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Tax 1 Tabulated Digests

1. The document discusses several cases related to taxation in the Philippines. It defines taxation as the inherent power of the State to impose taxes as the lifeblood of government. 2. One case examined whether treating the 20% senior citizen discount on medicines as a tax deduction rather than a tax credit was valid. The court found this was a valid exercise of taxation power given the wide discretion afforded to the legislature. 3. Another case discussed whether amusement taxes could be imposed on certain establishments like resorts, swimming pools, and tourist spots. The court determined these did not qualify as "amusement places" subject to such taxes under the Local Government Code.

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Katelene Alianza
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0% found this document useful (0 votes)
50 views11 pages

Tax 1 Tabulated Digests

1. The document discusses several cases related to taxation in the Philippines. It defines taxation as the inherent power of the State to impose taxes as the lifeblood of government. 2. One case examined whether treating the 20% senior citizen discount on medicines as a tax deduction rather than a tax credit was valid. The court found this was a valid exercise of taxation power given the wide discretion afforded to the legislature. 3. Another case discussed whether amusement taxes could be imposed on certain establishments like resorts, swimming pools, and tourist spots. The court determined these did not qualify as "amusement places" subject to such taxes under the Local Government Code.

Uploaded by

Katelene Alianza
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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SY 2017-2018 INCOME TAXATION DIGEST

DEFINITION OF TAXATION to the same class. Since the 20% discount applies to all senior citizens and WON the imposition of amusement taxes on admission fees to resorts, swimming
persons with disability equally, and the tax deduction scheme applies to all pools, bath houses, hot springs, and tourist spots is valid for being "amusement
Southern Luzon Drug Corp. vs DSWD et al establishments granting the discounts, there is no issue on the uniformity of the places" under the Local Government Code? NO
R.A. No. 7432 tax measure. The power to tax "is an attribute of sovereignty," and as such, inheres in the
o grants 20% discount on the purchase of medicines to a senior citizen, who State. Such, however, is not true for provinces, cities, municipalities and
must be at least 60 years old and has an annual income of not more than Likewise, the tax deduction is not confiscatory or arbitrary. While the barangays as they are not the sovereign; rather, they are mere “territorial and
P60,000.00 establishments cannot recover the full cost of the granted discount, they are still political subdivisions of the Republic of the Philippines.” It is settled that a
o To recoup the amount given as discount, covered establishments can claim an not at a full loss as they may claim the cost as a tax deduction from their gross municipal corporation unlike a sovereign state is clothed with no inherent power
equal amount as tax credit which can be applied against the income tax due income, and they are free to adjust prices and costs of their products. of taxation. The power of a province to tax is limited to the extent that such
from them. power is delegated to it either by the Constitution or by statute. And the power
Paseo Realty and Development Corp vs CA when granted is to be construed in strictissimi juris. Any doubt or ambiguity
R.A. No. 9257 On April 16, 1990, petitioner filed its ITR for the calendar year 1989 declaring arising out of the term used in granting that power must be resolved against the
o retained the 20% discount on the purchase of medicines but removed the a gross income of P1,855,000.00, deductions of P1,775,991.00, net income of municipality.
annual income ceiling thereby qualifying all senior citizens to the privileges P79,009.00, an income tax due thereon in the amount of P27,653.00, prior year’s
under the law excess credit of P146,026.00, and creditable taxes withheld in 1989 of Pursuant to Section 5, Article X of the 1987 Constitution, the power to tax is no
o modified the tax treatment of the discount granted to senior citizens, from tax P54,104.00 or a total tax credit of P200,130.00 and credit balance of longer vested exclusively on Congress; local legislative bodies are now given
credit to tax deduction from gross income, computed based on the net cost of P172,477.00. On November 14, 1991, petitioner filed with respondent a claim direct authority to levy taxes, fees and other charges. Nevertheless, such
goods sold or services rendered. for ―the refund of excess creditable withholding and income taxes for the years authority is “subject to such guidelines and limitations as the Congress may
o Some drug store owners and corporations claimed that such change affected 1989 and 1990 in the aggregate amount of P147,036.15. On December 27, 1991 provide.”
the profitability of their business. Thus, Carlos Superdrug and other alleging that the prescriptive period for refunds for 1989 would expire on
corporation and proprietors operating drugstores in the Philippines, filed a December 30, 1991 and that it was necessary to interrupt the prescriptive period, Section 133 (i) of the LGC prohibits the levy of percentage taxes “except as
Petition for Prohibition with Prayer for Temporary Restraining Order (TRO) petitioner filed with the respondent Court of Tax Appeals a petition for review otherwise provided” by the LGC. Section 140 of the LGC provides, “The
and/or Preliminary Injunction. However, the Court upheld the praying for the refund of “P54,104.00 representing creditable taxes withheld province may levy an amusement tax to be collected from the proprietors,
constitutionality of the assailed provision, holding that the same is a legitimate from income payments of petitioner for the calendar year ending December 31, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia,
exercise of police power. 1989.” and other places of amusement …” Since resorts, swimming pools, bath houses,
WON the petitioner can claim the refund of its creditable taxes withheld in 1989 hot springs, and tourist spots (subject matter of the case) are not among those
RA No. 9442, amending the “Magna Carta for Disabled Persons” as the same had been allegedly applied against its 1990 tax due. NO places expressly mentioned, then we determine whether they belong to “other
o Included the grant of 20% discount on the purchase of medicines, similar to The grant of a refund is founded on the assumption that the tax return is valid, places of amusement.” As defined by the Code, “Amusement Places” include
that of the senior citizens’ to PWDs. i.e., that the facts stated therein are true and correct. Without the tax return, it is theaters, cinemas, concert halls, circuses and other places of amusement where
error to grant a refund since it would be virtually impossible to determine one seeks admission to entertain oneself by seeing or viewing the show or
WON treating the 20% discount as tax deduction rather than tax credit a valid whether the proper taxes have been assessed and paid. It is axiomatic that a performances. Considering these, it is clear that resorts, swimming pools, bath
exercise of the power of taxation? YES claimant has the burden of proof to establish the factual basis of his or her claim houses, hot springs and tourist spots cannot be considered venues primarily
The power of taxation is an inherent and indispensable power of the State. As for tax credit or refund. Tax refunds, like tax exemptions, are construed strictly “where one seeks admission to entertain oneself by seeing or viewing the show
taxes are the “lifeblood of the government”, the power of the legislature is against the taxpayer. or performances.”
unlimited and plenary. The legislature is given a wide range of discretion in
determining what to tax, the purpose of the tax, how much the tax will be, who Taxation is a destructive power which interferes with the personal and property Hence, they cannot be considered as among the ‘other places of amusement’
will be taxed, and where the tax will be imposed. The State’s power to tax is rights of the people and takes from them a portion of their property for the contemplated by Section 140 of the LGC and which may properly be subject to
limited by the Constitution. Taxes must be uniform and equitable, and must not support of the government. And since taxes are what we pay for civilized amusement taxes.
be confiscatory or arbitrary. It must be “exercised reasonably and in accordance society, or are the lifeblood of the nation, the law frowns against exemptions
with the prescribed procedure.” from taxation and statutes granting tax exemptions are thus construed NATURE OF POWER OF TAXATION
strictissimi juris against the taxpayer and liberally in favor of the taxing
The determination that the cost of the 20% discount will be recovered as a tax authority. A claim of refund or exemption from tax payments must be clearly Concurring and Dissenting Opinion of Justice Leonen in Manila Memorial
deduction instead of a tax credit is within the legislative’s power to tax. It is a shown and be based on language in the law too plain to be mistaken. Elsewise Park, Inc. et al vs Sec of DSWD and DOF
determination of the method of collection of taxes. The legislative has the power stated, taxation is the rule, exemption therefrom is the exception. As a general rule, the power to tax is plenary and unlimited in its range,
to determine if particular costs should be treated as deductions or if it entitles acknowledging in its very nature no limits, so that the principal check against its
taxpayers to credits. In this case, the Congress deemed the tax deduction as the abuse is to be found only in the responsibility of the legislature (which imposes
Pelizloy Realty Corp vs Province of Benguet
better option. There is no showing that this option is violative of any of the the tax) to its constituency who are to pay it. Nevertheless, it is circumscribed
Pelizloy owns Palm Grove Resort, which is designed for recreation and which
constitutional limitations on the power to tax. by constitutional limitations.
has facilities like swimming pools, a spa and function halls. The Prov. Board of
The Tax Deduction Scheme is uniform and equitable. Uniformity of taxation
the Prov. of Benguet approved the Benguet Revenue Code of 2005 ("Tax
means that all subjects of taxation similarly situated are to be treated alike both THEORIES OF TAXATION
Ordinance"), which levies a 10% amusement tax on gross receipts from
in privileges and liabilities. The taxes are uniform if: (1) the standards used are
admissions to "resorts, swimming pools, bath houses, hot springs and tourist
substantial and not arbitrary, (2) the categorization is germane to the purpose of CIR vs Metro Star Suprema Inc
spots." Pelizloy then argued that such imposition of 10% amusement tax is an
the law, (3) the law applies, all things being equal, to both present and future
ultra vires act on the part of the Province of Benguet.
conditions, and (4) the classification applies equally well to all those belonging
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SY 2017-2018 INCOME TAXATION DIGEST
Metro Star Superama was audited for taxable year 1999 and received a right to complain and the courts will then come to his succor. For all the void. Ordinance 23 levies and collects from soft drinks producers and
Preliminary 15-day Letter on November 15, 2001. On April 11, 2002, it received awesome power of the tax collector, he may still be stopped in his tracks if the manufacturers a tax of 1/16 of a centavo for every bottle of soft drink corked,
a Formal Letter of Demand dated April 3, 2002. MSS argued that it did not taxpayer can demonstrate that the law has not been observed. and Ordinance 27 levies and collects on soft drinks produced or manufactured
receive a Pre-Assessment Notice. within the territorial jurisdiction of this municipality a tax of P0.01 on each
Was the Petitioner accorded the required due process? No PURPOSE AND OBJECTIVE OF TAXATION gallon of volume capacity. Aside from the undue delegation of authority,
Since the Petitioner denied receipt of the Pre-Assessment Notice, the burden of appellant contends that it allows double taxation, and that the subject ordinances
proving the same shifts to the BIR. To raise the presumption of receipt, it must McCulloch vs Maryland are void for they impose percentage or specific tax.
be shown that (a) the letter was properly addressed with postage prepaid and (b) The power of taxation involves the power to destroy. (Marshall Dictum) WON there was undue delegation? NONE
that it was mailed. If receipt is denied, the BIR must then show actual receipt It is settled that the power of taxation is an essential and inherent attribute of
through presentation of the registry receipt or, if the same cannot be located, at Panhandle Oil C. vs Mississippi sovereignty, belonging as a matter of right to every independent government,
least a certification from the Bureau of Posts. The power of taxation does not involve the power to destroy as long as this (SC) without being expressly conferred by the people. It is a power that is purely
Court sits. (Holmes Dictum) legislative. The exception, however, lies in the case of municipal corporations,
It is an elementary rule enshrined in the 1987 Constitution that no person shall to which, said theory does not apply. Legislative powers may be delegated to
be deprived of property without due process of law. In balancing the scales Reyes vs Almanzor et al local governments in respect of matters of local concern. By necessary
between the power of the State to tax and its inherent right to prosecute implication, the legislative power to create political corporations for purposes of
Petitioners are owners of parcels of land leased to tenants. RA 6359 was enacted
perceived transgressors of the law on one side, and the constitutional rights of a prohibiting for 1 year an increase in monthly rentals of dwelling units and said local self-government carries with it the power to confer on such local
citizen to due process of law and the equal protection of the laws on the other, governmental agencies the power to tax.
Act also disallowed ejectment of lessees upon the expiration of the usual period
the scales must tilt in favor of the individual, for a citizen’s right is amply
of lease. City Assessor of Manila assessed the value of petitioner’s property
protected by the Bill of Rights under the Constitution. Thus, while taxes are the Under the New Constitution, local governments are granted the autonomous
based on the schedule of market values duly reviewed by the Secretary of
lifeblood of the government, the power to tax has its limits, in spite of all its authority to create their own sources of revenue and to levy taxes. Section 5,
Finance. The revision entailed an increase to the tax rates and petitioners averred
plenitude. Article XI provides: "Each local government unit shall have the power to create
that the reassessment imposed upon them greatly exceeded the annual income
its sources of revenue and to levy taxes, subject to such limitations as may be
derived from their properties.
CIR vs Algue provided by law." Withal, it cannot be said that Section 2 of Republic Act No.
Is the approach on tax assessment used by the City Assessor reasonable? NO
The BIR assessed Algue a total amount of delinquency taxes of Php 83,183.85 2264 emanated from beyond the sphere of the legislative power to enact and vest
The taxing power is an attribute of sovereignty. However, the power to tax is
for the years 1958 and 1959. It contends that the company's claimed deduction in local governments the power of local taxation.
not unconfined as there are restrictions. The due process and equal protection
of Php 75,000 in the form of promotional fees is disallowed because it was not clauses of the Constitution limit this power. If it were otherwise, there would
ordinary reasonable or necessary business expenses. be truth to the Marshall’s Dictum that “the power to tax involves the power to Tio vs Videogram Regulatory Board
WON the BIR correctly disallowed the deduction? NO destroy.” The web or unreality spun from Marshall's famous dictum was brushed PD No. 1987 was enacted which gave broad powers to the VRB to regulate and
The burden is on the taxpayer to prove the validity of the claimed deduction. away by one stroke of Mr. Justice Holmes pen, thus: "The power to tax is not supervise the videogram industry. The said law sought to minimize the
The promotional fees were necessary and reasonable in the light of the efforts the power to destroy while this Court sits.” So it is in the Philippines. economic effects of piracy. There was a need to regulate the sale of videograms
exerted by the payees in the inducement of investors to venture in an as it has adverse effects to the movie industry. The proliferation of videograms
experimental enterprise. Thus, the payees should be sufficiently recompensed. The laws should operate equally and uniformly on all persons under similar has significantly lessened the revenue being acquired from the movie industry,
circumstances or that all persons must be treated in the same manner, the and that such loss may be recovered if videograms are to be taxed. Section 10
Taxes are the lifeblood of the government and so should be collected without conditions not being different both in the privileges conferred and the liabilities of the PD imposes a 30% tax on the gross receipts payable to the LGUs.
unnecessary hindrance. On the other hand, such collection should be made in imposed. In this case, the market value of properties covered by P.D. No. 20 WON the imposition of tax is valid? YES
accordance with law as any arbitrariness will negate the very reason for cannot be equated with the market value of properties not covered. The former A tax does not cease to be valid merely because it regulates, discourages, or even
government itself. It is therefore necessary to reconcile the apparently has naturally a much lesser market value in view of the rental restrictions. It is definitely deters the activities taxed. The power to impose taxes is one so
conflicting interests of the authorities and the taxpayers so that the real purpose therefore necessary to reconcile the apparently conflicting interests of the unlimited in force and so searching in extent, that the courts scarcely venture to
of taxation, which is the promotion of the common good, may be achieved. authorities and the taxpayers so that the real purpose of taxation, which is the declare that it is subject to any restrictions whatever, except such as rest in the
promotion of the common good, may be achieved. Consequently, it stands to discretion of the authority which exercises it.
It is said that taxes are what we pay for civilized society. Without taxes, the reason that petitioners who are burdened by the government by its Rental
government would be paralyzed for the lack of the motive power to activate and Freezing Laws (then R.A. No. 6359 and P.D. 20) under the principle of social The tax imposed in this case is not only a regulatory but also a revenue measure
operate it. Hence, despite the natural reluctance to surrender part of one’s hard- justice should not now be penalized by the same government by the imposition prompted by the realization that earnings of videogram establishments of around
earned income to taxing authorities, every person who is able to must contribute of excessive taxes petitioners can ill afford and eventually result in the forfeiture P600 million per annum have not been subjected to tax, thereby depriving the
his share in the running of the government. The government for its part is of their properties. Government of an additional source of revenue. It is an end-user tax, imposed
expected to respond in the form of tangible and intangible benefits intended to on retailers for every videogram they make available for public viewing.
improve the lives of the people and enhance their moral and material values. SCOPE OF TAXATION
This symbiotic relationship is the rationale of taxation and should dispel the It is a tax that is imposed uniformly on all videogram operators. The levy of the
erroneous notion that it is an arbitrary method of exaction by those in the seat of Pepsi Cola Bottling Philippines Company vs Municipality of Tanauan et al 30% tax is for a public purpose. It was imposed primarily to answer the need for
power. Pepsi-Cola commenced a complaint with preliminary injunction to declare regulating the video industry, particularly because of the rampant film piracy,
the flagrant violation of intellectual property rights, and the proliferation of
Section 2 of Local Autonomy Act, unconstitutional as an undue delegation of
But even as we concede the inevitability and indispensability of taxation, it is a taxing authority as well as to declare Ordinances Nos. 23 and 27 denominated pornographic video tapes. And while it was also an objective of the decree to
requirement in all democratic regimes that it be exercised reasonably and in protect the movie industry, the tax remains a valid imposition. The public
as "municipal production tax" of the Municipality of Tanauan, Leyte, null and
accordance with the prescribed procedure. If it is not, then the taxpayer has a purpose of a tax may legally exist even if the motive which impelled the
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SY 2017-2018 INCOME TAXATION DIGEST
legislature to impose the tax was to favor one industry over another. It is inherent taxable year 1995, pursuant to Revenue Regulations No. 2-94 implementing the may claim the discount as a tax deduction. Petitioner contends that there is an
in the power to tax that a state be free to select the subjects of taxation, and it Senior Citizens Act, which states that the discount given to senior citizens shall invalid exercise of eminent domain since there is no just compensation of the
has been repeatedly held that "inequities which result from a singling out of one be deducted by the establishment from its gross sales for value-added tax and discount, it not being a peso-to-peso deduction.
particular class for taxation or exemption infringe no constitutional limitation". other percentage tax purposes. For the said taxable period, Central Luzon Drug WON this is a valid exercise of police power rather than eminent domain so as
Taxation has been made the implement of the state's police power. reported a net loss of P20,963.00 in its corporate income tax return, thus, it did to dispense the requirement of just compensation? YES
not pay income tax for 1995. The law is a legitimate exercise of police power which, similar to the power of
TAXATION DISTINGUISHED FROM POLICE POWER AND EMINENT eminent domain, has general welfare for its object. Police power is not capable
DOMAIN Subsequently, Central Luzon Drug filed a claim for refund in the amount of of an exact definition, but it has been described as the most essential, insistent
P150,193.00, claiming that according to Sec. 4(a) of the Senior Citizens Act, the and the least limitable of powers, extending as it does to all the great public
Planters Products Inc vs Fertiphil Corp amount of P219,778.00 should be applied as a tax credit. The CIR argued that needs. It is the power vested in the legislature by the constitution to make,
PPI and Fertiphil are private corporations incorporated under Philippine laws, the law does not state that a refund can be claimed by the establishment ordain, and establish all manner of wholesome and reasonable laws, statutes,
both engaged in the importation and distribution of fertilizers, pesticides and concerned as an alternative to the tax credit. and ordinances, either with penalties or without, not repugnant to the
agricultural chemicals. Marcos issued LOI 1465, imposing a capital recovery WON the law is in the exercise of power of eminent domain rather than taxation? constitution, as they shall judge to be for the good and welfare of the
component of Php10.00 per bag of fertilizer. The levy was to continue until YES commonwealth, and of the subjects of the same.
adequate capital was raised to make PPI financially viable. Fertiphil remitted to The privilege enjoyed by senior citizens does not come directly from the State,
the Fertilizer and Pesticide Authority (FPA), which was then remitted the but rather from the private establishments concerned. Accordingly, the tax credit For this reason, when the conditions so demand as determined by the legislature,
depository bank of PPI. Fertiphil paid P6,689,144 to FPA from 1985 to 1986. benefit granted to these establishments can be deemed as their just compensation property rights must bow to the primacy of police power because property rights,
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the for private property taken by the State for public use. The concept of public use though sheltered by due process, must yield to general welfare. The Court is not
P10 levy. Fertiphil demanded from PPI a refund of the amount it remitted, is no longer confined to the traditional notion of use by the public, but held oblivious of the retail side of the pharmaceutical industry and the competitive
however PPI refused. Fertiphil filed a complaint for collection and damages, synonymous with public interest, public benefit, public welfare, and public pricing component of the business. While the Constitution protects property
questioning the constitutionality of LOI 1465, claiming that it was unjust, convenience. The discount privilege to which our senior citizens are entitled is rights, petitioners must accept the realities of business and the State, in the
unreasonable, oppressive, invalid and an unlawful imposition that amounted to actually a benefit enjoyed by the general public to which these citizens belong. exercise of police power, can intervene in the operations of a business which
a denial of due process. The discounts given would have entered the coffers and formed part of the gross may result in an impairment of property rights in the process.
WON LOI No. 1465 is an invalid exercise of the power of taxation rather the sales of the private establishments concerned, were it not for RA 7432. The
police power? YES permanent reduction in their total revenues is a forced subsidy corresponding to Manila Memorial Park, Inc. and La Funeraria Paz-Sucat, Inc vs Sec of
Police power and the power of taxation are inherent powers of the state but the taking of private property for public use or benefit. DSWD
distinct and have different tests for validity. Police power is the power of the On April 23, 1992, RA 7432 was passed into law, granting senior citizens
state to enact the legislation that may interfere with personal liberty on property As a result of the 20% discount imposed by RA 7432, respondent becomes numerous privileges. Petitioners emphasize that they are not questioning the
in order to promote general welfare. While, the power of taxation is the power entitled to a just compensation. This term refers not only to the issuance of a tax 20% discount granted to senior citizens but are only assailing the
to levy taxes as to be used for public purpose. The main purpose of police power credit certificate indicating the correct amount of the discounts given, but also constitutionality of the tax deduction scheme prescribed under RA 9257 and the
is the regulation of a behavior or conduct, while taxation is revenue generation. to the promptness in its release. Equivalent to the payment of property taken by IRR issued by the DSWD and the DOF. Petitioners posit that the tax deduction
The lawful subjects and lawful means tests are used to determine the validity of the State, such issuance -- when not done within a reasonable time from the grant scheme contravenes Article III, Section 9 of the Constitution, which provides
a law enacted under the police power. The power of taxation, on the other hand, of the discounts -- cannot be considered as just compensation. In effect, that: "private property shall not be taken for public use without just
is circumscribed by inherent and constitutional limitations. respondent is made to suffer the consequences of being immediately deprived compensation." In support of their position, petitioners cite Central Luzon Drug
of its revenues while awaiting actual receipt, through the certificate, of the Corporation, where it was ruled that the 20% discount privilege constitutes
In this case, the primary purpose of the levy is revenue generation. If the purpose equivalent amount it needs to cope with the reduction in its revenues. taking of private property for public use which requires the payment of just
is primarily revenue, or if revenue is, at least, one of the real and substantial compensation, and Carlos Superdrug Corporation v. Department of Social
purposes, then the exaction is properly called a tax. However, taxes are exacted Besides, the taxation power can also be used as an implement for the exercise of Welfare and Development, where it was acknowledged that the tax deduction
only for a public purpose. The P10 levy is unconstitutional because it was not the power of eminent domain. Tax measures are but "enforced contributions scheme does not meet the definition of just compensation. They assert that
for a public purpose since it was imposed to give undue benefit to PPI. It is a exacted on pain of penal sanctions" and "clearly imposed for a public purpose." "although both police power and the power of eminent domain have the general
robbery for the State to tax the citizen and use the funds generation for a private welfare for their object, there are still traditional distinctions between the two"
purpose. Justice and equity dictate that PPI must refund the amounts paid by Carlos Superdrug Corp vs. DSWD and that "eminent domain cannot be made less supreme than police power."
Fertiphil. Note: In this case, Senior Citizen’s Act was already enacted. Respondents maintain that the tax deduction scheme is a legitimate exercise of
the State’s police power.
CIR vs Central Luzon Corp Petitioners are domestic corporations and proprietors operating drugstores in the Exercise of police power or eminent domain? POLICE POWER
Note: In this case, the Senior Citizens Act was not yet expanded and it provided Philippines. Petitioners assail the constitutionality of the Expanded Senior In the exercise of police power (as distinguished from eminent domain),
that the discount can still be claimed as tax credit. Citizens Act of 2003. The law grants a 20% discount to senior citizens for although the regulation affects the right of ownership, none of the bundle of
medical and dental services, and diagnostic and laboratory fees; admission fees rights which constitute ownership is appropriated for use by or for the benefit of
Central Luzon Drug Corporation is a retailer of medicines and other charged by theaters, concert halls, circuses, carnivals, and other similar places the public. On the other hand, in the exercise of the power of eminent domain,
pharmaceutical products. For the period January 1995 to December 1995, of culture, leisure and amusement; fares for domestic land, air and sea travel; property interests are appropriated and applied to some public purpose which
pursuant to the mandate of Section 4(a) of the Senior Citizens Act, it granted a utilization of services in hotels and similar lodging establishments, restaurants necessitates the payment of just compensation therefor. Normally, the title to
20% discount on the sale of medicines to qualified senior citizens amounting to and recreation centers; and purchases of medicines for the exclusive use or and possession of the property are transferred to the expropriating authority.
P219,778.00. It then deducted the same amount from its gross income for the enjoyment of senior citizens. As a form of reimbursement, the law provides that
business establishments extending the twenty percent discount to senior citizens
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In this case, the 20% discount is intended to improve the welfare of senior The appropriation of amount for the construction on a land owned by private Code were amended. The particular amendment that is at issue in this case is the
citizens who, at their age, are less likely to be gainfully employed, more prone individual is invalid imposition since it results in the promotion of private exclusion of PAGCOR from the enumeration of GOCCs that are exempt from
to illnesses and other disabilities, and, thus, in need of subsidy in purchasing enterprise. It benefits the property of a particular individual. The provision that payment of corporate income tax. Petitioner further contends that such
basic commodities. It may not be amiss to mention also that the discount serves the land thereafter be donated to the government does not cure this defect. The amendment is null and void ab initio for violating the non- impairment clause of
to honor senior citizens who presumably spent the productive years of their lives rule is that if the public advantage or benefit is merely incidental in the the Constitution.
on contributing to the development and progress of the nation. As to its nature promotion of a particular enterprise, such defect shall render the law invalid. On WON PAGCOR is still exempt from corporate income tax and VAT with the
and effects, the 20% discount is a regulation affecting the ability of private the other hand, if what is incidental is the promotion of a private enterprise, the enactment of RA No. 9337? YES
establishments to price their products and services relative to a special class of tax law shall be deemed ―for public purpose. It is the essential character of the As regards franchises, Section 11, Article XII of the Constitution provides that
individuals, senior citizens, for which the Constitution affords preferential direct object of the expenditure which must determine its validity as justifying a no franchise or right shall be granted except under the condition that it shall be
concern. tax. Incidental to the public or to the state, which results from the promotion of subject to amendment, alteration, or repeal by the Congress when the common
private interest and the prosperity of private enterprises or business, does not good so requires. Hence, PAGCOR's franchise is subject to amendment,
In turn, this affects the amount of profits or income/gross sales that a private justify their aid by the use public money. alteration or repeal by Congress such as the amendment at issue in this case. The
establishment can derive from senior citizens. In other words, the subject amendment which withdraws the exemption of PAGCOR from corporate
regulation affects the pricing, and, hence, the profitability of a private Lutz vs Araneta, et al income tax, which may affect any benefits to PAGCOR's transactions with
establishment. However, it does not purport to appropriate or burden specific The Sugar Adjustment Act was passed which provided, among others, for an private parties, is not violative of the non-impairment clause of the Constitution.
properties, used in the operation or conduct of the business of private increase of the existing tax on the manufacture of sugar and levy on owners or The non-impairment clause is limited in application to laws that derogate from
establishments, for the use or benefit of the public, or senior citizens for that persons in control of lands devoted to the cultivation of sugar cane and ceded to prior acts or contracts by enlarging, abridging or in any manner changing the
matter, but merely regulates the pricing of goods and services relative to, and others for a consideration on lease or otherwise. All collections made shall intention of the parties.
the amount of profits or income/gross sales that such private establishments may accrue to a special fund name “Sugar Adjustment and Stabilization Fund.” This
derive from, senior citizens. whole law was enacted with a declaration of emergency due to the imminent CIR vs PAGCOR
imposition of export taxes upon sugar as provided under the Tydings-Mcduffie
The 20% discount may be properly viewed as belonging to the category of price Act. Lutz, the judicial administrator of the estate of one Antonio Ledesma, which
regulatory measures which affect the profitability of establishments subjected was taxed by the Commissioner on Internal Revenue, questioned the
thereto. On its face, therefore, the subject regulation is a police power measure. constitutionality of said act contending that it is for the aid and support of the CIR vs St. Luke’s Medical Center
sugar industry exclusively, which is not for a public purpose.
We find that there are at least two conceivable bases to sustain the subject WON the tax imposed is constitutional? YES
regulation’s validity absent clear and convincing proof that it is unreasonable, Analysis of the Act will show that the tax is levied with a regulatory purpose –
oppressive or confiscatory. Congress may have legitimately concluded that to provide means for the rehabilitation and stabilization of the threatened sugar
business establishments have the capacity to absorb a decrease in profits or Abra Valley College Inc vs Aquino
industry. In other words, the act is primarily an exercise of the police power. Abra Valley, an educational corporation and institution of higher learning duly
income/gross sales due to the 20% discount without substantially affecting the Since sugar production is a great source of the state's wealth, its promotion,
reasonable rate of return on their investments considering (1) not all customers incorporated with the SEC was assessed with payment of real estate tax for their
protection and advancement, redounds greatly to the general welfare. The school’s lot and building. It failed to pay, so a notice of seizure of the property
of a business establishment are senior citizens and (2) the level of its profit protection and promotion of the sugar industry is a matter of public concern.
margins on goods and services offered to the general public. was made. The school is offering primary, high school, college courses and has
Here, the legislative discretion must be allowed fully, subject only to the test of a population of more than 1000 students. The elementary students are housed in
reasonableness. If objective and methods are constitutionally valid, no reason is a two-storey building across the street, while the highschool and college students
Concurrently, Congress may have, likewise, legitimately concluded that the seen why the state may not levy taxes to raise funds for their prosecution and
establishments, which will be required to extend the 20% discount, have the are housed in the main building. The director with his family is in the second
attainment. Taxation may be made the implement of the state's police power. It floor of the main building. Also, the ground floor of the college building is used
capacity to revise their pricing strategy so that whatever reduction in profits or appears rational that the tax be obtained precisely from those who are to be
income/gross sales that they may sustain because of sales to senior citizens, can and rented by a commercial establishment, the Northern Marketing Corporation.
benefited from the expenditure of the funds derived from it. At any rate, it is Abra Valley’s contention is that the primary use of the lot and building for
be recouped through higher mark-ups or from other products not subject of inherent in the power to tax that a state be free to select the subjects of taxation,
discounts. As a result, the discounts resulting from sales to senior citizens will educational purposes and not the incidental use thereof determines exemption
and it has been repeatedly held that “inequalities which result from a singling from property taxes under Sec22, Art 6 1935Consitution. Thus, the assessment
not be confiscatory or unduly oppressive. out of one particular class for taxation, or exemption infringe no constitutional of tax for the real property tax by respond is without basis.
limitation.” The proper interpretation of the phrase ―used exclusively for educational
LIMITATIONS OF THE POWER OF TAXATION
purposes.
PAGCOR vs BIR While this Court allows a more liberal and non-restrictive interpretation of the
Pascual vs Secretary of Public Works et al PAGCOR was created pursuant to PD No. 1067-A. Simultaneous to its creation,
A law was enacted in 1953 containing a provision for the construction, phrase "exclusively used for educational purposes" as provided for in Article VI,
P.D. No. 1067-B was issued exempting PAGCOR from the payment of any type Section 22, paragraph 3 of the 1935 Philippine Constitution, reasonable
reconstruction, repair, extension and improvement of Pasig feeder road of tax, except a franchise tax of 5% of the gross revenue. Thereafter, P.D. No.
terminals within Antonio Subdivision owned by Senator Zulueta. Zulueta emphasis has always been made that exemption extends to facilities which are
1399 was issued expanding the scope of PAGCOR's exemption – only refers to incidental to and reasonably necessary for the accomplishment of the main
donated said parcels of land to the Government 5 months after the enactment of income from unrelated because why will it ask for exemption when it already is.
the law, on the condition that if the Government violates such condition, the purposes. Otherwise stated, the use of the school building or lot for commercial
PAGCOR’s tax exemption was removed through P.D. No. 1931, but it was later purposes is neither contemplated by law, nor by jurisprudence. Thus, while the
lands would revert to Zulueta. The provincial governor of Rizal, Wenceslao restored by LOI No. 1430. NIRC of 1997 then took effect. It provides that
Pascual, questioned the validity of the donation and the Constitutionality of the use of the second floor of the main building in the case at bar for residential
GOCCs shall pay corporate income tax, except petitioner PAGCOR, GSIS, SSS, purposes of the Director and his family, may find justification under the concept
particular provision, it being an appropriation not for a public purpose. PHIC and PCSO. With the enactment of RA No. 9337, certain sections of the
Is the appropriation valid? NO of incidental use, which is complimentary to the main or primary purpose—
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educational, the lease of the first floor thereof to the Northern Marketing Respondent contended that CHHMAC building is actually, directly, and
Corporation cannot by any stretch of the imagination be considered incidental exclusively part of CHH and should have a special assessment level of 10%. It Chamber of Real Estate and Builders’ Associations’ Inc vs Romulo et al
to the purpose of education. The school building as well as the lot where it is argued that the CHHMAC, though not actually indispensable, is nonetheless CHAMBER assails the validity of the imposition of MCIT on corporations on
built, should be taxed, not because the second floor of the same is being used by incidental and reasonably necessary to CHH‘s operations. the ground that it violates the due process clause because it levies income tax
the Director and his family for residential purposes, but because the first floor WON the new building is liable to pay the 35% assessment level? NO even if there is no realized gain. It also questioned the constitutionality of the
thereof is being used for commercial purposes. However, since only a portion is The new building is an integral part of the hospital and should not be assessed imposition of creditable withholding tax (CWT) on sales of real properties
used for purposes of commerce, it is only fair that half of the assessed tax be as commercial. Being a tertiary hospital, it is mandated to fully departmentalized classified as ordinary assets as it is in violation of the due process clause because
returned to the school involved. and be equipped with the service capabilities needed to support certified medical the government collects income tax even when the net income has not yet been
specialist and other licensed physicians. The fact that they are holding office in determined, and gain is never assured by mere receipt of the selling price. It also
American Bible Society vs City of Manila a separate building does not take away the essence and nature of their services argued that such imposition is violative of the equal protection clause because
American Bible Society is a foreign, non-stock, non-profit, religious, missionary vis-a-vis the overall operation of the hospital and to its patients. Under the Local the CWT is being charged upon real estate enterprises, but not on other business
corporation duly registered and doing business in the Philippines through its Government Code, Sec. 26: All lands, buildings and other improvements enterprises, more particularly, those in the manufacturing sector, which do
Philippine agency established in Manila in November, 1898. It has been thereon actually, directly and exclusively used for hospitals, cultural or scientific business similar to that of a real estate enterprise.
distributing and selling bibles and/or gospel portions throughout the Philippines purposes and those owned and used by local water districts… shall be classified Are the impositions of MCIT and CWT constitutional? YES
and translating the same into several Philippine dialects. City Treasurer of as special. Due process clause may properly be invoked to invalidate, in appropriate cases,
Manila informed American Bible Society that it was violating several a revenue measure when it amounts to a confiscation of property. An income tax
Ordinances for operating without the necessary permit and license, thereby Respondent’s charge of rentals for the offices and clinics its accredited is arbitrary and confiscatory if it taxes capital. MCIT is not a tax on capital. It is
requiring the corporation to secure the permit and license fees. To avoid closing physicians occupy cannot be equated to a commercial venture, which is mainly imposed on gross income which is arrived at by deducting the capital spent by a
of its business, American Bible Society paid the City of Manila its permit and for profit. First, CHHMAC is only for its consultants or accredited doctors and corporation in the sale of its goods from gross sales. Clearly, the capital is not
license fees under protest, contending that the ordinance restrains the free medical specialists. Second, the charging of rentals is a practical necessity: (1) being taxed. A revenue measure will not be held unconstitutional on the mere
exercise and enjoyment of the religious profession and worship of appellant. to recoup the investment cost of the building, (2) to cover the rentals for the lot allegation of arbitrariness by the taxpayer. There must be a factual foundation to
WON the said ordinances are constitutional and valid? NO CHHMAC is built on, and (3) to maintain the CHHMAC building and its such an unconstitutional taint. However, in this case, CHAMBER failed to
The Constitution, provides that no law shall be made respecting an establishment facilities. Third, as correctly pointed out by respondent, it pays the proper taxes support, by any factual or legal basis, its allegation that the MCIT is arbitrary
of religion, or prohibiting the free exercise thereof. The free exercise and for its rental income. And, fourth, if there is indeed any net income from the and confiscatory. It does not cite any actual, specific and concrete negative
enjoyment of religious profession and worship, without discrimination or lease income of CHHMAC, such does not inure to any private or individual experiences of its members nor does it present empirical data to show that the
preference, shall forever be allowed. No religion test shall be required for the person as it will be used for respondent’s other charitable projects. implementation of the MCIT resulted in the confiscation of their property.
exercise of civil or political rights. Such provision is a constitutional guaranty
of the free exercise and enjoyment of religious profession and worship, which CIR vs De La Salle University The equal protection clause under the Constitution means that “no person or
carries with it the right to disseminate religious information. It may be true that class of persons shall be deprived of the same protection of laws which is
in the case at bar, the price asked for the bibles and other religious pamphlets The requisites for availing the tax exemption under Article XIV, Section 4 (3) enjoyed by other persons or other classes in the same place and in like
was in some instances a little bit higher than the actual cost of the same but this are: (1) the taxpayer falls under the classification non-stock, non-profit circumstances.” The taxing power has the authority to make reasonable
cannot mean that appellant was engaged in the business or occupation of selling educational institution; and (2) the income it seeks to be exempted from taxation classifications for purposes of taxation. Inequalities which result from a singling
said “merchandise” for profit. The imposition of tax would impair its free is used actually, directly and exclusively for educational purposes. out of one particular class for taxation, or exemption, infringe no constitutional
exercise and enjoyment of its religious profession and worship as well as its limitation. The real estate industry is, by itself, a class and can be validly treated
rights of dissemination of religious beliefs. It seems clear, therefore, that The tax-exemption constitutionally-granted to non-stock, non­profit educational differently from other business enterprises.
Ordinance cannot be considered unconstitutional, however inapplicable to said institutions, is not subject to limitations imposed by law. The tax exemption
business, trade or occupation of the plaintiff. granted by the Constitution to non-stock, non-profit educational institutions is People vs Cayat
conditioned only on the actual, direct and exclusive use of their assets, revenues Cayat was a native of Baguio, Benguet, Mountain Province. Act No. 1639
City Assessor of Cebu City vs Association of Benevola de Cebu Inc and income for educational purposes. Unlike Article VI, Section 28 (3) of the declares that it is unlawful for any native of the Philippine islands who is a
(NOTE: This case is decided based on 1987 Constitution) Constitution (pertaining to charitable institutions, churches, parsonages or member of a non-Christian Tribe to have in his possession, drink any beer, wine
convents, mosques, and non-profit cemeteries), which exempts from tax only or intoxicating liquors of any kind, other than the so-called native wines and
Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit the assets, i.e., "all lands, buildings, and improvements, actually, directly, and liquors which the members of the tribes have been accustomed. Cayat
organization and is the owner of Chong Hua Hospital (CHH) in Cebu City. In exclusively used for religious, charitable, or educational purposes...," Article challenged the constitutionality of the Act. One of the grounds was that the said
the late 1990‘s, respondent constructed the CHH Medical Arts Center XIV, Section 4 (3) categorically states that "all revenues and assets... used act is discriminatory and denies the equal protection laws.
(CHHMAC). Petitioner City Assessor of Cebu City assessed the CHHMAC actually, directly, and exclusively for educational purposes shall be exempt from WON the said Act is violative of the equal protection clause of the constitution.?
building as commercial at the assessment level of 35% for commercial taxes and duties." NO
buildings, and not at the 10% special assessment currently imposed for CHH Requirements for valid classification: (FC si SG/Feeling Close si Security
and its other separate buildings. He further ascertained that it is not a part of the Further, a plain reading of the Constitution would show that Article XIV, Guard)
CHH building but a separate building which is actually used as commercial Section 4 (3) does not require that the revenues and income must have also been 1) There must be a substantial distinction that make a real difference
clinic/room spaces for renting out to physicians and, thus, classified as sourced from educational activities or activities related to the purposes of an 2) It must be germane or relevant to the purpose of the law
commercial. educational institution. The phrase all revenues is unqualified by any reference 3) It must apply not only to the present but also to future situation
to the source of revenues. Thus, so long as the revenues and income are used 4) the distinction must apply to persons belonging to the same class
actually, directly and exclusively for educational purposes, then said revenues
and income shall be exempt from taxes and duties.
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The classification rests on real and substantial, not merely imaginary or WON the provisions of EO No. 97-A, confining the application of R.A. 7227 Former PGMA certified the passage of the Senate Bill 2293 as urgent through a
whimsical, distinctions. It is based upon the degree of civilization and culture. within the secured area and excluding the residents of the zone outside of the letter addressed to then Senate President Villar. On 17 June 2008, R.A. 9504,
“The term ‘non-Christian tribes’ refers, not to religious belief, but, in a way, to secured area is discriminatory? NO amending some provisions in the NIRC, was approved and signed into law. It
the geographical area, and, more directly, to natives of the Philippine Islands of It is well-settled that the equal-protection guarantee does not require territorial took effect on July 6, 2008. The following are the salient features of the new
a low grade of civilization, usually living in tribal relationship apart from settled uniformity of laws. As long as there are actual and material differences between law: It increased the basic personal exemption and additional. It also raised the
communities.” This distinction is unquestionably reasonable, for the Act was territories, there is no violation of the constitutional clause. OSD for individual taxpayers from 10% of gross income to 40% of the gross
intended to meet the peculiar conditions existing in the non-Christian tribes. receipts or gross sales. It introduced the OSD to corporate taxpayers at no more
That it is germane to the purposes of law cannot be doubted. It is designed to Certainly, there are substantial differences between the big investors who are than 40% of their gross income. It granted MWEs exemption from payment of
insure peace and order among the non-Christian tribes since past experiences being lured to establish and operate their industries in the so-called “secured income tax on their minimum wage, holiday pay, overtime pay, night shift
show that free use of highlight intoxicating liquors by them had resulted in area” and the present business operators outside the area. On the one hand, we differential pay and hazard pay.
lawlessness and crimes. The law is not limited in its application to conditions are talking of billion-peso investments and thousands of new jobs. On the other
existing at the time of its enactment. It is intended to apply for all times as long hand, definitely none of such magnitude. In the first, the economic impact will The BIR issued RR 10-2008, implementing the provisions of this law. One of
as those conditions exist. Legislature understood that the civilization of a people be national; in the second, only local. Even more important, at this time the its salient features is the prorated application of the personal and additional
is a slow process and that hand in hand with it must go measures of protection business activities outside the “secured area” are not likely to have any impact exemptions for taxable year 2008 to begin only effective 6 July 2008. Petitioners
and security. Finally, that the Act applies equally to all members of the class. in achieving the purpose of the law, which is to turn the former military base to assailed this for being contrary to the policy of “full taxable year treatment” as
productive use for the benefit of the Philippine economy. There is, then, hardly regards the application of tax exemption laws.
Ormoc Sugar Company vs Conejos et al any reasonable basis to extend to them the benefits and incentives accorded in
In 1964, Ormoc City passed an ordinance, imposing on any and all productions RA 7227. WON the increased personal and additional exemptions provided by R.A. 9504
of centrifugal sugar milled at the Ormoc Sugar Company Incorporated a should be applied to the entire taxable year 2008 or prorated, considering that
municipal tax of 1% per export sale to USA and other foreign countries. Ormoc SITUS OF TAXATION R.A. 9504 took effect only on 6 July 2008? YES
Sugar paid the tax in protest averring that the same is violative to equal The policy of full taxable year treatment is established, not by the amendments
protection as it singled out Ormoc Sugar as being liable for such tax impost for Air Canada vs CIR introduced by R.A. 9504, but by the provisions of the 1997 Tax Code, which
no other sugar mill is found in the city. § Air Canada is a foreign corporation organized and existing under the laws of adopted the policy from as early as 1969. The law itself provided that the new
WON the constitutional limits on the power of taxation, specifically the EPC and Canada. It was granted an authority to operate as an off-line carrier by the Civil set of personal and additional exemptions would be immediately available upon
uniformity of taxation, were infringed? YES Aeronautics Board (CAB) subject to certain conditions, on April 24, 2000, its effectivity. While R.A. 7167 had not yet become effective during calendar
(Give the requisites for valid classification [FC si SG]) with said authority to expire on April 24, 2005. year 1991, the Court found that it was a piece of social legislation that was in
§ July 1, 1999 - Air Canada and Aerotel Ltd., Corporation entered into a part intended to alleviate the economic plight of the lower-income taxpayers.
A perusal of the requisites instantly shows that the questioned ordinance does Passenger General Sales Agency (GSA) Agreement for operation the For that purpose, the new law provided for adjustments “to the poverty threshold
not meet them, for it taxes only centrifugal sugar produced and exported by the Philippines. level” prevailing at the time of the enactment of the law. R.A. 9504 was a piece
Ormoc Sugar Company, Inc. and none other. At the time of the taxing § November 28, 2002 – Air Canada filed its administrative claim for refund with of social legislation clearly intended to afford immediate tax relief to individual
ordinance’s enactment, Ormoc Sugar Company, Inc. was the only sugar central the BIR in the total amount of Php 5,185,676.77, contending that it taxpayers, particularly low-income compensation earners. Indeed, if R.A. 9504
in the city of Ormoc. Still, the classification, to be reasonable, should be in terms erroneously paid income taxes from the Q3 2000 up to the Q2 2002. was to take effect beginning taxable year 2009 or half of the year 2008 only,
applicable to future conditions as well. The taxing ordinance should not be § November 29, 2002 – Air Canada elevated its claim to the CTA then the intent of Congress to address the increase in the cost of living in 2008
singular and exclusive as to exclude any subsequently established sugar central, § Air Canada’s Argument: The revenue derived by it from its sales of tickets in would have been negated.
of the same class as plaintiff, for the coverage of the tax. As it is now, even if the Philippines on its off-line flights through its local General Sales Agent
later a similar company is set up, it cannot be subject to the tax because the cannot be subject to income tax because the same is not sourced within the The NIRC is clear on these matters. The taxable income of an individual
ordinance expressly points only to Ormoc City Sugar Company, Inc. as the Philippines. taxpayer shall be computed on the basis of the calendar year. The taxpayer is
entity to be levied upon. WON the revenue derived by an international air carrier from sales of tickets in required to fi1e an income tax return on the 15th of April of each year covering
the Philippines for air transportation, while having no landing rights in the income of the preceding taxable year. The tax due thereon shall be paid at the
Tiu vs CA country, constitutes income of said international air carrier from Philippine time the return is filed. In the present case, the increased exemptions were
Congress, with the approval of the President, passed into law RA 7227. Section source, and accordingly, taxable under Sec. 24(b)(2) of the National Revenue already available much earlier than the required time of filing of the return on
12 thereof created the Subic Special Economic Zone and granted there to special Code? YES 15 April 2009. R.A. 9504 came into law on 6 July 2008, more than nine months
privileges. President Ramos issued EO No. 97-A, specifying the area within A foreign airline company selling tickets in the Philippines through their local before the deadline for the filing of the income tax return for taxable year 2008.
which the tax-and-duty-free privilege was operative. Petitioners challenged the agents shall be considered as resident foreign corporation engaged in trade or Hence, individual taxpayers were entitled to claim the increased amounts for the
its constitutionality for allegedly being violative of their right to equal protection business in the country. The absence of flight operations within the Philippine entire year 2008. This was true despite the fact that incomes were already earned
of the laws. This was due to the limitation of tax incentives to Subic and not to territory cannot alter the fact that the income received was derived from or received prior to the law's effectivity on 6 July 2008.
the entire area of Olongapo. Respondent Court held that “there is no substantial activities within the Philippines. The test of taxability is the source, and the
difference between the provisions of EO 97-A and Section 12 of RA 7227. In source is that activity which produced the income. This case involves social legislation intended to cure a social evil. R.A. 9504
both, the ‘Secured Area’ is precise and well-defined as ‘. . . the lands occupied was geared towards addressing the impact of the global increase in the price of
by the Subic Naval Base and its contiguous extensions as embraced, covered INCOME TAXATION – GENERAL OVERVIEW goods. It was also clear that the intent of the legislature was to hasten the
and defined by the 1947 Military Bases Agreement between the Philippines and enactment of the law to make its beneficial relief immediately available.
the United States of America, as amended . . .” Soriano vs Secretary of Finance
Madrigal vs Rafferty

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H and W were legally married prior to January 1, 1914. The marriage was alleged overpayments/refund and/or tax credit. Therefore, the petitioners conditions are present, commission income cannot be automatically attributed
contracted under the provisions concerning conjugal partnerships. The claim is claimed for refund from CIR. Petitioners argue that since there were no to petitioner’s position in the company
submitted that the income shown on the form presented for 1914 was in fact the remittances and acceptances of their salaries and wages in US dollars into the
income of the conjugal partnership existing between H and W, and that in Philippines, they are exempt from the coverage of RMC 7-71,41-71. CIR vs Baier-Nickel
computing and assessing the additional income tax, the income declared by H Are the petitioners’ income earned outside the Philippines exempt from income (Continuation from the previous case)
should be divided into two equal parts, one-half to be considered the income of tax? NO The corporation withheld 10% withholding tax from the espondent’s
H and the other half the income of W. Income may be defined as an amount of money coming to a person or Commission Income and paid the same to the BIR. She is now claiming for
What is the meaning of income? corporation within a specified time, whether as payment for services, interest or refund of P170k claiming that her sales commission income is not taxable in the
Income as contrasted with capital or property is to be the test. The essential profit from investment. Unless otherwise specified, it means cash or its Philippines because it was compensation for her services rendered in Germany.
difference between capital and income is that capital is a fund; income is a flow. equivalent. Income can also be thought of as a flow of the fruits of one's labor. Is she entitled to a refund for the wrongly filed taxes? NO
Capital is wealth, while income is the service of wealth. “The fact is that Petitioners forget that they are citizens of the Philippines, and their income, The important factor which determines the source of income of personal services
property is a tree, income is the fruit; labor is a tree, income the fruit; capital is within or without, and in these cases wholly without, are subject to income tax. is the place where the services were actually rendered. Pursuant to Sec 25 of
a tree, income the fruit.” Income means profits or gains. The fact still remains that “taxes are the lifeblood of the government” and one NIRC, non-resident aliens, whether or not engaged in trade or business, are
of the duties of a Filipino citizen is to pay his income tax. subject to the Philippine income taxation on their income received from all
As W has no estate and income, actually and legally vested in her and entirely sources in the Philippines. The rule is that “source of income” relates to the
distinct from her husband’s property, the income cannot properly be considered CIR vs Filinvest Development Corp property, activity or service that produced the income.
the separate income of the wife for the purposes of the additional tax. To Filinvest Development Corporation extended advances in favor of its affiliates
recapitulate, H wants to half his declared income in computing for his tax since and supported the same with instructional letters and cash and journal vouchers. The settled rule is that tax refunds are in the nature of tax exemptions and are to
he is arguing that he has a conjugal partnership with his wife. However, the court The BIR assessed Filinvest for deficiency income tax by imputing an “arm’s be construed strictissimi juris against the taxpayer. To those therefore, who
ruled that the one that should be taxed is the income which is the flow of the length” interest rate on its advances to affiliates. Filinvest disputed this by saying claim a refund rest the burden of proving that the transaction subjected to tax is
capital, thus it should not be divided into 2. that the CIR lacks the authority to impute theoretical interest and that the rule is actually exempt from taxation. However, in this case, there is no substantial
that interests cannot be demanded in the absence of a stipulation to the effect. evidence because evidence presented by respondent are copies of documents
Fisher vs Trinidad Can the CIR impute theoretical interest on the advances made by Filinvest to its allegedly faxed to Philippine company bearing instructions as to sizes, designs
The appellant was a stockholder in Philippine American Drug Company. As affiliates? NO and fabrics to be used in finished products and sample sales orders relayed to
result of the business for that year, the company declared a “stock dividend.” In Despite the seemingly broad power of the CIR to distribute, apportion and clients abroad. These are not enough to show services were performed abroad.
the month of March, 1920, the appellant, upon demand of the appellee, paid allocate gross income under (now) Section 50 of the Tax Code, the same does Said documents must show that instructions or orders ripened into concluded or
under protest income tax on said stock dividend. not include the power to impute theoretical interests even with regard to collected sales in Germany. Furthermore, she presented no contracts or orders
Are the “stock dividends” in the present case “income” and taxable as such controlled taxpayers’ transactions. This is true even if the CIR is able to prove signed by the customers in Germany to prove the sale transactions therein.
under the provisions of section 25 of Act No. 2833? NO that interest expense (on its own loans) was in fact claimed by the lending entity. Respondent also stayed in the Philippines for 89 days in 1995, during the months
A dividend is defined as a corporate profit set aside, declared, and ordered by The term in the definition of gross income that even those income “from of March, May, June, and August 1995. These are the same months she earned
the directors to be paid to the stockholders on demand or at a fixed time. When whatever source derived” is covered still requires that there must be actual or at commission income for services allegedly performed abroad.
a cash dividend is declared and paid to the stockholders, such cash becomes their least probable receipt or realization of the item of gross income sought to be
absolute property and cannot be reached by the creditors of the corporation in apportioned, distributed, or allocated. Finally, the rule under the Civil Code that CIR vs Marubeni Corporation
the absence of fraud. A stock dividend, however, still being the property of the “no interest shall be due unless expressly stipulated in writing” was also applied Marubeni, a Japanese corporation, engaged in general import and export trading,
corporation, and not of the stockholder, it may be reached by an execution in this case. The Court also ruled that the instructional letters, cash and journal financing and construction, is duly registered in the Philippines with Manila
against the corporation, and sold as a part of the property of the corporation. The vouchers qualify as loan agreements that are subject to Documentary Stamp Tax. branch office. Marubeni won in the public bidding for projects with government
rule is well-established that cash dividends, whether large or small, are regarded corporations NDC and Philphos. In the contracts, the prices were broken down
as “income” and all stock dividends, as capital or assets. The stockholder who Baier-Nickel vs CIR into a Japanese Yen Portion (I and II) and Philippine Pesos Portion. The
receives a stock dividend has received nothing but a representation of this Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Japanese Yen Portion I corresponds to the Foreign Offshore Portion, while
increased interest in the capital of the corporation. There has been no separation Inc, a domestic corporation engaged in exporting and selling embroidered textile Japanese Yen Portion II and the Philippine Pesos Portion correspond to the
or segregation of his interest. All the property or capital of the corporation still products. She was also appointed as a commission agent of the same company. Philippine Onshore Portion. Marubeni has already paid the Onshore Portion, a
belongs to the corporation. In 1995, she received approximately P1.7M as sales commission income. fact that CIR does not deny.
Whether or not the sales commission is taxable in the Philippines. NO
Conwi vs CTA Commissions paid for marketing services rendered abroad for a Philippine CIR argues that the materials provided and services rendered were all done and
Petitioners were Filipino citizens who were employees of P & G Phils. During company is considered foreign-source income. The source of the income is completed within the territorial jurisdiction of the Philippines. Hence,
1970 to 1971, they were assigned to other subsidiaries of P & G outside RP, the property, activity or service that produced the income. Place where services Marubeni’s entire receipts from the contracts, including its receipts from the
thus, were paid in US dollars as compensation for services in their foreign are rendered determine taxation. The fact that recipient of commission income Offshore Portion, constitute income from Philippine sources. The total gross
assignments. So, when they filed ITRs for 1970, they computed the tax due by is President and majority stockholder of the Philippine company does not alter receipts covering both labor and materials should be subjected to contractor’s
applying the dollar-to-peso conversion. The same conversion rate was used for the source of income. There are only 2 ways by which the President and other tax (a tax on the exercise of a privilege of selling services or labor rather than a
their 1971 ITR. However, on February 8, 1973, the petitioners filed with CIR an members of the Board can be granted compensation apart from reasonable per sale on products).
amended ITR for 1970 & 1971 which used par value of the peso for converting diems: (1) when there is a provision in the by-laws fixing their compensation;
their dollar income into pesos for purposes of computing and paying the and (2) when the stockholders agree to give it to them. If none of these Marubeni received a letter from CIR assessing it for several deficiency taxes.
corresponding income tax due from them. The amended ITR resulted into The case questioning the 1985 deficiency was filed with CTA on Sept 26, 1986.

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WON respondent as manufacturer or producer of petroleum products is exempt
EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that If the taxpayer sells or exchanges any of the properties above, any gain or loss from the payment of excise tax on such petroleum products it sold to
taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni relative thereto is an ordinary gain or an ordinary loss. Under Section 34(b)(2) international carriers? NO
filed its tax amnesty return on Oct 30, 1986. This law took effect on Aug. 22, of the old Tax Code, if a gain is realized by a taxpayer (other than a corporation) Sec. 229 of the NIRC allows the recovery of taxes erroneously or illegally
1986. from the sale or exchange of capital assets held for more than 12 months, only collected. An “erroneous or illegal tax” is defined as one levied without statutory
50% of the net capital gain shall be taken into account in computing the net authority, or upon property not subject to taxation or by some officer having no
CIR claims Marubeni is disqualified from the tax amnesty because at the time income. Sales concluded on installment basis of the subdivided lots do not authority to levy the tax, or one which is some other similar respect is illegal.
he filed for income tax amnesty on Oct 30, 1986, a case had already been filed deserve a different characterization for tax purposes. Respondent’s locally manufactured petroleum products are clearly subject to
and was pending before the CTA. Therefore, he falls under the exception that excise tax under Sec. 148.
those with income tax cases already filed in Court as of the effectivity of EO 4 Republic vs. De la Rama
may not avail of the amnesty granted. Dividends were declared in 1950, but no payment was actually made thereof to The rule of strict interpretation against the taxpayer is applicable in this case as
stockholder, Esteban de la Rama. Instead, the 1950 dividends due him were the claim for refund partakes of the nature of an exemption. Hence, the claimant
WON Marubeni is exempted from income tax? YES credited to or set-off against his personal accounts with the corporation. The first must show that he clearly falls under the exempting statute. However, the statute
When EO 41 became effective (Aug 22, 1986), the case (Sept 26, 1986) had not alleged debt was contested and proof was lacking to show its existence and relied on provides for an exemption from excise tax payment on petroleum
yet been filed. Thus, Marubeni does not fall in the exception and is not validity. The second was the debt of Hijos de I. de la Rama, Inc, a corporation products on international carriers who purchased the same for their use or
disqualified from availing of the amnesty under EO 41 for taxes on income and where Esteban de la Rama was the principal stockholder. De la Rama died consumption outside the Philippines. It may only be construed as prohibiting the
branch profit remittance. Moreover, assuming it did not validly avail of the without having actually collected such dividends and the ITRs filed in behalf of manufacturers-sellers of petroleum products from passing on the tax to
amnesty, it is still not liable for the deficiency tax because the income from the his estate for 1950 did not include them. Subsequently, a deficiency assessment international carriers by incorporating previously paid excise taxes into the
projects came from the “Offshore Portion” as opposed to “Onshore Portion”. was issued against the estate, based on the undeclared dividends, which selling price. IOW, Shell cannot shift the tax burden to international carriers who
Marubeni was able to sufficiently prove in trial that not all its work was according to the Commissioner had been constructively received in 1950 when are allowed to purchase its petroleum products without having to pay the added
performed in the Philippines because some of them were completed in Japan the set-off against the personal debts of the deceased was made by the cost of the excise tax.
(and in fact subcontracted) in accordance with the provisions of the contracts. corporation.
All services for the design, fabrication, engineering and manufacture of the WON there was constructive receipt of income? NONE Renato Diaz and Aurora Ma. F. Timbol vs the Sec of Finance and CIR
materials and equipment under Japanese Yen Portion I were made and Income is deemed constructively received where the taxpayer has an unqualified Diaz and Timbol filed this petition for declaratory relief assailing the validity of
completed in Japan. These services were rendered outside Philippines’ taxing right to receive the same but by his own choice the income is not reduced to the impending imposition of VAT by the BIR on the collections of tollway
jurisdiction and are therefore not subject to contractor’s tax. possession. Under the doctrine of constructive receipt, a taxpayer is deemed to operators. Petitioners hold the view that Congress did not, when it enacted the
have received income where an amount owing to him is set off against his debt NIRC, intend to include toll fees within the meaning of “sale of services” that
Tuazon vs. Lingad by the creditor. Such doctrine, however, is applicable only where the set off is are subject to VAT; that a toll fee is a “user’s tax,” not a sale of services; that to
The mother of Tuazon owned a 7-hectare parcel of land located in the City of made against a debt acknowledged by the taxpayer or the validity of which is impose VAT on toll fees would amount to a tax on public service; and that, since
Manila. She subdivided the land into 29 lots. The land was eventually inherited not otherwise questioned. Where the validity of the debt is contested by the VAT was never factored into the formula for computing toll fees, its imposition
by Tuazon in 1948. He instructed his attorney-in-fact to sell the 29 lots he taxpayer, the doctrine of constructive receipt is inapplicable. would violate the non-impairment clause of the constitution.
inherited. 28 out of 29 parcels were all sold easily. In 1952, Lot 29 was filled,
subdivided and gravel roads were constructed. The small lots were then sold The so-called personal accounts of de la Rama were not valid debts. Even though The government avers that the NIRC imposes VAT on all kinds of services of
over the years on a uniform 10-year annual amortization basis. The attorney-in- Esteban de la Rama was the principal stockholder of said corporation, but as its franchise grantees, including tollway operations. The government also argues
fact, did not employ any broker nor did he put up advertisements in the matter personality was separate and distinct, its debts could not be charged to the that petitioners have no right to invoke the non-impairment of contracts clause
of the sale thereof. In 1953 and 1954 the Tuazon reported his income from the deceased in the absence of proof of a substitution of debtor. With such findings, since they clearly have no personal interest in existing toll operating agreements
sale of the small lots as long-term capital gains. The CIR upheld Taxpayer's the Court concluded that inasmuch as the dividends in question had not been (TOAs) between the government and tollway operators. At any rate, the non-
treatment of this tax but by 1963, the CIR reversed itself and considered his received either actually or constructively in 1950, no tax could be due thereon impairment clause cannot limit the State’s sovereign taxing power which is
profits from the sales of the lots as ordinary gains. The CIR assessed a for said year. generally read into contracts.
deficiency. It contended that as he was engaged in the business of leasing the
lots he inherited from his mother as well as other real properties, his subsequent CIR vs. Pilipinas Shell Petroleum Corporation May toll fees collected by tollway operators be subjected to VAT? YES
sales of the mentioned lots cannot be recognized as sales of capital assets but of Shell is engaged in the business of processing, treating and refining petroleum WON the imposition of VAT on tollway operators amounts to a tax on tax and
“real property used in trade or business of the taxpayer.” for the purpose of producing marketable products and the subsequent sale not a tax on services? NO
WON the properties in question which the Taxpayer had inherited and thereof. A portion of these sales and deliveries was sourced by Shell from Petron When a tollway operator takes a toll fee from a motorist, the fee is in effect for
subsequently sold in small lots to other persons should be regarded as capital by virtue of a “loan or borrow agreement” between them. The excise taxes paid the latter’s use of the tollway facilities over which the operator enjoys private
assets. NO by Petron were passed on to Shell and the latter, in turn, sold these to proprietary rights that its contract and the law recognize. In this sense, the
As defined by law, CAPITAL ASSETS include all properties of a taxpayer international carriers, net of excise taxes. The other portion was sourced by Shell tollway operator is no different from the service providers under Section 108
whether or not connected with his trade or business, except: from its tax-paid inventories. Under Sec. 135 (a), international carriers who who allow others to use their properties or facilities for a fee. Tollway operators
o stock in trade or other property included in the taxpayer's inventory; purchased the same for their use or consumption outside the Philippines are are franchise grantees and they do not belong to exceptions that Section 119
o property primarily for sale to customers in the ordinary course of his trade exempt from excise tax payment on petroleum products. Subsequently, Shell spares from the payment of VAT. The word “franchise” broadly covers
or business; filed two separate claims for the refund or credit of the excise taxes paid on the government grants of a special right to do an act or series of acts of public
o property used in the trade or business of the taxpayer and subject to foregoing sales. concern. The construction, operation, and maintenance of toll facilities on public
depreciation allowance; and improvements are activities of public consequence that necessarily require a
o real property used in trade or business. special grant of authority from the state.
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revenue for the same taxable year due to deductions of 2 items consisting of Under its agreements with Smart, Prism had intellectual property right over the
Toll fees paid by the public to tollway operators for use of the tollways, are not commission and other incentives of its agent. SDM program, but not over the CM and SIM Application programs as the
taxes in any sense. A tax is imposed under the taxing power of the government WON UA is entitled to a refund of the amount it paid as income tax on its proprietary rights of these programs belonged to Smart. Hence, out of the
principally for the purpose of raising revenues to fund public expenditures. Toll passenger revenues in 1999? NO payments made to Prism, only the payment for the SDM program is a royalty
fees, on the other hand, are collected by private tollway operators as The Court have consistently ruled that there can be no off-setting [or subject to a 25% withholding tax. A refund of the erroneously withheld royalty
reimbursement for the costs and expenses incurred in the construction, compensation”] of taxes against the claims that the taxpayer may have against taxes for the payments pertaining to the CM and SIM Application Agreements
maintenance and operation of the tollways, as well as to assure them a reasonable the government. A person cannot refuse to pay a tax on the ground that the is therefore in order.
margin of income. Although toll fees are charged for the use of public facilities, government owes him an amount equal to or greater than the tax being collected.
therefore, they are not government exactions that can be properly treated as a The collection of a tax cannot await the results of a lawsuit against the Miguel G. Osorio Pension Foundation, Inc. vs CA and CIR
tax. Taxes may be imposed only by the government under its sovereign government. Petitioner is a corporation that was formed to administer the Employees’ Trust
authority, toll fees may be demanded by either the government or private Fund. Petitioner invested some portions of the Employees' Trust Fund to
individuals or entities, as an attribute of ownership. Moreover, the grant of a refund is founded on the assumption that the tax return purchase the MBP lot. When the MBP lot was sold to Metrobank, withholding
is valid, that is, the facts stated therein are true and correct. The deficiency tax and broker’s commission were deducted from the proceeds. Metrobank, as
Philippine Amusement and Gaming Corp (PAGCOR) vs BIR assessment, although not yet final, created a doubt as to and constitutes a withholding agent, remitted the withholding tax on the sale of real property to
PAGCOR was created pursuant to a law and another law was simultaneously challenge against the truth and accuracy of the facts stated in said return which, the BIR. Petitioner argued that since it purchased 49.59% of the MBP lot using
enacted, exempting it from the payment of any type of tax, EXCEPT a franchise by itself and without unquestionable evidence, cannot be the basis for the grant funds of the Employees’ Trust Fund, the Employees’ Trust Fund’s 49.59% share
tax of 5% of the gross revenue. Thereafter, another law expanded the scope of of the refund. in the income tax paid should be refunded.
PAGCOR's exemption. PAGCOR’s tax exemption was later on removed WON petitioner or the Employees’ Trust Fund is exempt from tax and thus
through another law, but it was later restored by an LOI. When NIRC of 1997, CIR vs. Smart Communication entitled to refund? YES
took effect, Section 27 (c) provides that GOCCs shall pay corporate income tax, Smart entered into an Agreement with Prism, an NRFC domiciled in Malaysia, It is evident that tax-exemption is likewise to be enjoyed by the income of the
except petitioner PAGCOR, GSIS, SSS, PHIC and PCSO. With the enactment whereby Prism will provide programming and consultancy services to Smart. pension trust. Otherwise, taxation of those earnings would result in a diminution
of R.A. No. 9337 on May 24, 2005, certain sections of the NIRC of 1997 were The agreements provide: of accumulated income and reduce whatever the trust beneficiaries would
amended. One of which was the exclusion of PAGCOR from the enumeration o SDM shall be installed by PRISM, including the SDM Libraries, the IPR of receive out of the trust fund. This would run afoul of the very intendment of the
of GOCCs that are exempt from payment of corporate income tax. Petitioner which shall be retained by PRISM. law.
contended that such provision is null and void ab initio for violating the non- o The IPR of all components of the CM belong to the Client with the exception
impairment clause of the Constitution. of the following components, which are provided, without technical or The FWT is collected from income in respect of which employees’ trusts are
WON PAGCOR is still exempt from corporate income tax and VAT with the commercial restraints or obligations. declared exempt (Sec. 56(b), now 53(b), Tax Code). The application of the
enactment of R.A. No. 9337? NO o The Client shall own the IPR for the Specifications and the Source Code for withholdings system to interest on bank deposits or yield from deposit
The non-impairment clause is limited in application to laws that derogate from the SIM Applications. substitutes is essentially to maximize and expedite the collection of income taxes
prior acts or contracts by enlarging, abridging or in any manner changing the by requiring its payment at the source. If an employees’ trust enjoys a tax-
intention of the parties. As regards franchises, Section 11, Article XII of the Thinking that the payments to Prism were royalties, Smart withheld 25% under exempt status from income, we see no logic in withholding a certain percentage
Constitution provides that no franchise or right shall be granted except under the the RP-Malaysia Tax Treaty. Smart then filed a refund with the BIR alleging of that income which it is not supposed to pay in the first place. Similarly, the
condition that it shall be subject to amendment, alteration, or repeal by the that the payments were not subject to Philippine withholding taxes given that income of the trust funds involved herein is exempt from the payment of FWT.
Congress when the common good so requires. PAGCOR's franchise is subject they constituted business profits paid to an entity without a permanent Since petitioner has proven that the income from the sale of the MBP lot came
to amendment, alteration or repeal by Congress such as the amendment establishment in the Philippines. Under the RP-Malaysia Tax Treaty, the from an investment by the Employees’ Trust Fund, petitioner, as trustee of the
mentioned in the facts. Hence, the provision that withdraws the exemption of business profits of an enterprise of a Contracting State is taxable only in that Employees’ Trust Fund, is entitled to claim the tax refund which was
PAGCOR from corporate income tax, which may affect any benefits to State, unless the enterprise carries on business in the other Contracting State erroneously paid in the sale of the MBP lot.
PAGCOR's transactions with private parties, is not violative of the non- through a permanent establishment. So, Smart averred that such payments were
impairment clause of the Constitution. not royalties but business profits, which were not taxable because Prism did not
have a permanent establishment in the Philippines. INCLUSIONS
United Airlines, Inc. vs. CIR
The law provides that if an international air carrier maintains flights to and from Does Smart have the right to file the claim for refund? YES First Lepanto Taisho Insurance Corp. vs CIR
the Philippines, it shall be taxed at the rate of 2 1/2% of its Gross Philippine A person “liable for tax” has sufficient legal interest to bring a suit for refund of The CTA ordered the petitioner to pay deficiency withholding tax on
Billings, while international air carriers that do not have flights to and from the taxes he believes were illegally collected from him. Since the withholding agent compensation, expanded withholding tax, and final tax. The petitioner
Philippines but nonetheless earn income from other activities in the country will is an agent of the beneficial owner of the payments (i.e., nonresident), the contended that it is not liable to pay withholding tax on compensation to some
be taxed at the rate of 32% of such income. authority as agent is held to include the filing of a claim for refund. In this of its directors since they were not employees and they had already been
connection, it is however significant to add that while the withholding agent has subjected to expanded withholding tax.
UA used to be an online carrier but ceased operating cargo flights from the the right to recover the taxes erroneously or illegally collected, he nevertheless Is the petitioner liable for the deficiency withholding taxes on compensation on
Philippines starting 2001. It is now an offline international air carrier but has a has the obligation to remit the same to the principal taxpayer. As an agent of the directors’ bonuses? YES
general sales agent in the Philippines which sells passage documents for its off- taxpayer, it is his duty to return what he has recovered; otherwise, he would be For taxation purposes, a director is considered an employee under Section 5 of
line flights for carriage of passengers and cargo. It filed a claim for refund on unjustly enriching himself at the expense of the principal taxpayer from whom Revenue Regulation No. 12-86, to wit:
the Gross Philippine Billings (GPB) tax it paid. CTA denied because upon its the taxes were withheld, and from whom he derives his legal right to file a claim
examination, UA’s return was found erroneous as it understated its gross cargo for refund.

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“An individual, performing services for a corporation, whether as an officer and deductions for accrued bonuses arose at the time of accrual and not at the time not present, therefore, no legal entity with a personality separate from that of the
director or merely as a director whose duties are confined to attendance at and of actual payment. members exists, and thus they are excluded from the coverage of Section 24 of
participation in the meetings of the Board of Directors, is an employee.” the NIRC.
BDO et al vs Republic of the Phils et al WON petitioners have established a partnership and are subject to tax on
The non-inclusion of the names of some of petitioner’s directors in the Petitioners insist that the PEACe Bonds are not deposit substitutes as defined corporations? YES
company’s Alpha List does not ipso facto create a presumption that they are not under the 1997 NIRC because there was only one lender (RCBC) to whom the The essential elements of a partnership are: (a) an agreement to contribute
employees of the corporation, because the imposition of withholding tax on Bureau of Treasury issued the Bonds. money, property or industry to a common fund; and (b) intent to divide the
compensation hinges upon the nature of work performed by such individuals in profits among the contracting parties. The first element is undoubtedly present
the company. On the other hand, respondents argue that the Tax Code is clear that the “term in the case at bar, for, admittedly, petitioners have agreed to and did, contribute
public means borrowing from twenty (20) or more individual or corporate money and property to a common fund. Upon consideration of all the facts and
ING Bank N.V. vs CIR lenders at any one time.” They theorized that the word “any” plainly indicates circumstances surrounding the case, we are fully satisfied that their purpose was
ING Bank claims that it is not liable for withholding taxes on bonuses accruing that the period contemplated is the entire term of the bond, and not merely the to engage in real estate transactions for monetary gain and then divide the same
to its officers and employees during taxable years 1996 and 1997. It maintains point of origination or issuance such that if the debt instruments “were among themselves, because of the following observations, among others: (1)
its position that the liability of the employer to withhold the tax does not arise subsequently sold in secondary markets and so on, in such a way that twenty said common fund was not something they found already in existence; (2) they
until such bonus is actually distributed. It cites Section 72 of the 1977 NIRC, (20) or more buyers eventually own the instruments, then it becomes indubitable invested the same, not merely in one transaction, but in a series of transactions;
which states that “every employer making payment of wages shall deduct and that funds would be obtained from the “public” as defined in Section 22(Y) of (3) the aforesaid lots were not devoted to residential purposes, or to other
withhold upon such wages a tax,” and BIR Ruling declaring that “the the NIRC.” personal uses, of petitioners herein. Although, taken singly, they might not
withholding tax on the bonuses should be deducted upon the distribution of the suffice to establish the intent necessary to constitute a partnership, the collective
same to the officers and employees.” Since the supposed bonuses were not What are deposit substitutes? effect of these circumstances is such as to leave no room for doubt on the
distributed to the officers and employees in 1996 and 1997 but were distributed The term ‘deposit substitutes’ shall mean an alternative form of obtaining funds existence of said intent in petitioners herein. For purposes of the tax on
in the succeeding year when the amounts of the bonuses were finally determined, from the public other than deposits, through the issuance, endorsement, or corporations, our National Internal Revenue Code, includes these partnerships
petitioner ING Bank asserts that its duty as employer to withhold the tax during acceptance of debt instruments for the borrower’s own account, for the purpose with the exception only of duly registered general co-partnerships within the
these taxable years did not arise. However, even the bonuses were distributed in of relending or purchasing of receivables and other obligations, or financing purview of the term “corporation.” It is, therefore, clear to our mind that
the succeeding year, they were determined during the year. No withholding of their own needs or the needs of their agent or dealer. petitioners herein constitute a partnership, insofar as said Code is concerned and
income tax was effected but the bonuses were claimed as an expense for the are subject to the income tax for corporations.
year. Under the 1997 NIRC, Congress specifically defined “public” to mean “twenty
WON ING Bank is liable for the withholding tax on the bonuses? YES (20) or more individual or corporate lenders at any one time.” Hence, the Obillos et al vs CIR
Under the NIRC, every form of compensation for personal services is subject to number of lenders is determinative of whether a debt instrument should be Jose Obillos Sr transferred his rights to a parcel of land to his 4 children, to
income tax and, consequently, to withholding tax. The term “compensation” considered a deposit substitute and consequently subject to the 20% FWT. enable them to build their residences. In 1974, or after having held the 2 lots for
means all remunerations paid for services performed by an employee for his or more than a year, the petitioners resold them to the Walled City Securities
her employer, whether paid in cash or in kind, unless specifically excluded under Meaning of “at any one time” Corporation and Olga Cruz Canda for a higher price. They treated the profit as
the 1997 National Internal Revenue Code. The name designated to the a capital gain and paid an income tax. CIR required the petitioners to pay
remuneration for services is immaterial. Thus, “salaries, wages, emoluments and Thus, from the point of view of the financial market, the phrase “at any one corporate income tax on the total profit.
honoraria, bonuses, allowances, fringe benefits, pensions and retirement pay, time” for purposes of determining the “20 or more lenders” would mean every WON the siblings formed a taxable unregistered partnership? NO
and other income of a similar nature constitute compensation income” that is transaction executed in the primary or secondary market in connection with the It is error to consider the petitioners as having formed a partnership under Art
taxable. Hence, petitioner ING Bank is liable for the withholding tax on the purchase or sale of securities. For example, where the financial assets involved 1767 of the Civil Code simply because they allegedly contributed P178, 708.12
bonuses since it claimed the same as expenses in the year they were accrued. are government securities like bonds, the reckoning of “20 or more to buy the two lots, resold the same and divided the profit among themselves.
lenders/investors” is made at any transaction in connection with the purchase or Art. 1769 (3) of the NCC provides that: “the sharing of gross returns does not of
The tax on compensation income is withheld at source under the creditable sale of the Government Bonds. itself establish a partnership, whether or not the persons sharing them have a
withholding tax system wherein the tax withheld is intended to equal or at least joint or common right or interest in any property from which the returns are
approximate the tax due of the payee on the said income. It was designed to PARTNERSHIPS AND CO-OWNERSHIP derived.” In this case, their original purpose was to divide the lots for residential
enable (a) the individual taxpayer to meet his or her income tax liability on purposes. If later on, they found it not feasible to build their residences on the
compensation earned; and (b) the government to collect at source the appropriate Evangelista et al vs CIR lots because of the high cost of construction, then they had no choice but to resell
taxes on compensation. Absolute or exact accuracy in the determination of the Petitioners borrowed sum of money from their father and together with their the same to dissolve the co-ownership. The division of the profit was merely
amount of the compensation income is not a prerequisite for the employer's own personal funds, they used said money to buy several real properties. They incidental to the dissolution of the co-ownership which was in the nature of
withholding obligation to arise. then appointed their brother (Simeon) as manager of the said real properties with things a temporary state.
powers and authority to sell, lease or rent out said properties to third persons.
The employer is required to collect the tax by deducting and withholding the They realized rental income from the said properties for the period 1945-1949. All co-ownerships are not deemed unregistered partnership. Co-ownership who
amount thereof from the employee's compensation as when paid, either actually own properties which produce income should not automatically be considered
or constructively. The obligation of the payor/employer to deduct and withhold The petitioners sought for the reversal of the decision of the CTA which held partners of an unregistered partnership, or a corporation, within the purview of
the related withholding tax arises at the time the income was paid or accrued or them liable for income tax, real estate dealer’s tax and residence tax for the real the income tax law. To hold otherwise, would be to subject the income of all co-
recorded as an expense in the payor's/employer's books, whichever comes first. properties they bought. They submit that they are mere co-owners of the ownerships of inherited properties to the tax on corporations.
Since ING Bank accrued or recorded the bonuses as deductible expense in its properties, not co-partners because some of the characteristics of partnership are
books, its obligation to withhold the related withholding tax due from the INCOME TAXATION FOR CORPORATIONS
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Oña vs CIR
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her AFISCO vs CA
5 children. Oña was appointed administrator and later on the guardian of the 3 AFISCO and 40 other non-life insurance companies entered into a Quota Share
heirs who were still minors when the project for partition was approved. Reinsurance Treaties with Munich, a non-resident foreign insurance
Although the project of partition was approved by the Court, no attempt was corporation. The treaties required petitioners to form a pool, to which AFISCO
made to divide the properties and they remained under the management of Oña and the others complied. On April 14, 1976, the pool of machinery insurers
who used said properties in business by leasing or selling them and investing the submitted a financial statement and filed an “Information Return of
income derived therefrom and the proceeds from the sales thereof in real Organization Exempt from Income Tax” for the year ending 1975, on the basis
properties and securities. As a result, petitioners’ properties and investments of which, it was assessed by the CIR deficiency corporate taxes.
gradually increased.
W/N there was an unregistered partnership? YES Petitioners contend that they cannot be taxed as a corporation, because (a) the
For tax purposes, the co-ownership of inherited properties is automatically reinsurance policies were written by them individually and separately, (b) their
converted into an unregistered partnership the moment the said common liability was limited to the extent of their allocated share in the original risks
properties and/or the incomes derived therefrom are used as a common fund with insured and not solidary, (c) there was no common fund, (d) the executive board
intent to produce profits for the heirs in proportion to their respective shares in of the pool did not exercise control and management of its funds, unlike the
the inheritance as determined in a project partition either duly executed in an board of a corporation, (e) the pool or clearing house was not and could not
extrajudicial settlement or approved by the court in the corresponding testate or possibly have engaged in the business of reinsurance from which it could have
intestate proceeding. The reason is simple. From the moment of such partition, derived income for itself. They further contend that remittances to Munich are
the heirs are entitled already to their respective definite shares of the estate and not dividends and to subject it to tax would be tantamount to an illegal double
the incomes thereof, for each of them to manage and dispose of as exclusively taxation, as it would result to taxing the same premium income twice in the
his own without the intervention of the other heirs, and, accordingly, he becomes hands of the same taxpayer. Finally, petitioners argue that the government’s
liable individually for all taxes in connection therewith. If after such partition, right to assess and collect the subject Information Return was filed by the pool
he allows his share to be held in common with his co-heirs under a single on April 14, 1976. On the basis of this return, the BIR telephoned petitioners on
management to be used with the intent of making profit thereby in proportion to November 11, 1981 to give them notice of its letter of assessment dated March
his share, there can be no doubt that, even if no document or instrument were 27, 1981. Thus, the petitioners contend that the five-year prescriptive period then
executed, for the purpose, for tax purposes, at least, an unregistered partnership provided in the NIRC had already lapsed, and that the internal revenue
is formed. commissioner was already barred by prescription from making an assessment.
Whether or not the pool is a partnership whose dividends are subject to tax?
Gatchalian vs CIR YES
The plaintiffs, are a group of 15 persons who consolidated their money to The Philippine legislative included in the concept of corporation those entities
purchase one ticket from the National Charity Sweeepstakes Office at P2.00. that resembled them such as unregistered partnerships and associations. Section
The ticket was personally purchased by Gatchalian and registered it in the name 24 covered unregistered partnerships and even associations and joint accounts,
of Jose Gatchalian and Company. Such ticket won the 3rd prize in the amount which had no legal personalities apart from their individual members. The term
of P50,000. A check was drawn in favor of Jose Gatchalian and Company “partnership” includes a syndicate group, pool, joint venture or other
against the PNB and cashed by Jose Gatchalian and Company. Thereafter, unincorporated organization, through or by means of which any business
income tax examiner Alfredo David required Gatchalian to file the income tax financial operation or venture is carried on.
return covering the prize won. David made an assessment requesting payment
for the sum of P1,499.94. The plaintiffs requested for tax exemption, but was In this case, the pool is a partnership as evidenced by a common fund, the
denied. To prevent a levy from being made against them, they paid the tax due existence of executive board and the fact that while the pool is not in itself a
under protest. reinsurer and does not issue any insurance policy, its work is indispensable,
WON the plaintiffs formed a partnership? YES beneficial and economically useful to the business of the ceding companies and
There is no doubt that if the plaintiffs merely formed a community of property Munich. Without it, they would not have received their premiums.
the latter is exempt from the payment of income tax under the law. But according
to the stipulated facts the plaintiffs organized a partnership of a civil nature As to the claim of double taxation, the pool is taxable entity distinct from the
because each of them put up money to buy a sweepstakes ticket for the sole individual corporate entities of the insurance companies. The tax on income is
purpose of dividing equally the prize which they may win, as they did in fact. different from the tax on dividends received by said companies, thus no double
The partnership was not only formed; but upon the organization thereof and the taxation.
winning of the prize, Jose Gatchalian personally appeared in the office of the
Philippine Charity Sweepstakes, in his capacity as co-partner, as such collected
the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and
company, and the said partner, in the same capacity, collected the said check.
All these circumstances repel the idea that the plaintiffs organized and formed a
community of property only.

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