ISSUE SPOTTING GUIDE

Sunday, 22 May 2016 8:09 PM

1. May a group of sugar producers be granted a Writ of Mandamus to

compel Republic Planters
Bank to implement the transfer and distribute the stabilization fund from
the sugar proceeds of the sugar planters and producers?
○ No. The Writ of Mandamus must be denied. The fees collected do
not convert the funds into a trust fund because the stabilization
fund is in the nature of tax levied for regulatory purpose, that is, to
provide stabilization in the sugar industry. The levy is primarily in
the exercise of the police power of the State.
○ To rule in petitioners' favor would contravene the general principle that
revenues derived from taxes cannot be used for PURELY PRIVATE
PURPOSES, the sugar industry being of vital importance to the
country's economy and to national interest. A tax levied for a private
purpose constitutes a taking of property without due process of law
○ Gaston v. Republic, 158 SCRA 626
○ [Inherent limitation: Taxation is for public purpose]

2. LOI imposed a capital recovery component for fertilizers of not less than
P10 pesos per bag until adequate capital is raised to make PPI viable.
Fertiphil alleged the LOI solely favored PPI, a privately owned
corporation. Was the LOI a valid exercise of police power of the State ?
May Fertiphil ask for a refund?
○ No. It is an inherent limitation of the State that taxes must be
exacted for public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons. The P10
levy was unconstitutional because it was imposed to give undue
benefit to PPI for the purpose of paying its corporate debts.
○ Yes, Fertiphil may ask for a refund because PPI cannot be allowed
to profit from an unconstitutional law. All levies must be refunded in
accordance with the civil code principle against unjust enrichment.
○ Planters v. Fertiphil, GR 166006, March 14, 2008
○ [Inherent limitation: Taxation is for public purpose]

3. May Camp John Hay, declared as SEZ would exempt the camp's property
and the economic activity therein from local or national taxation?
○ Tax exemption cannot be implied as it must be categorically and
unmistakably expressed - if it were the intent of the legislature to
grant to John Hay SEZ the same tax exemption and incentives given
to Subic SEZ, it would have so expressedly provided in RA7227.
○ It is the legislature, unless limited by a provision of the state
constitution that has full power to exempt any person, corporation
or class of property from taxation.
○ It is clear that under the said law declaring Camp JH as SEZ, it is
ONLY the Subic Special Economic Zone which was granted by
Congress with tax exemption investment incentives and the like.
There is no express extension of the aforesaid benefits to other
special economic zones. Therefore, the preferential tax granted to
Camp John Hay and other special economic zones must be
declared null and void.
○ John Hay v. Lim, GR 1199775, Oct 24, 2003
○ [Inherent limitation: taxation is inherently legislative]
○ [Constitutional Limitation: No law granting any tax exemption shall
be passed without the concurrence of a majority of all the members
of the Congress (Sec. 28[4], Article VI of the 1987 Constitution]

4. May the amounts due from Caltex to the OPSF be offsetted against
Caltex's outstanding claims from said funds?
○ No. A taxpayer may not offset taxes due from the claims that he may
have against the government. Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a
debt, demand, contract or judgment as is allowed to be set-off.
○ Taxes may be levied for a regulatory purpose to provide means
for rehabilitation and stabilization of a threatened industry
which is imbued with public interest as to be within the police
power of the state.
○ Caltex v. COA, 208 SCRA 726
○ [Inherent limitation: SOVEREIGNTY: Taxes must be strictly
construed against the taxpayer]

5. Whether the failure to strictly comply with RMO No. 1-2000 will
deprive persons or corporations of the benefit of a tax treaty.
Whether or not petitioner may invoke the RP-Germany Tax treaty
subjecting branch profits remittance tax withheld at source in
accordance with Philippine law but shall not exceed 10%.

○ No. PETITION GRANTED.

○ SC ordered CIR to refund or issue a tax credit certificate in
favor of the petitioner.
○ Tax treaties are entered into to minimize, if not eliminate
the harshness of international juridical double taxation,
which is why they are also known as double tax treaty or
double tax agreements.
 ○ The time-honored international principle of pacta sunt servanda
demands the performance in good faith of treaty obligations on
the part of the states that enter into the agreement. Treaties
have the force and effect of law in this jurisdiction.
○ Deutsche Bank v. CIR, GR 188550, August 19, 2013
○ [Inherent Limitation: Comity]

6. Red horse-fermented liqour. Increase in excise tax of 12%. SMC

claimed for refund. Is BIR's ruling on the increase in excise tax valid?
○ No. As there is nothing in section 143 of the Tax Reform Act of
1997 which clothes the BIR with the power or authority to rule
that the new specific tax rate should not be lower thatn the
excise tax that is actually being paid prior to January 1, 2000,
such interpretation is clearly an invalid exercise of the power of
the Secretary of Finance to interpret tax laws and to promulgate
rules and regulations necessary. Said qualification must,
perforce, be struck down as invalid and of no effect.
○ While it may be true that the interpretation advocated by the
petitioner CIR is in furtherance of its desire to raise revenues for
the government, such noble objective must yield to the clear
provisions of the law, particularly since, in this case, the terms of
the said law are clear and leave no room for interpretation.
○ The rule in the interpretation of tax laws is that a statute will
not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously.
○ Tax burdens are not to be imposed, nor presumed to be
imposed beyond what the statute expressly and clearly
imports, tax statutes being construed strictissimi juris against
the government.
○ CIR v. SMC, GR 184428, November 23, 2011
○ [Inherent Limitation: Taxation is legislative in nature: tax statutes
shall be construed strictissimi juris against the government]

7. What is the extent of the authority of the lower court in deciding

questions of constitutionality of any treaty or law?
○ The authority of lower courts to decide questions of constitutionality
of any treaty or law does not extend to deciding questions which
pertain to legislative policy.
○ Regional Trial Courts can only look into the validity of a
provision, that, whether or not it has been passed according to
the procedures laid down by law, and cannot inquire as to the
reasons for its existence.
○ Judges can only interpret and apply the law and cannot
repeal or maned it.
○ It is inherent in the power to tax that the State be free to select the
subjects of taxation, and it has been repeatedly held that
"inequalities which result from a singling out of one particular class
for taxation, or exemption, infringe no constitutional limitation.
• Can the tax rates of other countries be used as a yardstick in determining
what may be the proper subjects of taxation in this country?
○ No.
○ In the exercise of its sovereign prerogative, the State is free to
select its subjects for taxation. It has been repeatedly held that
"inequalities which result from a singling out of one particular class
for taxation, or exemption, infringe no constitutional limitation.
○ CIR v. Santos, 277 SCRA 617
○ [Inherent Limitation: Sovereignty. State is free to select
subjects of taxation]

8. Is the Ordinance of Municipality of Tanauan imposing license taxes

upon Pepsi-Cola being engaged in business in the municipality, valid?
○ Yes. The nature of the State's power to tax is two-fold. It is both an
inherent and a legislative power. It is inherent in character because
its exercise is guaranteed by the mere existence of the State. It
could be exercised even in the absence of a constitutional grant.
○ The power to tax, although legislative in nature, may be delegated to
local governments in respect of matters of local concern. By necessary
implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to tax.
○ Here, Pepsi-Cola is engaged in business within the jurisdiction of
Tanauan, a municipality authorized to collect fees, taxes and
charges for service rendered by the municipality.
○ Pepsi-Cola v. Tanauan, GR L-31156, February 27, 1976
○ [Inherent limitation: Taxation is legislative in nature:
except delegation to local government]

9. Whether or not the ordinance of Municipality of Iloilo is illegal as it

imposes double taxation.
○ No.
○ The Court has ruled that tenement houses constitute a
distinct class of property; and that taxes are uniform and
equal when imposed upon all property of the same class or
character within the taxing authority.
○ The fact that the owners of the other classes of buildings in
Iloilo are not imposed upon by the ordinance, or that tenement
taxes are imposed in other cities do not violate the rule of
equality and uniformity.
○ In order to constitute double taxation in the objectionable or
prohibited sense the same property must be taxed twice hwne it
 should be taxed once; both taxes must be imposed on the same
property or the same subject matter, for the same purpose, by
the same State, Government, or taxing authority, within the same
jurisdiction or taxing district, during the same taxing period, and
they must be the same kind or character of tax.
○ It has been shown that a real estate tax and the tenement tax
imposed by the ordinance, although imposed by the same
taxing authority, are not of the same kind or character.
○ Villanueva v. Iloilo, 26 SCRA 460
○ [Principle of Double Taxation]

10. American Bible Society a foreign, non-stock, non-profit religious

missionary corp has been distributing and selling bibles. Is the Municipal
Ordinance requiring the Society to secure the corresponding Mayor's
permit and municipal license fees violative of the freedom of religious
profession and worship?
○ Yes! The free exercise clause is the basis of tax exemption. The
imposition of license fees on the distribution and sale of bibles and
other religious articles by a non-stock, non-profit missionary
organization for the purpose of profit amounts to a condition or
permit for the exercise of their right or a prior restraint, thus,
violating the constitutional guarantee of the free exercise and
enjoyment of religious profession and worship which carries with it
the right to disseminate religious beliefs and information.
○ AMERICAN BIBLE v. Manila, 101 Phil 38
○ [Constitutional limitations: Art. III, sec. 5 of the
Constitution-Freedom or religious profession and worship]

11. Whether or not the imposition of tax under sec. 21 of the MRC
constitutes double taxation in view of the tax collected and paid under
sec. 14 of the same code.
○ Yes.
○ Payments made under section 21 must be refunded. There is
double taxation because tax was imposed on the same subject
matter, for the same purpose, the same taxing authority, within the
same jurisdiction, same taxing period and same character.
○ Swedish Match Phil. V. Treasurer of City if Manila, GR 181277,
July 3, 2013
○ [Principle of Double Taxation]

12. Abra Valley College rents out ground floor of bldg to a corp, 2nd floor
used by the Director of the College for residential purposes. Is the
College exempt from property taxes?
○ The general rule is that lands, buildings and improvements
actually, directly, and exclusively used for religious, chartiable, or
educational purposes shall be exempt for taxation. However, it
was held that exemption extends to facilities which are incidental
to and reasonably necessary for the accomplishment of the main
purpose. The second floor's use as residence of the director is
incidental to the purpose of education.
○ The test of exemption is the use of the property for purposes
mentioned in the Constitution. 1/2 of the property shall be taxed.
○ Abra Valley College v. Aquino, 162 SCRA 106
○ [Constitutional limitation: Art. VI, sec. 28, par 3]

13. YMCA, a non-stock, non-profit institution which conducts various

youth activities leases portion of its premises. Are the rentals of real
property subject to income tax?
○ Yes. The tax exemption claimed under Art. VI, Sec. 28, par. 3 has
no basis. Rentals from property are subject to income tax and not
real property tax. YMCA may be exempted from property tax but
not income tax on the rentals from its property. YMCA is not even
a school or an educational institution.
○ CIR v. CA & YMCA, 298 SCRA 83
○ [Constitutional limitation: Art. VI, sec. 28, par 3]

14. Whether Pilipinas Shell may be refunded for excise taxes paid on
petroleum products it sold to international carriers.
○ No. The claims for refund or tax credit must be denied.
○ Excise taxes refer to taxes applicable to certain specified
goods or articles manufactured or produced in the Philippines
for domestic sales or
consumption or for any other disposition and to things imported
into the Philippines.
○ The exemption from excise payment on petroleum products under
Sec. 135 is conferred on international carriers who purchased the
same for their use or consumption outside the Philippines.
○ The Supreme Court explained that the percentage tax on sales of
merchandise imposed by the Tax Code is due from the
manufacturer and not from the buyer.
○ The excise tax imposed on petroleum products under sec. 148 is the
direct liability of the manufacturer who cannot thus invoke the excise
tax exemption granted to its buyers who are international carriers.
○ Indirect taxes are taxes wherein the liability for the payment of the
tax falls on one person on to another person, such as when the
tax is imposed upon goods before reaching the consumer who
ultimately pays for it.
○ The provisions of the 1944 Convention of International Civil Aviation
or the "Chicago Convention", which form binding international law,
requires the contracting parties not to charge duty on aviation fuel
already on board any aircraft that has arrived in their territory from
 another contracting state; Though initially aimed at establishing
uniformity of taxation among parties to the treaty to prevent double
taxation, the tax exemption now generally applies to fuel used in
international travel by both domestic and foreign carriers.
○ The Court holds that Sec. 135 (a) should be construed as
prohibiting the shifting of the burden of the excise tax to the
international carriers who buys petroleum products from the local
manufacturers; The oil companies which sold such petroleum
products to international carriers are not entitled to a refund of
excise taxes previously paid on the goods.
○ Tax refunds are in the nature of tax exemptions which result to loss
of revenue for the government. Upon the person claiming the
exemption from tax payments rest the burden of justifying the
exemption by words too plain to be mistaken and too categorical to
be misinterpreted, it is never presumed nor be allowed solely on
the ground of equity.
○ CIR v. Filipinas Shell Petroleum, GR 188497

15. Whether or not Stateland Inc. is entitled to the refund representing

the excess creditable WT for taxable year 1997.
○ Yes.
○ Stateland has unutilized tax credit supposedly to be applied in
1999 but it incurred losses, incurring no tax liability to which
previous unutilized tax credit could be applied.
○ BIR hs no reason to withhold the tax refund which rightfully
belongs to Stateland-the principle of solutio indebiti applies. The
tax refund must be given otherwise it would result to unjust
enrichment on the part of the Government.
○ Stateland v. CIR, GR 171956

16. What is the test to be applied in determining whether or not real

property that is actually, directly, and exclusively used for religious,
charitable or educational purposes shall be granted exemption from
real property taxes under the Constitution?
○ Ownership over real property is not an essential requisite in order
to qualify for exemption from real property taxes. The test is use,
not ownership. The exemption applies for as long as the property
is used actually, directly and exclusively for religious, charitable
and educational purposes.
○ What is meant by actual, direct and exclusive use of the property
is the direct and immediate and actual application of the property
itself to such purpose or purposes. It is not the use of income
from real property that is determinative of whether or not the
property is used for tax-exempt purposes.
○ Lung Center v. QC, GR 144104

17. Whether or not St. Luke's is liable to pay the 10% preferential income
tax rate being a proprietary non-profit hospitals.
○ The Supreme Court holds that Section 27 B of the NIRC does
not remove the income tax exemption of proprietary non-profit
hospitals under section 30 E and G.
○ Section 27B imposes a 10% preferential tax rate on the income
of proprietary non-profit educational institutions and proprietary
non-profit hospitals.
○ Non-profit does not necessarily mean charitable.
○ Charity is essentially a gift to an indefinite number of persons
which lessens the burden of government. In other words,
charitable institutions provide for free goods and services to the
public which would otherwise fall on the shoulders of government.
The Government forgoes taxes which should have been spent to
address public needs, because certain private entities already
assume a part of the burden.
○ Charitable institutions are not ipso facto entitled to a tax
exemption. The requirements for a tax exemotion are specified by
the law granting it.
○ For real property taxes, the incidental generation of income is
permissible because the test of exemption is the use of property. The
effect of failing to meet the use requirement is simply to remove from
the tax exemption that portion of the property not devoted to charity.
○ The constitution exempts charitable institution only from real
property taxes. In the NIRC, Congress decided to extend the
exemption to income taxes.
○ To be exempt from real property taxes, section 28(3), Article VI of
the Constitution requires that a charitable institution use the property
"actually, directly and exclusively" for charitable purposes. Likewise,
to be exempt from income taxes, section 30 G of the NIRC requires
that the institution be "operated exclusively" for social welfare.
○ Even if the charitable institution must be "organized and operated
exclusively" for charitable purposes, it is nevertheless allowed to
engage in "activities conducted for profit" without losing its tax
exempt status for its no-for-profit- activities.
○ The Supreme Court finds that St. Luke's is a corporation that is not
"operated exclusively" for charitable or social welfare purposes
insofar as its revenues from paying patients are concerned; Such
income for for-profit activities, under the last paragraph of section 30,
is merely subject to income tax, previously at the ordinary corporate
rate but now at the preferential 10% rate pursuant to section 27B.
○ A tax exemption is effectively a social subsidy granted by the
State because an exempt institution is spared from sharing in the
expenses of government and yet benefits from them.
○ CIR v. St. Luke's, GR 195909, Sept 26, 2012
18.
○ A tax amnesty, much like a tax exemption, is never favored nor
presumed in law. If granted, the terms of the amnesty, like that of a tax
exemption, must be construed strictly against the taxpayer and
liberally in favor of the taxing authority. For the right of taxation is
inherent in government. The State cannot strip itself of the most
essential power of taxation by doubtful words. He who claims an
exemption (or amnesty) from the common burden must justify his
claim by the clearest grant of organic or state law. It cannot be allowed
to exist upon a vague implication. If a doubt arises as to the intent of
legislature, that doubt must be resolved in favor of the State.
○ Services for the design, fabrication, engineering and
manufacture of the materials and equipment made and
completed in Japan, thus rendered outside the taxing jurisdiction
of the Philippines, are not subject to contractor's tax.
○ CIR v. Marubeni, GR 137377, Dec 18, 2001

19. RA 6055 granted tax exemptions to educational institutions like petitioner

which converted to non-stock, non-profit educational foundations.
Whether or not the petitioner is exempt from building permit fees.
Whether or not petitioner's real property is tax exempt.
○ No.
○ Building permit fees are not tax. If the purpose of a tax/fee is primarily
to regulate, then it is deemed a regulation in exercise of the police
power of the state, even though incidentally revenue is generated.
○ No.
○ The City of Angeles correctly assessed the land for real property
taxes for the taxable period during which the land was not being
used solely to educational activities.
○ Angeles University v. City of Angeles, GR 189999

20. Whether the EVAT law violates the freedom of religion of Philippine
Bible Society in the selling of bibles and other religious materials.
○ The Constitution, however does not prohibit imposing a
generally applicable tax on the sale of religious materials by a
religious organization.
○ The contract clause has never been thought as a limitation on
the exercise of the State's power of taxation save only where
a tax exemption has been granted for a valid consideration.
○ Tolentino v. Sec. of Finance, 234 SCRA 630

21. Was there a valid classfication when Mun of Butuan passed Ordinance
110 imposing tax on pepsi-cola profucts?
○ No.
○ The classification, in order to be valid must be: 1) based upon
substantial distinctions which make real differences; 2) these are
germane to the purpose of the legislation or ordinance; 3) the
classification applies, not only to present conditions, but also, to future
conditions substantially identical to those of the present; and 4) the
classification applies equally all those who belong to the same class.
These conditions not fully met by the taxing authority (City of Butuan).
○ The petition was granted and City of Butuan ordered to refund Pepsi-
Cola the amounts paid under protest by the latter. City of Butuan was
restrained and prohibited permanently from enforcing said ordinance.
○ Pepsi-Cola & Butuan, L-22814, August 28
○ [Constitutional limitation: uniformity and equal protection clause]

22. Does petitioners have locus standi?

○ Petitioners, as taxpayers, possess locus standi to file the suit. The
prevailing doctrine in taxpayer's suits is to allow taxpayers to
question contracts entered into by the national government or
GOCC allegedly in contravention of law. A taxpayer is allowed to
sue where there is a claim that public funds are illegally disbursed,
or that public money is being deflected to any improper purpose,
or that there is a wastage of public funds through the enforcement
of an invalid or unconstitutional law. Significantly, a taxpayer need
not be a party to the contract to challenge its validity.
○ The petitioners correctly asserted their standing since part of the
funds being utilized in the implementation of the CP I project
partakes of taxpayer's money.
○ However, the Court holds that the Loan Agreement taken in
conjunction with the Exchange of Notes between the Japanese
and Philippine Government is an executive agreement. Pacta
Sunt Servanda therefore, must be observed.
○ The DPWH rightfully awarded the contract for the implementation
of civil works for the CP I project to private respondent China
Road & Bridge Corporation.
○ RA 9184 cannot be applied retroactively to govern the
procurement process relative to a project that was commenced
even before the law took effect.
○ Abaya v. Ebdane, GR167919, February 14, 2007
○ [Taxpayer's suit doctrine]

23. The main issue is whether or not Smart Communications is liable

to pay the franchise tax imposed by the City of Davao.
○ YES. PETITION DENIED FOR LACK OF MERIT.
○ The uncertainty in the "in lieu of all taxes" clause in RA 7294
on whether Smart is exempted from both local and national
franchise tax must be construed strictly against Smart which
 claims the exemption - in the instant case, the "in lieu of all
taxes" clause applies only to national internal revenue taxes
and not to local taxes.
○ It should be noted that the "in lieu of all taxes" clause in RA
7294 has become functus oficio with the abolition of the
franchise tax on telecommunications companies - the "in lieu
of all taxes" clause in RA 7294 was rendered ineffective by
the advent of the Value Added Tax Law.
○ Tax exclusion and tax exemption, both in their nature and
effect, has no essential difference. A tax exemption means that
the taxpayer does not pay any tax at all. Smart pays VAT,
income tax, and real property tax. Thus, what it enjoys is more
accurately a tax exclusion. An exemption is an immunity or a
privilege; it is a freedom from charge or burden to which others
are subjected. An exclusion, on the other hand, is the removal
of otherwise taxable items from the reach of taxation.
Consequently, the rule that a tax exemption should be applied
strictissimi juris against the taxpayer and liberally in favor of
the government applies equally to tax exclusions.
○ The term "tax exemption" in section 23 of RA 7294 does not
mean tax exemption. The terms refers to exemption from
certain regulations and requirements imposed by the National
Telecommunications Commission.
○ Contract clause has never been thought as a limitation
on the exercise of the State's power of taxation save only
where a tax exemption has been granted for a valid
consideration. Smart's franchise was granted with the
express condition that it is subject to amendment,
alteration, or repeal. As held in Tolentino v. Sec of
Finance, it is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment,
fetter the exercise of the taxing power of the State.
○ Smart Comm v. City of Davao, GR 155491, Sept 16, 2008
○ [Constitutional limitations: Art. III, sec. 10 of the
Constitution- non-impairment of contract clause]

24. Shall the principle of tax exemption be applied without first applying
the doctrine of strict interpretation in the imposition of taxes?
○ No, it is obviously both illegal and impractical to determine who are
exempted without first determining who are covered by a tax
provision. The hornbook doctrine in the interpretation of tax laws
declares that a statute will not be construed as imposing a tax unless
it does so clearly, expressly and unambiguously. As a consequence
hereof, in case of doubt, the statute is to be construed most strongly
against the government and in favor of the subjects or citizens.
○ CIR v. CA, Ateneo, GR 115349, April 18, 1997

25. Whether or not the CA erred in denying the plea for tax credits on
the ground of prescription, despite petitioner's reliance on RMC No
7-85, changing the prescriptive period of two years to ten years.
○ NO. After examining the adjusted final corporate annual income
tax return for the taxable year 1986, petitioner opted to apply for
automatic tax credit. This was the basis used by the CTA in
concluding that petitioner had indeed availed of and applied the
automatic tax credit to the succeeding year, hence it can no
longer ask for refund, as to the two remedies of refund and tax
credit are alternative. PETITION IS DENIED.
○ Basic is the principle that "taxes are the lifeblood of the nation".
The primary purpose is to generate funds for the State to finance
the needs of the citizenry and to advance the common weal.
Due process of law under the Constitution does not require
judicial proceedings in tax cases. This must necessarily be so
because it is upon taxation that the government chiefly relies
to obtain the means to carry on its operations and it is of
utmost importance that the modes adopted to enforce the
collection of taxes levied should be summary and interfered
with as little as possible.
○ Claims for refund or tax credit should be exercised within the
time fixed by law because the BIR being an administrative
body enforced to collect taxes, its functions should not be
unduly delayed or hampered by incidental matters.
○ The rule states that the taxpayer may file a claim for refund
or credit with the CIR, within 2 years after payment of tax,
before any suit in CTA is commenced.
○ Phil. Bank Comm V. CIR, GR 112024, January 28, 1999

26. Give three distinctions of capital and income.

a. Capital is a fund and income is a flow.
b. A fund of property existing at an instant of time is called a capital. A
flow of services rendered by that capital by the payment of money
from it or any other benefit rendered by a fund of capital in relation
to such fund through a period of time is called income.
c. Capital is wealth while income is the service of wealth.
○ Madrigal v. Rafferty, L-12287, August 7, 1988
27. Is BOAC, an airline with no landing rights but maintains an agency for
the ticket sales in the Philippines , liable to income tax?
○ Yes. As a rule, the source of the income is the property, activity
or service that produced the income. For the source of income to
be considered as coming from the Philippines, it is sufficient that
the income is derived from the activity within the Philippines.
○ The Sale of tickets in the Philippines by its general sales agent is
the activity that produced the income. The situs of the source of
payments is in the Philippines. The flow of wealth proceeded from,
and occurred within Philippine territory, enjoying the protection
accorded by the Philippine Government. In consideration of such
protection, the flow of wealth should share the burden of
supporting the government. Thus, British Overseas Airways
Corporation, a resident foreign corporation subject to tax upon its
total net income from all sources within the Philippines.
○ CIR v. BOAC, L-65773, April 30, 1987

28. Whether the goods in question did not acquire a taxable situs in the
Philippines because they merely passed Philippine territory in transit
and that they were not intended for local use but for exportation to a
foreign country.
○ No.
○ The law subjects to the payment of the sales tax not the buyer
who intends to exports what he buys, but the seller, because
such sale is domestic and therefore liable for the payment of
sales tax in this country.
○ The tax in dispute is one on sales transaction and not a tax on
property sold. The sale of the tractors was consummated in the
Philippines, for title was transferred to the foreign buyer at the
pier in Manila; hence, the situs of the sale is Philippines and it is
taxable in this country.
○ CIR v. Andres Soriano

29. Whether the respondent's sales commission income is taxable in

the Philippines.

○ YES.
○ Respondent failed to adduce evidence to prove that there was
a consummated sale and whether these sales were truly
concluded in Germany. The faxed documents that was
presented did not constitute substantial evidence.
○ Act No. 2833, which took effect on January 1, 1920, was the
first Philippine Income Tax law enacted by the Philippine
legislature and which law substantially reproduced the US
Revenue Law of 1916 as amended by US Revenue Law of
1917; Being a law of American origin, the authoritarian
decisions of the official charged with enforcing it in the US
have peculiar persuasive force in the Philippines.
○ It is the situs of the activity which determines whether an
income is taxable in the Philippines.
○ "Source of income" relates to the property, activity or service
that produced the income.
○ The settled rule is that tax refunds are in the nature of tax
exemptions and are to be construed strictissimi juris against
the taxpayer.
○ Sec. 25. Tax on Non-resident Alien Individual. 1) In General -
A nonresident alien individual engaged in trade or business in
the Philippines shall be subject to an income tax in the same
manner as an individual citizen and a resident alien individual,
on taxable income received from all sources within the
Philippines. A nonresident alien individual who shall come to
the Philippines and stay therein for an aggregate period of
more than one hundred eighty (180) days during any calendar
year shall be deemed a nonresident alien doing business in
the Philippines.
○ CIR V. BAIER Nickel

30. ..
○ GENERAL RULE: A stock dividend representing the transfer
of surplus to capital account shall not be subject to tax.
○ EXCEPTION: The redemption or cancellation of stock
dividends, on the "time" and "manner" it was made, is
essentially equivalent to a distribution of taxable dividends,
"making the proceeds thereof "taxable income" to the extent it
represents profits."
○ CIR v. ANScor

31. Whether the tax planning scheme adopted by a corporation

constitutes tax evasion that would justify an assessment of
deficiency income tax.
○ YES. All the factors of tax evasion are present in this case.
○ Tax avoidance and tax evasion are the two most common
ways used by taxpayers in escaping from taxation. Tax
avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the
taxpayer in good faith and at arms length. Tax evasion, on the
 other hand, is a scheme used outside of those lawful means
and when availed of, it usually subjects the taxpayer to further
or additional civil or criminal liabilities.
○ CIR v. Estate of Toda, GR 147188, September 14, 2004

32. Whether or not the petitioners have formed an unregistered

partnership, and as such, liable for corporate income tax instead
of the capital gains tax which they have already paid.

○ No.
○ To regard the petitioner as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the
dictum that the power to tax involves the power to destroy.
○ The dictum that the power to tax involves the power to
destroy should be obviated.
○ Where the father sold his rights over two parcels of land to his
four children so they can build their residence, but the latter after
one (1) year sold them and paid the capital gains, they should
not be treated to have formed an unregistered partnership and
taxed corporate income tax on the sale and dividend income tax
on their shares of the profits from the sale.
○ Mere sharing of gross income from an isolated transaction
does not establish a partnership. The Civil code provides that
"the sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the
returns are derived. There must be an unmistakable intention
to form a partnership or joint venture.
○ Obillos v. CIR, GR L-68118, October 29, 1985

33. Whether petitioners have constituted an unregistered partnership

and are, therefore, subject to the payment of the deficiency
corporate income taxes.
○ YES.
○ From the moment petitioners allowed not only the incomes from
their respective shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo Oña as a common
fund in undertaking several transactions or in business, with the
intention of deriving profit to be shared by them proportionally,
such act was tantamount to actually contributing such incomes
to a common fund and, in effect, they thereby formed an
unregistered partnership, and therefore subject to the payment
of the deficiency corporate income taxes.
○ When co-ownership converted to co-partnership. For tax
purposes, the co-ownership of inherited properties is
automatically converted into an unregistered partnership the
moment the said common properties and/or the incomes derived
therefrom are used as a common fund with intent to produce
profits for the heirs in proportion to their respective shares in the
inheritance as determined in a project partition either duly
executed in an extra-judicial settlement or approved by the court
in the corresponding testate or intestate proceeding.
○ Partnerships considered corporation for tax purposes.
○ When income derived from inherited properties deemed part
of partnership income. The moment their respective known
shares are used as part of the common assets of the heirs to
be used in making profits, it is but proper that the income of
such shares should be considered as part of the taxable
income of an unregistered partnership.
○ Effect on unregistered partnership profits of individual income
tax paid. _The partnership profits distributable to the partners
should be reduced by the amounts of income tax assessed
against the partnership. Consequently, each of the petitioners
in his individual capacity overpaid his income tax for the years
in question.
○ Ona v. CIR, GR L-19342, May 25, 1972

34. Pascual and Dragon bought 2 lots then sold them. Bought 3 lots and
sold them. Whether there is unregistered partnership.

○ NO. What was formed was only a co-ownership.

○ There is no evidence that petitioners entered into an agreement
to contribute money, property or industry to a common fund, and
that they intended to divide the profits among themselves.
○ The sharing of returns does not itself establish a
partnership-Requisites of partnership:
1) An intent to form a partnership;
2) Generally participating in both profits and losses;
3) And such a community of interest, as far as third persons
are concerned as enables each party to make contract,
manage the business, and dispose of the whole property.
○ Petitioners are not liable for corporate income tax since
they cannot be considered to have formed an unregistered
partnership but only a co-ownership. The two isolated
 transactions whereby they purchased properties and sold
the same a few years thereafter did not make them
partners. They shared in the gross profits as co-owners and
paid their capital gains taxes on their net profits and availed
of the tax amnesty thereby.
○ As petitioners have availed of the benefits of tax amnesty
as individual taxpayers in these transactions, they are
relieved of any further tax liability arising therefrom.
○ Pascual v. CIR, 166 SCRA 560