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UNIVERSITY OF NEGROS OCCIDENTAL RECOLETOS COLLEGE OF LAW Course Outline in Taxation I Lorebette G.

Grandea 1st Semester, SY 2011-12 Friday (6:30 8:30 pm) References: Law of Basic Taxation in the Philippines by Benjamin B. Aban The Law on Income Taxation by Benjamin D. Teodoro and Hector S. de Leon Compendium of Tax Laws and Jurisprudence by Jose Vitug I. General Principles of Taxation A. Meaning, Nature, Basis, Characteristics and Purposes of Taxation 1. Meaning of tax, taxation, CIR v. Algue, 158 SCRA 9 (1988) a. Taxation as an inherent power of the state Abakada Guro Party List v. Ermita, GR No. 168056, 1 Sept. 2005 b. Tax as a general term, as a legal term Compania General de Tabacos v. City of Manila, 8 SCRA 367 (1963) c. Tax v. license and regulatory Fee Osmena v. Orbos, 220 SCRA 703 (1993) PAL v. Edu, 164 SCRA 320 (1988) Progressive Development v. QC, 172 SCRA 629 (1989) Tolentino v. Sec. of Finance, 249 SCRA 628 (1995) d. Tax v. special assessment Sec. 240, R.A. 7160 Republic v. Bacolod-Murcia Milling Co., 17 SCRA 632 (1966) e. Tax v. toll Sec. 155, R.A. 7160 f. Tax v. penalty Secs. 247-281 g. Tax v. tariff and customs duties Garcia v. Executive Secretary, 211 SCRA 219 (1992)
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h. Obligation to pay tax v. obligation to pay debt Art. 1279, 1290 NCC Republic v. Mambulao Lumber, 6 SCRA 858 (1962) Philex Mining v. CIR, 294 SCRA 687 (1998) Caltex v. COA, 208 SCRA 726 (1992) Francia v. IAC, 162 SCRA 753 (1988) i. Tax v. government revenue 2. Essential Characteristics of Tax

Caltex v. COA, id. 3. Theory and Basis of Taxation

Lorenzo v. Posadas, 64 Phil 353 (1937) CIR v. Algue, supra. 4. Purposes, Objectives of Taxation

a. General, fiscal, revenue CIR v. Algue, supra. Osmena v. Orbos, supra. PAL v. Edu, supra. Tolentino v. Secretary of Finance, 235 SCRA 630 (1994) b. Non-revenue, special or regulatory Osmena v. Orbos, supra. Republic v. Bacolod-Murcia Milling Co., supra. Tio v. Videogram Regulatory Board, 151 SCRA 208 (1987) Lutz v. Araneta, 98 Phil 150 (1955) Caltex v. COA, supra. Esso v. CIR, 175 SCRA 149 (1989) 5. Classification of Taxes a. As to scope of the tax National taxes, local taxes Benguet v. CBAA, 210 SCRA 579 (1992) b. As to who shoulders the burden of the tax Direct taxes, indirect taxes Sec. 105 VAT
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Tolentino v. Sec. of Finance, (1995) supra. Philippine Acetylene v. CIR, 20 SCRA 1056 (1967) Maceda v. Macaraig, 197 SCRA 771 (1991) Maceda v. Macaraig, 223 SCRA 217 (1993) CIR v. John Gotamco, 148 SCRA 36 (1987) c. As to the object or subject matter of the tax Property, personal, poll or capitation, excise Villanueva v. City of Iloilo, 26 SCRA 578 (1968) CIR v. CA, 242 SCRA 289 (1995) Assoc. of Customs Brokers v. Municipal Board, 93 Phil 107 (1953) d. As to the manner of computing the tax Title VI Ad valorem, specific e. As to graduation or rate 1. proportional, flat rate Sec. 233, R.A. 7160 2. progressive, digressive rate Sec. 24 (A) 3. regressive, Tolentino v. Sec. of Finance, (1995) supra. 6. Aspects of taxation a. Levy or imposition by the legislative body b. Collection or administration c. Methods of collection: withholding system voluntary assessment and payment assessment and payment 7. Tax systems a. Classification Sec. 28 (1), Art. VI, 1987 Constitution Progressive system, regressive system Progressive system v. progressive rate of tax Tolentino v. Sec. of Finance, supra., supra. b. Basic principles of a sound tax system Chavez v. Ongpin, 186 SCRA 331 (1990) B. Nature and Limitations of the Power of Taxation 1. Nature of the power of taxation

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a. Inherent in sovereignty Roxas v. CTA, 23 SCRA 276 (1968) Tanada v. Angara, 272 SCRA 18 (1997) b. Exclusively legislative in nature i. Extent of the legislative power to tax Tan v. del Rosario, 237 SCRA 324 (1994) CIR v. Santos, 277 SCRA 617 (1997) Sison v. Ancheta, 130 SCRA 654 (1984) Kapatiran v. Tan, 163 SCRA 371 (1988) Reyes v. Almanzor, 196 SCRA 322 (1991) ii. Non-delegability of power to tax Except: devolved power to LGUs, express grant in legislative franchise Maceda v. ERB, 192 SCRA 363 (1990) Maceda v. Macaraig, (1991) supra. Basco v. PAGCOR, 197 SCRA 52 (1991) Pepsi-Cola v. City of Butuan, 24 SCRA 789 (1968) PAL v. Edu, supra. c. Who may question the validity of a tax measure or expenditure of taxes Lozada v. Comelec, 120 SCRA 337 (1983) Maceda v. Macaraig, (1991) supra. Gonzales v. Marcos, 65 SCRA 624 (1975) Chavez v. PCGG, 299 SCRA 744 (1998) c. Subject to inherent and constitutional limitations 2. Inherent Limitations a. Purpose must be public in nature Pascual v. Sec. of Public Works, 110 SCRA 331 (1960) Tio v. Videogram Regulatory Board, supra. Gaston v. RPB, 158 SCRA 626 (1988) b. Prohibition against delegation of taxing power exceptions i. delegation to LGUs Sec. 5, Art. X, 1987 Constitution Book II, R.A. 7160 Basco v. PAGCOR, supra.
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Maceda v. Macaraig, (1991) supra. ii. delegation to the President Sec. 28 (2), Art. VI, 1987 Constitution Sec. 401, Tariff and Customs Code Garcia v. Executive Sec., supra. iii. delegation to administrative agencies Osmena v. Orbos, supra. Maceda v. Macaraig, (1991) supra. Maceda v. ERB, supra. c. Exemption of instrumentalities government entities, agencies and

Sec. 27 (C) Mactan Cebu Airport v. Marcos, supra. Maceda v. Macaraig, supra., supra. E. O. 93 and P. D. 1931 d. International comity Sec. 2, Art. II, 1987 Constitution Tanada v. Angara, supra. e. Limitation of territorial jurisdiction territorial v. personal jurisdiction CIR v. British Overseas Airway Corp., 149 SCRA 395 (1987) CIR v. Japan Airlines, 202 SCRA 450 (1991) Air Canada v. CIR, (CA) Case No. 6572, 22 December 2004 Iloilo Bottlers v. City of Iloilo, 164 SCRA 607 (1988) 3. Constitutional Limitations a. Due process of law Sec. 1, Art. III, 1987 Constitution Tan v. del Rosario, supra. Sison v. Ancheta, supra. b. Equal protection of the laws Sec. 1, Art. III, 1987 Constitution Sison v. Ancheta, supra. Villegas v. Hiu Chiong Tsai Pao, 86 SCRA 270 (1978) Tan v. del Rosario, supra. CIR v. CA & Alhambra Ind., 267 SCRA 557 (1997) Tiu v. CA, 301 SCRA 278 (1999)
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c.

Uniformity and equity in taxation

classification of taxpayers, subject or items to be taxed Sec. 28 (1), Art. VI, 1987 Constitution Tolentino v. Sec. of Finance, supra., supra. Mla. Race Horse v. dela Fuente, 88 Phil 60 (1951) Eastern Theatrical v. Alfonso, 83 Phil 852 (1949) Pepsi Cola v. City of Butuan, supra. Shell v. Vano, Mun. Treas. of Cordova, Cebu, 94 Phil 389 (1954) City of Baguio v. de Leon, 25 SCRA 938 (1968) Kapatiran v. Tan, supra. Villanueva v. City of Iloilo, supra. Asso. of Customs Brokers v. Mun. Board, supra. 4. Prohibition against imprisonment for non-payment of poll tax Sec. 20, Art. III, 1987 Constitution community tax v. poll tax Sec. 156-164, R. A. 7160 5. Prohibition against impairment of obligation of contracts Sec. 10, Art. III Sec. 11, Art. XII, 1987 Constitution Tolentino v. Sec. of Finance, (1994) supra. 6. Prohibition against infringement of religious freedom Sec. 5, Art. III, 1987 Constitution Am. Bible Society v. City of Manila, 101 Phil 386 (1957) Tolentino v. Sec. of Finance, (1995) supra. 7. Prohibition against appropriation of proceeds of taxation Sec. 29, Art. VI, 1987 Constitution Use of tax levied for a special purpose Osmena v. Orbos, supra. 8. Prohibition against educational entities taxation of religious, charitable and

Sec. 28 (3), Art. VI, 1987 Constitution Abra Valley College v. Aquino, 162 SCRA 106 (1988) 9. Prohibition against educational institutions taxation of non-stock, non-profit

Sec. 4 (3, 4), Art. XIV, 1987 Constitution Sec. 28 (3), Art. VI, Constitution
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Sec. 27 (B) and 30 (H) DOF Order No. 137-87 and 149-95 CIR v. CA, CTA and YMCA, 298 SCRA 83 (1998) CIR v. CA, CTA and Ateneo, 271 SCRA 605 (1997) 10. Others i. Grant of tax exemption (more on this under D4) Sec. 28 (4), Art. VI, 1987 Constitution Chavez v. PCGG, supra. ii. Veto of appropriation, revenue or tariff bills Sec. 27 (2), Art. VI, 1987 Constitution Gonzales v. Macaraig, 191 SCRA 452 (1990) iii. Non-impairment of the jurisdiction of the Supreme Court Sec. 2, 5 (b), Art. VIII, 1987 Constitution CIR v. Santos, 277 SCRA 617 (1997) San Miguel Corp. v. Avelino, 89 SCRA 69 (1979) iv. Revenue bills shall originate from the House of Representatives Sec. 24, Art. VI, 1987 Constitution Tolentino v. Sec. of Finance, supra., supra. v. Infringement of press freedom Sec. 24, Art. III, 1987 Constitution Tolentino v. Sec. of Finance, (1995) supra. vi. Grant of Franchise Sec. 11, Art. XII, 1987 Constitution Tolentino v. Sec. of Finance, (1995) supra. C. Situs of Taxation and Double Taxation 1. Meaning of situs 2. Situs of subjects of taxation Sec. 42, 104 CIR v. British Overseas Airway Corp., supra. CIR v. Japan Airlines, supra. Wells Fargo Bank v. Collector, 70 Phil 325 (1940) Tan v. del Rosario, supra. 3. Multiplicity of Situs, Collector v. de Lara, 102 Phil 813 (1958) 4. Double Taxation a. Meaning
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CIR v. S.C. Johnson and Son, Inc., 309 SCRA 87 (1999) b. Double taxation in its broad sense Villanueva v. City of Iloilo, supra. c. Constitutionality of double taxation City of Baguio v. de Leon, supra. Pepsi Cola Bottling v. City of Butuan, supra. Sanchez v. Collector, 97 Phil 687 (1955) City of Mla. v. Interisland Gas Service, 99 Phil 847 (1956) Cpa. General de Tabacos v. City of Mla., supra. D. Means of Avoiding and Minimizing the Burden of Taxation 1. Shifting of tax burden a. Ways of shifting the tax burden b. Taxes that can be shifted Sec. 105-VAT c. Meaning of impact and incidence of taxation

2. Tax evasion Elements of tax evasion Republic v. Gonzales, 13 SCRA 633 (1965) Sec. 254 3. Tax avoidance Ways of avoiding tax Delpher Traders Corp. v. IAC, 157 SCRA 349 (1988) Yutivo v. CTA, 1 SCRA 160 (1961) 4. Exemption from taxation a. meaning of exemption from taxation Greenfield v. Meer, 77 Phil 394 (1946) PLDT v. City of Davao, 363 SCRA 522 (2001) PLDT v. City of Davao, G.R. 143867, March 25, 2003 i. compared with tax remission, condonation Juan Luna Subd. V. M. Sarmiento, 91 Phil 371 (1952) Surigao Corp. Min. v. Collector, 9 SCRA 728 (1963) ii. tax amnesty Commissioner v. CA and ROH Auto, 240 SCRA 368 (1995) People v. Castaneda, 165 SCRA 327 (1988) Pascual v. CIR, 166 SCRA 560 (1988)
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Republic v. IAC, 196 SCRA 335 (1991) CIR v. Marubeni Corp., 372 SCRA 576 (2001) iii. VAT zero-rating, Sec. 106 (A) (2) iv. exclusions, deductions, Sec. 32 (B), 34 b. Kinds of tax exemption Express or implied, total or partial Exemption from direct tax, from indirect tax Atlas Fertilizer v. Commissioner, 100 SCRA 556( 1980) Commissioner v. Phil. Ace Line, 25 SCRA 912 (1968) Com. v. RTN Mining, 202 SCRA 137 (1991); 207 SCRA 549 (1992) Caltex v. COA, supra. c. Nature of the power to grant tax exemption Basco v. PAGCOR, supra. Maceda v. Macaraig, (1993) supra. d. Rationale for tax exemption Davao Light v. Com., 22 SCRA 122 (1972) Tan Kim Kee v. CTA, 7 SCRA 670 (1963) NPC v. RTC Presiding Judge, Cagayan de Oro, 190 SCRA 477 (1990) Chavez v. PCGG, supra. Davao Gulf v. CIR, 293 SCRA 76 (1998) Maceda v. Macaraig, (1993) supra. Tolentino v. Sec. of Finance,(1995) supra. e. Nature of tax exemption Tolentino v. Sec. of Finance, (1995) supra. PLDT v. City of Davao, (2001) supra. Maceda v. Macaraig, (1991) supra. Phil. Acetylene v. Commissioner, supra. Wonder Mech v. CTA, 64 SCRA 555 (1975) Atlas Fertilizer v. Com., supra. f. Laws granting tax exemption, incentives i. Constitution Sec. 28 (3), Art. VI and Sec. 4 (3, 4), Art. XIV, 1987 Constitution Abra Valley v. Aquino, supra. ii. tax statutes Sec. 30, 32 (B), 106, 199
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Sec. 159 and 234, R. A. 7160 Sec. 105, Tariff and Customs Code (TCC) iii. special laws R. A. 7549 Com. v. Phil Ace Line, supra. iv. treaties RP-US Tax Treaty RP-Germany Tax Treaty Com. v. S. C. Johnson, supra. Reagan v. CIR, 30 SCRA 968 (1969) Com. v. PJ Kiener, 65 SCRA 142 (1975) g. Construction of statutes granting tax exemption i. general rule PLDT v. City of Davao, (2001) supra. Com. v. CA and YMCA, 298 SCRA 83 (1998) Misamis Oriental Assoc. v. DOF, 238 SCRA 63 (1994) Com. of Customs v. Phil Acetylene Company, 39 SCRA 70 (1971) Mla. Electric Co. v. Vera (Tabios), 67 SCRA 352 (1975) Benguet Corp. v. CBAA, supra. Davao Gulf v. CIR, supra. ii. exceptions Maceda v. Macaraig, supra., supra. grant to government and other entities E. Sources, Application, Interpretation and Administration of Tax Laws 1. Sources of tax laws The Constitution, NIRC, TCC, LGC tax ordinance/local tax codes, Tuzon v. CA, 212 SCRA 739 (1992) treaties, Tanada v. Angara, supra. special laws, SC/CTA/CA decisions revenue rules and regulations, rulings and opinions a. validity of revenue rules and regulations RMO 1-99 Tan v. del Rosario, supra. Com. v. CA, supra. Umali v. Estanislao, 209 SCRA 446 (1992) La Suerte v. CTA, 134 SCRA 29 (1985) Com. v. CA, 261 SCRA 236 (1996) b. effectivity of revenue rules and regulations
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RMC 20-86 c. nature of rulings, effects of a void ruling Sec. 4, 244-246 Sec. 511 and 519, TCC CIR v. CA, 267 SCRA 557 (1997) Misamis Oriental v. DOF, supra. 2. Interpretation of Tax Laws a. nature of internal revenue laws Hilado v. Collector, 100 Phil 288 (1956) Republic v. Oasan, 99 Phil 934 (1956) Misamis Oriental v. DOF, supra b. construction of tax laws i. rule when legislative intent is clear Umali v. Estanislao, supra. Lorenzo v. Posadas, supra. ii. rule when there is doubt Collector v. La Tondena, 5 SCRA 665 (1962) Lorenzo v. Posadas, supra. iii. rule when language is plain c. application of tax laws, revenue regulations, rulings the effects of repeal i. application of tax laws Art. 2, NCC Umali v. Estanislao, supra. Lorenzo v. Posadas, supra. Hijo Plantation v. CB, 164 SCRA 192 (1988) CIR v. Filipinas Cia de Seguros, 107 Phil 1055 (1960) Cebu Portland v. Collector, 25 SCRA 789 (1968) Comm. v. RTN Mining, supra. ii. application of revenue regulations, rulings Sec. 246 Comm. v. CA, supra. Comm. v. Mega General, 166 SCRA 166 (1988) ABS-CBN v. CTA, 108 SCRA 142 (1981) Comm. v. Telefunken, 249 SCRA 401 (1995) d. mandatory and directory provisions Roxas v. Rafferty, supra. Aragon v. George, 85 Phil 246 (1949) Tiongco v. PVB, 212 SCRA 176 (1992)
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Pecson v. CA, 222 SCRA 580 (1993) 3. Enforcement, Administration of Tax Laws II. INCOME TAXATION A. General Principles of Income Taxation, Sec. 23 B. Concept of income, taxable income 1. Definition, nature, kinds a. Definition of income, taxable income Sec. 31 CIR v. British Overseas Airway Corp., supra. Madrigal v. Rafferty, 38 Phil. 414 (1918) Limpan Investment Corp. v. CIR, 17 SCRA 703 (1966) Republic v. de la Rama, G. R. No. L-21108, 29 Nov. 1966 b. Sources of income CIR v. Japan Airlines, supra. CIR v. British Overseas Airway Corp., supra. c. Nature, distinguished from other taxes income tax v. property tax Western Minolco Corp. v. CIR & CTA, G.R. No. L-61632, 16 Aug. 1983 d. Kinds: ordinary, capital Sec. 22 (Z), 39 A (2) e. Periods and methods of accounting for income and expenses calendar year, fiscal year Sec. 22 (P, Q, R) Chapter VIII, Sec. 43-47, 50 2. Computation of Taxable Compensation Income and Net Income a. Items of gross income, Sec. 32 (A) compensation, CIR v. Henderson, 1 SCRA 649 (1961) gross income derived from the conduct of trade or business, Sec. 22 (S)

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gains derived from dealings in property, Rodriguez v. CIR, 28 SCRA 1119 (1969) interests, royalties, prizes and winnings , Sec. 24 (B) rents/leases, Limpan v. CIR, supra. dividends, Republic v. de la Rama, supra. CIR v. Manning, Simmons & CTA, G.R. No. L-28398, 6 Aug. 1975 annuities, Art. 2021 NCC income from whatever source derived, CIR v Javier, 199 SCRA 824 (1991) special items: recovery of accounts previously written off, tax refunds b. Allowable Deductions, Sec. 34 (A) THE FOLLOWING OUTLINE SHALL BE THE COVERAGE OF TAX II III. ESTATE AND DONORS TAXES A. Gross Estate, Sec. 84, 85, 104 Revenue Regulation Nos. 17-93 and 02-2003 1. Inclusions to the Gross Estate, Lorenzo v. Posadas, 64 Phil 353 (1937) decedents interest transfer in contemplation of death, Alejandro v. Geraldez, 78 SCRA 245 (1977); Dison v. Posadas, 57 Phil 465 (19__) revocable transfer, Puig v. Penaflorida, 16 SCRA 136 (1966) property passing under general power of appointment proceeds of life insurance, Sec. 85 (E), Del Val v. Del Val, 29 Phil 534 (19__) prior interests transfers for insufficient consideration 2. Deductions, Sec. 86-97 a. Allowed to the estate of a citizen or a resident, Sec. 86 (A) expenses, losses, indebtedness, and taxes property previously taxed, vanishing deduction transfers for public use family home standard deduction medical expenses amount received by heirs (from decedents employer) share in the conjugal property, Collector v. Fisher, 1 SCRA 93 (1961) tax credit for estate taxes paid to a foreign country, Collector v. Campos Rueda, 42 SCRA 23 (1971)
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b. Allowed to nonresident estates, Sec. 86 (B) expenses, losses, indebtedness, taxes property previously taxed, vanishing deduction transfers for public use share in the conjugal property, Collector v. Fisher, supra. tax credit for estate taxes paid to a foreign country, Collector v. Campos Rueda, supra. c. No deductions to a nonresident not a citizen, exception 3. Exemptions, Notice of death, Filing of Returns, and Payment De La Vina v. Collector, 65 Phil 620 (19__)

B. Donors Tax, Sec. 98-104, Revenue Regulation Nos. 17-93 and 022003 1. Gifts, gross gift, deficiency defined, Sec. 104 2. Taxable gifts, Tang Ho v. Board of Tax Appeals, 97 Phil 889 (19__) 3. Transfer for less than adequate and full consideration, Secs. 98, 100 4. Rates of tax payable by donor, beneficiary as stranger, Sec. 99 5. Exemption of certain gifts, Sec. 101 a. Gifts made by a resident, Sec. 101 (A) b. Gifts made by a nonresident not a citizen, Sec. 101 (B) c. Tax credit for donors taxes paid to a foreign country, Sec. 101 (C) 6. Valuation of gifts made in property Pirovano v. Commissioner, 14 SCRA 832 (1965) IV. LOCAL GOVERNMENT TAXATION Book II, Title I, Secs. 128-152 Local Government Code (For parts IV and V, please follow the outline in the Local Government Code) V. REAL PROPERTY TAXATION

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Secs. 197-283 Local Government Code VI. VALUE ADDED TAX Secs. 104-115 R.A. 9238 Reference: The Value Added Tax in the Philippines by V. Deoferio, Jr. and V. Mamalateo VII. OTHER PERCENTAGE TAXES (discussion) VIII. EXCISE TAX (discussion) IX. DOCUMENTARY STAMP TAX (see compilation of laws) X. TARIFF AND CUSTOMS CODE (important provisions) XI. EXPANDED JURISDICTION OF THE COURT OF TAX APPEALS XII. REMEDIES (each prepare a flow chart as part of recitation)

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