioner with respect to the provisions of the
Tax Code and other tax laws without established precedent, and which
are issued in response to a specific request for ruling filed by a taxpayer
with the BIR. It also include reversal, modifications, or revocation of any
existing ruling.
AUTHORITY OF THE COMMISSIONER
(1) To terminate taxable period for reasons provided in the NIRC;
(2) To make or amend return in case taxpayer fails to file a return or files a
false or fraudulent return;
(3) To examine returns and determine tax due;
(4) To prescribe any additional requirements for the submission or preparation
of financial statements accompanying tax returns;
(5) To inquire into bank deposits of:
a) decedent to determine his gross income;
b) a taxpayer who filed application to compromise payment of tax liability
by reason of financial incapacity
c) a specific taxpayer/s subject of a request for the supply of tax
information form from a foreign tax authority pursuant to an international
convention or agreement;
(6) To delegate powers vested upon him to subordinate officials with rank
equivalent to Division Chief or higher, subject to limitations and restrictions
imposed under the rules and regulations;
(7) To prescribe real property values;
(8) To take inventory of goods of any taxpayers, and place any business under
observation or surveillance if there is reason to believe that such is not
declaring his correct income, sales or receipts for tax purposes;
(9) To register tax agents
The power of the Commissioner includes:
POWER TO OBTAIN INFORMATION AND TO SUMMON, EXAMINE, AND TAKE
TESTIMONY OF PERSONS [pg 232]
POWER TO MAKE ASSESSMENTS AND PRESCRIBE ADDITIONAL
REQUIREMENTS FOR TAX ADMINISTRATION AND ENFORCEMENT [pg 233]
POWER TO DELEGATE AUTHORITY
GR: The Commissioner may delegate the powers vested under the NIRC to any
or such subordinate officials with the rank equivalent to a division chief or
higher, subject to such limitations and restrictions as may be imposed under
rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.
XPN:
(a) The power to recommend the promulgation of rules and regulations by the
Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or
modify any existing ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code,
any tax liability; [XPN: The Regional Evaluation Board may compromise
assessments involving deficiency taxes of P500,000 or less and minor crime
violations.]
(d) The power to assign or reassign internal revenue officers to establishments
where articles subject to excise tax are produced or kept. [Sec. 7, NIRC]
DUTY TO ENSURE THE PROVISIONS AND DISTRIBUTION OF FORMS, RECEIPTS,
CERTIFICATES, AND APPLIANCES, AND THE ACKNOWLEDGMENT OF PAYMENT
OF TAXES [pg 240]
[Other Powers] pg 241
Nature of our Internal Revenue / Tax Laws
Tax laws, as a rule, are civil in nature.  They are not political nor penal nor
criminal in nature.
- provide penalties, sanctions, impose fines or imprisonment or both.  The
penalties are there to assure prompt payment of taxes.  default, what would be the consequence for failure to follow the mandatory or
The penalties are not there to make our tax laws criminal or penal in nature. 
While others are prosecuted for violation does not necessarily make our tax
laws penal or criminal in nature.  and amount of each person’s tax.  Failure to follow mandatory provisions
- ex post facto law or the bill of attainder in the case of tax laws are not
should not be applied
Construction and Interpretation of Tax Laws, Rules and Regulations
(1) Legislative intent – Tax statutes are to receive reasonably construction with
the view to carry out their purpose and intent.  If there is some issue on
construction and interpretation, we determine what was the intent of the
legislators.  We go back to the deliberations, debates, arguments. 
(2) When there is doubt – In case of doubt, they are construed strictly against
the government and liberally in favor of the taxpayer.  Tax laws are, therefore,
given liberal construction for the reason that taxes are burdens. 
(3)  Where the language is plain - But when the language of the tax law is plain
and clear, which does not require independent interpretation or construction,
the rule of strict construction against the government is not applicable where
the language of the tax statute is plain and there is not doubt as to its
legislative intent.
(4) Where taxpayer claims exemption – The rule is strict construction
Mandatory and directory provisions
Tax laws contain mandatory and directory provisions.  There is an importance
or significance of the distinction because of the consequence.  In case of
directory provisions?
 
1. Mandatory provisions – They are intended for the security of the taxpayer.
They are designed to insure equality of taxation or certainty as to the nature
renders the act or proceeding invalid. 
 
Examples:
(a) Deadlines – In the case of the filing and payment of the annual income tax,
the deadline is April 15.  When you file and pay your tax after April 15, there is
a corresponding consequence.  You will be charged with interest, penalties and
charges as a result of your failure to follow mandatory provisions.
(b) Notice of Tax Deficiency  - When the taxpayer receives a notice of tax
deficiency, he is required by law to protest this within 30 days.  If the protest is
done after the 30th day, the consequence is that the tax deficiency is final and
executory.  c) Where the taxpayer acted in bad faith.
(c) Proceedings – In case your protest is denied, the taxpayer is given 30 days to
go to the CTA.  If you go beyond that period, then, your appeal will be
dismissed because the law strictly provides that you should bring that up to the
CTA within the said period.  - it can be relied upon by taxpayers
 
2. Directory provisions – They are for information or direction of officers or to
secure methodical and systematic modes of proceedings.
a.  Payment of taxes – In the NIRC, the payment of tax should be made through
the BIR, in the case of internal revenue tax.  But the mode of payment
nowadays is that it is not anymore that you go directly to the BIR.  You could
pay now through the banking system.  They are authorized to receive
payments.  That is directory – for the information and direction of taxpayers, to
secure a methodical and systematic mode. 
        Payment of taxes could be done if you have tax credit certificates or if you
have an approved tax refund.  These are just directory provisions.
b) Non-Retroactivity of Rulings
[Sec. 246, NIRC]
GR: Any revocation, modification or reversal of any of the rules and regulations
promulgated or any of the rulings or circulars promulgated by the CIR shall not
be given retroactive application the revocation, modification, or reversal will
be prejudicial to the taxpayers.
XPN:
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; or
BIR RULING — an administrative interpretation of the Revenue Law as applied
and implemented by the Bureau
- it is valid until otherwise determined by the courts or modified or revoked
by a subsequent ruling or opinion
Requirements to be valid:
i. must be issued within the scope of authority of the Commissioner
ii. and not contravene any law or decision of the Supreme Court
RULE-MAKING AUTHORITY OF THE SECRETARY OF FINANCE
Sec. 244, NIRC — “The Secretary of Finance, upon recommendation of the
Commissioner, shall promulgate all needful rules and regulations for the
effective enforcement of the provisions of his Code.”
 these rules and regulations promulgated by the Secretary of Finance are
the so-called Revenue Regulations which are the implementing rules and
regulations of the NIRC
 however, RMO, RMC, RAO and RDAO does not require the approval by
the Secretary of Finance
General principles on the Rule-Making Power
(1) Rules and regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts.
(2) All such issuances must not override but must remain consistent and in
harmony with the law they seek to apply and implement.
(3) Administrative rules and regulations are intended to carry out, neither to
supplant nor to modify, the law. b) When Income is Taxable

INCOME TAX c) Tests in Determining Whether Income is Earned for Tax Purposes

DEFINITION, NATURE, AND GENERAL PRINCIPLES 1) Realization Test

INCOME TAX is a tax on person’s income, emoluments, profits arising from 2) Economic Benefit Test, Doctrine of Proprietary Interest
property, practice of profession, conduct of trade or business or on the
pertinent items of gross income specified in Tax Code of 1997, as amended, 3) Severance Test
less the deductions if any, authorized for such types of income, by the Tax
Code, as amended, or other special laws. d) Tax-Free Exchanges

e) Situs of Income Taxation

a) Criteria in Imposing Philippine Income Tax GROSS INCOME

CITIZEN/NATIONALITY PRINCIPLE a) Definition

RESIDENCE/DOMICILE PRINCIPLE b) Concept of Income from Whatever Source Derived

SOURCE PRINCIPLE c) Gross Income vs. Net Income vs. Taxable Income

b) Types of Philippine Income Tax d) Sources of Income Subject to Tax

c) Taxable Period 1) Compensation Income

d) Kinds of Taxpayers 2) Fringe Benefits

INCOME 3) Professional Income

a) Definition and Nature 4) Income from Business

 a) Resident Citizens, Non-Resident Citizens, and Resident Aliens
5) Income from Dealings in Property
1) Inclusions and Exclusions for Taxation on Compensation Income
6) Passive Investment Income
2) Taxation of Business Income/Income from Practice of Profession
7) Annuities, Proceeds from Life Insurance or Other Types of Insurance
3) Taxation on Passive Income
8) Prizes and Awards
4) Tax of Capital Gains
9) Pensions, Retirement Benefit or Separation Pay
5) Capital Asset vs. Ordinary Asset
10) Income from Any Source
b) Income Tax on Non-Resident Aliens Engaged in Trade or Business

-----END----- c) Income Tax on Non-Resident Aliens Not Engaged in Trade or Business

e) Exclusions d) Individual Taxpayers Exempt from Income Tax

1) Taxpayers Who May Avail 1) Senior Citizens

2) Distinguished from Deductions and Tax Credits 2) Minimum Wage Earners

DEDUCTIONS FROM GROSS INCOME 3) Exemptions Granted Under International Agreements

a) Concept as Return of Capital INCOME TAX ON CORPORATIONS

b) Itemized Deductions vs. Optional Standard Deduction a) Income Tax on Domestic Corporations and Resident Foreign Corporations

c) Items Not Deductible 1) Branch Profit Remittance Tax

INCOME TAX ON INDIVIDUALS 2) Itemized Deductions vs. Optimal Standard Deductions

 b) Income Tax on Non-Resident Foreign Corporations
VAT-EXEMPT TRANSACTIONS
c) Income Tax on Special Corporations
d) Exemptions from Tax on Corporations INPUT AND OUTPUT TAX

e) Period Within Which to File Income Tax Return of Individuals and TAX REFUND OR CREDIT
Corporations
FILING OF RETURNS AND PAYMENT
f) Substituted Filing
TAX REMEDIES UNDER THE NATIONAL INTERNAL REVENUE
g) Failure to File Returns
ASESSMENT OF INTERNAL REVENUE TAXES
WITHHOLDING TAXES
a) Procedural Due Process in Tax Assessments
a) Concept
b) Requisites of a Valid Assessment
b) Creditable vs. Withholding Taxes
c) Tax Delinquency vs. Tax Deficiency
VALUE-ADDED TAX (VAT)
d) Prescriptive Period for Assessment
CONCEPT AND ELEMENTS OF VATable TRANSACTIONS
1) False Returns vs. Fraudulent Returns vs. Non-Filing of Returns
IMPACT AND INCIDENCE OF TAXATION
2) Suspension of the Running of Statute of Limitations
DESTINATION PRINCIPLES AND CROSS-BORDER DOCTRINE
TAXPAYER’S REMEDIES
IMPOSITION OF VAT ON TRANSFER OF GOODS BY TAX EXEMPT PERSONS
a) Protesting an Assessment
TRANSACTION DEEMED SALE SUBJECT TO VAT
1) Period to File Return
ZERO-RATED AND EFFECTIVELY ZERO-RATED SALES OF GOODS OR
PROPERTIES 2) Submission of Supporting Documents
 3) Effect of Failure to File Protest

4) Action of the Commissioner on the Protest Filed

b) Compromise and Abatement of Taxes

c) Recovery of Tax Erroneously or Illegally Collected

GOVERNMENT REMEDIES FOR COLLECTION OF DELINQUENT TAXES

a) Requisites

b) Prescriptive Periods

CIVIL PENALTIES

a) Delinquency Interest and Deficiency Interest

b) Surcharge

c) Compromise Penalty

LOCAL TAXATION

LOCAL GOVERNMENT TAXATION