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3. Privilege/Capitation 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.

As to burden and Incidence 1. Direct Tax- are demanded form the very person who, as intended should pay the
tax which cannot shift to another.
2. Indirect Tax- are demanded in the first instance from one person with the
expectation that he can shift the burden to someone else, not as tax but as part
of the purchase price
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, cigarette 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 can be determined.
3. Mixed- a choice between ad valorem and/or specific demanding on the condition
attached.
As to Purposes 1. General/ Fiscal or Revenue- tax imposed solely for the general purpose of the
government. E.g., income tax and donor’s tax.
2. Special/ Regulatory or Sumptuary- tax levied for specific purpose i.e., to achieve
some social or economic ends e.g., Tariffs and certain duties on imports.
As to Scope or Authority to impasse 1. National Tax- tax levied by the national government. E.g., income tax, estate tax,
donors’ tax, VAT, other percentages taxes and documentary stamp tax.
2. Local or Municipal- a tax levied by a local government. E.g., real estate and
community tax
As to graduation 1. Progressive- a tax rate which increases on the tax base or breach increases. E.g.,
Income tax, estate tax and donor’s tax.
2. Regressive- a tax rate decreases as the tax base or bracket increases.
3. Proportionate- a tax of a fixed percentage of amounts of the base (value of the
property or amount of gross receipts etc.) E.g., VAT and other percentage taxes
J. GENERAL CONCEPTS IN TAXATION
1. Prospectivity of tax laws- Tax laws operate prospectively whether they enact or amend or repeal. Revenue statutes are substantive laws and in no sense must their application
be equated with that of remedial laws.

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Exception: Tax laws may only be given retroactive application if the legislature expressly or impliedly provides that it shall be given retroactive application.
There is violation of due process when the tax law imposes harsh/oppressive tax.

On BIR Rules and regulations that revoke modify or reverse a ruling or circular. The general rule is that it shall not be given retroactive application if the revocation modification
or reversal will be prejudicial or reversal will be prejudicial to the taxpayers.

Exception:
a. If such not be given retroactive application if the revocation modification or reversal will be prejudicial to the taxpayer.
EXCEPTION TO THE EXCEPTION:
a. The taxpayer deliberately mistakes or omits material facts from his return or any document required by the BIR.
b. The facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based.
c. The taxpayer is in bad faith.
b. 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 vestal right that can be involved by a taxpayer.
c. Retroactive application of revenue laws may be allowed if it will not amount to denial of due process. There is s violation of due process when the tax laws impose harsh
and oppressive tax.

2. Imprescriptivity of Taxes
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 LGU provides for the prescriptive periods of assessment and collection. Tax laws provide for
statute of limitations in the collection of taxes for the purpose of safeguarding taxpayers from only unreasonable examinations investigation or assessments.

Note: Although the NIRC provides for the limitations in the assessment and collection of taxes imposed, such prescriptive period will only be applicable to those taxes that were
returnable. The prescriptive period shall start from the taxpayer files the tax return and declares his liability.

3. Situs of taxation
Situs of taxation literally means the place of taxation. The state where the subject to be taxed has a situs may rightfully levy and collect the tax; and The situs is necessarily in the
state which has jurisdiction or which exercises dominion over the subject in question. Within the territorial jurisdiction, the taxing authority may determine the situs.

Factors that Determine Situs:

a. Nature of the tax; d. Citizenship of the taxpayer;
b. Subject matter of the tax (person, property, act or activity) e. Residence of the taxpayer;
c. Possible protection and benefit that may accrue both to the government and f. Source of income.
the taxpayer;

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SITUS OF INCOME TAX SITUS OF PROPERTY TAX
TAXPAYER SOURCE OF INCOME KINDS OF PROPERTY SITUS
CITIZENSHIP RESIDENCY WITHIN OUTSIDE REAL PROPERTY Where is it located (lex rei sitei)
THE PHIL THE PHIL TANGIBLE PROPERTY Where property is physically located
Filipino Resident Taxable Taxable although the owner resides in another
Filipino Non-resident Taxable Non- jurisdiction; or place of sale or transaction
taxable INTANGIBLE PERSONAL Domicile of the owner. Moibilia sequuntur
Alien Resident Taxable Non- PROPERTY personam (movable follow the persons)
taxable ➢ RECEVIABLES Exceptions: When property has acquired a
Alien Non-Resident Taxable Non- ➢ BAND DEPOSITS business situs in another jurisdiction; or
taxable ➢ BONDS When the law provides for the situs of the
➢ PROMISSORY NOTE subject of tax (e.g., Sec 104, NIRC)
➢ MORTGAGE LOANS Franchise, patents, copyrights, trademarks
SITUS OF BUSINESS TAX ➢ JUDGMENTS AND – situs is the place of the country where
KINDS OF BUSINESS TAX SITUS CORPORATE STOCKS such intangibles are exercised. Receivables
VAT Where transaction is Domicile residence of debtor or the Bank
made (i.e. where the deposits – Location or the depository bank
good/service is
sold/perform and
consumed)
Sale of Real Property Where the real property is
located
Sale of Personal Property Where the personal
property was sold

SITUS OF EXCISE TAX

KIND OF EXCISE TAX SITUS
INCOME TAX Source of the income, nationality or residence of taxpayer (Sec. 23, NIRC)
Occupation – where the occupation is engaged in
Transaction where the transaction took place
DONORS TAX Location of property; nationality or residence of donor
ESTATE TAX Location of property; nationality or residence OF deceased

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4. Double taxation
There is no constitutional prohibition against double taxation in the Philippines. It is something not favored but is permissible, provided some other constitutional requirement is
not violated
As to scope
a. Domestic Double Taxation- when the taxes are imposed by the local/ national government within the same state.
b. International Double Taxation- refers to 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.
Interpretation
a. Doubts as to whether double taxation has been imposed should be rescinded in favor of the taxpayer. To avoid injustice or unfairness.
b. Double taxation occurs, the taxpayer may seek relief under the uniformity rule or the equal protection guarantee.

c. Strict sense (Direct Double Taxation)- it violated the equal protection clause of the Constitution.
a. Taxing Twice
b. By the same taxing authority
c. Within the same jurisdiction or taxing district or locality
d. For the same purpose
e. In the same period
f. Same subject matter or property
g. Of the same kind and character of tax.

d. Broad sense- Broad sense (indirect double taxation)- is taxation other than direct duplicate. It extends to all cases in which there is burden of two or more pecuniary
estimations.
e. Tax treaties as relief from double taxation
Tax Treaties- an agreement between two countries specifying what items of income will be taxed by the authorities of the country where the income is earned.
Methods resorted to by a tax treaty in order to eliminate double taxation.
a. An exclusive right to tax is conferred in 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 if sources is limited.
b. The state source is given full or limited right to tax together with the state of residence. In this case, the treaty with the state of residence. In this case, the treaty
makes it incumbent upon the state of residence to allow relief in order to avoid double taxation. Two ways under this method namely:
i. Exemption method, the income or capital which is taxable in the state of source or situs is exempt in the state of residence although in some instances it may
be taken into account in determining the rate of tax applicable to the taxpayers remaining income or capital. (This may be done by using the tax deduction
method, which allows foreign income taxes to be deducted from gross income, in effect exempting the payment from being further taxed). The focus here is
on the income or capital itself.

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ii. 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.

5. Escape from taxation

a. Shifting of tax burden- Is the taxpayer of the burden of tax by the original payer or one on whom the tax was assessed or imposed to another or someone else without
violating the law.

Kinds of Shifting
a. Forward shifting- this takes place when the burden of the tax is transferred from the factor of production through the factors of distribution until it finally settles on
the ultimate purchaser or consumer.
b. Backward shifting- this is affected when the burden of the tax is transferred from the consumer or purchaser through the factors of distribution to the factor of
production.
c. Onward shifting- this occurs which tax is shifted two or more times either forward or backward.

b. Distinguish: tax avoidance and tax evasion

Tax Evasion-Is a scheme where the taxpayer was illegal or fraudulent means to defend or lesson payment of taxes. It’s 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.

Elements:
a. Cause of action is unlawful
b. Accompanying state of mind which is described as being evil in bad faith, willful or deliberate and not accidental
c. End to be achieved, the payment of less than that known by the taxpayer to be legally due or in paying no tax when it is shown that a tax is due.

Evidence
a. Failure of taxpayer to declare for taxation purpose his true and actual income derived form business for 2 consecutive years.
b. Substantial under declaration of income in the income tax for 4 consecutive years coupled by intentional overstatement of deductions.

Tax Avoidance-Tax avoidance is a scheme where the taxpayer uses, legally permissible alternative method of assessing taxable property or income, in order to avoid or
reduce tax liability. The taxpayer uses tax saving device or means sanctioned or allowed by law. So the law is not violated in any way.

This may include:

• Capitalization- The reduction in the prize of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay.

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• Transformation- is the method of escape from taxation whereby the manufacturer or purchaser upon whom the tax has been imposed, fearing the loss of his market
if he should add the tax to the price, pays the tax/endeavors to recoup himself by improving his process of production, thereby turning out his units of products of a
lower cost.

6. Exemption from taxation- Exemption from taxation is 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 state or taxing district are obliged to pay.

Nature: As to Object
a. An exemption from taxation is a mere personal privilege of the grantee 1. Personal- granted directly in favor of certain person
b. It is generally revocable by the government unless the exemption is 2. Impersonal-granted directly in favor of a certain class of property.
founded on the contract.
c. It implies a waiver on the part of Government of its right to collect what Rationale
otherwise would be due. 1. Regulatory Purpose
d. It is not necessarily discriminatory so long as the exemption has a 2. Police Power
reasonable foundation or rational basis. 3. Compensatory Purpose (Social Justice)
Thus. Taxation is the rule and exemption is the exception. The burden proof rests
upon the party claiming exemption. Revocation of Tax Exemption
Since taxation is the rule and exemption is the exception, the exemption may thus
Kinds of Tax Exemption be withdrawn at the pleasure of the taxing authority.
1. Constitutional
2. Statutory Restrictions on revocation of Tax Exemption
3. Contractual 1. Non-impairment clause
4. Implied 2. A municipal franchise once granted as a contract cannot be altered or
5. Treaty amended except by actual consent of the parties concerned.
6. Licensing Ordinance 3. Adherence to form. If the exemption is granted by the Constitution, its
revocation may be affected through constitutional amendment only.
As to extent 4. Where the tax exemption grant is the form of a special law and not by a
a. Total- connotes absolute immunity general law even if the terms of the general act are broad enough to include
b. Partial- one where a collection of a part of the tax is dispensed with. the codes in the general law unless there is manifest intent to repeal or alter
the special law.

7. Equitable recoupment-It is a principle which allows taxpayer, whose claims for refund has been barred due to prescription, to recover said tax by setting-off the prescribed
refund against the tax that may be due and collectible from him. Under this doctrine the taxpayer is allowed to credit such refund to his existing tax liability. Equitable recoupment

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is allowed only in common countries not in the Philippines. Jurisprudence rejects it since it may work to tempt both parties to delay and neglect their respective pursuits of legal
action within the period set by law.

8. Prohibition on compensation and set-off- Compensation or set-off take place when two persons, in their own right, are creditors debtors of each other. No set-off is admissible
against the demands for taxes levied for general or local governmental purposes, taxes for the simple reason that the government and the taxpayer are not creditors and debtors
of each other, debts are clue to the government in its corporate capacity, while taxes are due to government in its sovereign capacity.

Exception: Where both the claims of the government and the taxpayer against each other have already become due and demandable and fully liquidated, compensation takes
place by operation of law and both obligations are extinguished to their concurrent amounts. In case of the taxpayer claim against the government, the government must have
appropriated the amount thereto.

9. Compromise- Compromise is a contract whereby the parties by reciprocal concessions, avoid litigations or put an end to one already commenced. It implies mutual agreement by
the parties in regard to the thing or object subject matter which is to be compromised. Compromise are generally allowed and enforceable when the subject matter thereof is not
prohibited from being compromises and the person entering such compromise is duly authorized to do so. Persons allowed to enter into a compromise of tax obligation

BIR Commissioner as expressly authorized by the NIRC and subject the following conditions:
➢ When a reasonable doubt as to validity of the claim against the taxpayer exists.
➢ The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
➢ Collectors of Customs- with respect to custom duties limited to cases where the legitimate authority is specifically granted such as in the remission of duties.
➢ Custom Commissioner- subject to the approval of the secretary of finance to cases involving the imposition of fines surcharges and forfeitures.

10.Tax amnesty- Tax amnesty being a general pardon or intentional overlooking by the state of its authority to impose penalties on persons otherwise guilty of evasion or violation
of a revenue or tax laws. It partakes of an absolute waiver by the government of its right to collect what is due to it and to give tax evaders who wish to relent a chance to start
with a clean state.

K. CONSTRUCTION AND NTERPRETATION OF TAX LAWS, RULES AND REGULATIONS

1. Tax Laws- Tax statutes and laws must be construed strictly against the government and liberally in favor of the taxpayer. In case of doubt. The imposition of a tax cannot be
presumed. This is because taxes are burdens on the taxpayer and should not be unduly imposed or presumed beyond what the statutes expressly and clearly provides.

Exception: Unless a statute imposes a tax clearly, expressly and unambiguously, the presumption mentioned in the general rule to cases involving the issue of the validity of the
tax law itself which, in every case is presumed valid. Legislative intention must be considered, and where the language of the tax statute is plain and where the taxpayer claims
exemption from payment.

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2. Tax Exemptions and Exclusions- Statutes granting tax exemption are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds
are in the nature of tax exemption, which are construed in strictissimi juris against the taxpayer and liberally in favor of the government.

Exception:
➢ 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 operation.
➢ It is recognized principle that the above rule does not apply to in the case of exemption in favor of the government political subdivision or instrumentality.
➢ Erroneous payment of the tax or absence of laws for the government’s exaction.

3. 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. 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 enabling law. 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.

4. 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 case will not be presumed in the absence of clear legislation.

TITLE II. NATIONAL TAXATION

A. TAXING AUTHORITY
1. Jurisdiction, power, and functions of the Commissioner of Internal Revenue
Power and duties of the BIR Power of the Commissioner
1. Assessment and Collection of all the National Internal Revenue taxes, fees 1. Power to interpret tax laws and decide cases
and charges. 2. Power to obtain information and to summon/examine and take testimony
2. Empowerment of all forfeitures, penalties and fines of persons
3. Execution of judgement in all cases decided in its favor (by the CTA and
regular courts) Purposes/ Functions
4. Give effect and administer the supervisory and police powers conferred to • To ascertain correctness of the return
it by the NIRC and other laws. • To make a return where none has been made
5. Recommend to the Secretary of Finance a needful rules and regulations for • To determine liability of any person for any internal revenue tax
the effective enforcement of the provisions of the NIRC. • To collect such liability
• To evaluate tax compliance

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Scope of such powers administered by the BIR is vested in the Commissioner subject to the
1. To examine any book, paper or record or other data which may be relevant exclusive appellate jurisdiction of the CTA
or material to such inquiry
2. To obtain any information (costs, volume of production, receipts, sales, Power to Interpret:
gross income on a regular basis from any other person other than the • The NIRC
person under investigation and any office or officer of the national/local • Other tax laws.
government
3. Any person having in possession, custody and care the books of accounts, Power to decide on:
accounting records of entries released related to the business of the 1. Disputed assessment
taxpayer 2. Refunds of internal revenue taxes
4. Power to make assessments and prescribe additional requirements for tax 3. Fees or other charges and penalties imposed in relation thereto
administration and enforcement. 4. Other matters arising under the NIRC or other laws or portions thereof
5. Power to assign internal revenue officers and other employees. administered by the BIR.
6. Power to suspend the business operation of a taxpayer for violations of the
VAT rules. Non-retroactivity of rulings
The rulings of the BIR are not retroactive any revocation, modification ir reversal
Interpreting tax laws and deciding tax cases of any of the rules/ regulations promulgated or any of the rulings or circulars,
1. The power to interpret the provisions of the NIRC and other tax laws shall promulgated by the CIR shall not be given retroactive application if it will be
be under the exclusive and original jurisdiction of the commissioner, subject prejudicial to the taxpayer except in the following cases:
to revies by the Secretary of Finance. 1. Where the taxpayer deliberately misstates or omits material facts from his
2. The power to decide between disputed assessments, refunds of internal return or any document required of him by the BIR.
revenue taxes, fees or other charges, penalties imposed on relation thereto 2. Where the facts subsequently gathered by the BIR are materially different
or other matters arising under the NIRC or other laws or portions thereof, from the facts on which the ruling is based on
3. Where the taxpayer acted in bad faith.

2. Rule-making authority of the Secretary of Finance

Sec. 249 of the Tax Code, it is provided that the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue, shall promulgate all needful rules and
regulations for the effective enforcement of the provisions of the tax code. The administrative power to provide regulations is likewise authorized by SEC 79-B and 551 of the
Revised Admin Code.

The most formal pronouncements of the Department of Finance in this respect are known as “Revenue Regulation”. They prescribe or define rules for the effective enforcement of
the tax code and related statutes. They are to be distindguished from the BIR rulings which state the official position of the BIR to queries raised by a taxpayer, on certain
provisions specific issues of law or administration in relation to the provisions of the tax code, relevant laws and other issuances of the BIR, clarifying or interpreting them.

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The power to recommend the promulgation of internal revenue rules and regulations by the Secretary of Finance is given only t o the commissioner. He is not allowed to delegate
such power to any of his subordinates

B. INCOME TAX
1. Definition, nature, and general principles
Definition- Income taxation is in the nature of an excise taxation system, or taxation on the exercise of privilege, the privilege to earn yearly profits from various sources. It is a
system that does not provide for the taxation of property. It is a tax on the net income of the income received or realized in one taxable year. It is levied upon corporate and
individual incomes in excess of specified amounts, less certain deductions and/or specialized exemptions in cases permitted by law.

Nature and Purpose:

➢ It Is generally regarded as an excise tax (privilege tax) and not a tax on persons. Property, funds or profits. It is really a tax on the right to earn income by an individual
or entity for government needs.
➢ It is self-assessing or self-computed.
➢ It is imposed primarily to raise revenue.

a. Income tax systems

I. Global-all income received by the taxpayer are grouped together, without any distinction as to the type or nature of income and after deducting therefrom expenses
and allowable deductions are subject to tax at a graduated rates (e.g. Professional Income, Compensation Income, Income not subject to final withholding tax)
II. Schedular- under the schedular tax system, different types of income are subject to different set of income tax rates (E.g. income subject to FWT)
III. Others-All compensation income, business or professional income, capital gain and passive income not subject to final tax, and other income are added together to
arrive at the gross income, and after deducting the sum of allowable deductions, the taxable income is subjected to one set of graduated tax rates or normal corporate
income tax. With respect to such income the computation is global. For those other income not mentioned above,
b. Features of the Philippine income tax law
I. Direct Tax – The tax burden is borne by the income recipient upon whom the tax is imposed.
II. Progressive – The tax rate increases as the tax base increases. It is founded on the ability to pay principle and is consistent with Sec. 28, Art. VI, 1987 Constitution.
III. Comprehensive – The Philippines has adopted the most comprehensive system of imposing income tax by adopting the citizenship principle, the residence principle,
and the source principle. Any of the three principles is enough to justify the imposition of income tax on the income of a resident citizen and a domestic corporation
that are taxed on a worldwide income.
IV. Semi-Schedular or Semi-Global Tax System – The Philippines follows the semi-schedular or semi-global system of income taxation, although certain passive
investment incomes and capital gains from sale of capital assets (namely: (a) shares of stock of domestic corporations, and (b) real property) are subject to final
taxes at preferential tax rates.
c. Criteria in imposing Philippine income tax
I. Citizenship (Nationality Principle)- a citizen of the Philippines Is subject to Philippine Income Tax
1. On his worldwide income, if he resides in the Philippines.

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