Dison vs Posadas No. 36770. November 4, 1932

Facts:

                This is an appeal from the decision of the Court of First Instance of Pampanga in favor of the defendant Juan Posadas Jr., Collector of Internal Revenue, in a suit filed by the plaintiff, Luis DIson, for the recovery of an inheritance tax in the sum of P2,808.73 paid under protest.            

On April 9, 1928, a Deed of gift was executed by Felix Dison in favor of his son Luis Dison. The Deed of gift transferred twenty-two tracts of land to the donee, reserving to the donor for his life the usufruct of three tracts. It was acknowledged by the donor before a notary public then on April 17, Luis formally accepted the said gift. Felix Dison died on April 21, 1928.

Issue:

                Whether or not Luis Dison is liable for the payment of inheritance tax.

Ruling:

                Yes. He is liable.

                Section 1540 of the Administrative Code subjects plaintiff-appellant to the payment of the inheritance tax upon the gift inter vivos he received from his father and which really was advancement upon the inheritance he would be entitled to receive upon the death of the donor. The section does not tax gifts per se, but only those gifts are made to those who shall prove to be the heirs, devisees, legatees or donees mortis causa of the donor.

TAXATION 1

CIR vs Algue, Inc.

No. L-28896. February 17, 1988.

Facts:

            Private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83, 183.85 as delinquency income taxes for the years 1958 and 1959. Algue filed a letter of protest or request for reconsideration.

            Petitioner contends that the claimed deduction of P75, 000. 00 was properly disallowed because it was not an ordinary, reasonable or necessary business expense.

            Court of Tax Appeals however, agreed with Algue, Inc. holding that the said amount had been legitimately paid as promotional fees for their work in the formation of Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Corporation.

Issue:

1.      Whether or not the CIR correctly disallowed the P75, 000. 00 deduction claimed by private respondent.

2.      Whether or not the payments in promotional fees are fictitious and excessive.

           

Ruling:

1.      No.

The claimed of deduction by the private respondent was permitted under the code.

2.      No.

Not fictitious: Since Algue, Inc was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required.

Not excessive: Since the total commission paid by PSEDC to the private respondent was P125,000.00. After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was reasonable proportion, considering that it was the payees who did practically everything, from the formation of VOIC to the actual purchase by it of PSEDC.

            Algue Inc. has proved that the payment of fees was necessary and reasonable.

            The appealed decision of the CTA is affirmed.

Doctrine:

-          Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.

-          On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.

-          It is, therefore, necessary to reconcile the apparently conflicting interests of the authorities and the tax payers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

-          SYMBIOTIC RELATIONSHIP: Every person who is able to must contribute his share in the burden of running the government. The government, for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their material and moral values.

Philippine Guaranty Co., Inc. vs CIR

No. L-22074. April 30, 1965

Facts:

            The petitioner, a domestic insurance company, entered into reinsurance contracts with foreign insurance companies not doing business in the Philippines. Pursuant to the reinsurance contracts, petitioner ceded to the foreign reinsurers premiums, which were excluded from its gross income when it filed its income tax returns. Furthermore, it did not withhold or pay tax on them.

            Consequently, the CIR assessed against petitioner withholding tax on ceded reinsurance premiums.

            Petitioner protested on the ground.

Issue:

            Whether or not the reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding tax.

Ruling:

            No.

            It is subject to withholding tax.

            Where the reinsurance show that the activities that constituted the undertaking to reinsure a domestic insurer against losses arising from original insurances in the Philippines were performed in the Philippines, the reinsurance premiums are considered as coming from sources within the Philippines and are subject to Philippine Income Tax.

            Tax code does not require a foreign corporation to engage in business in the Philippines in subjecting its income tax. It suffices that the activity creating the income is performed or done in the Philippines. What is controlling, therefore, is not the place of business but the place of activity that created an income.

Doctrine:

-          The Government is not stopped from collecting taxes by mistakes or errors of its agents.

-          NECESSITY THEORY: Taxation is a power predicated upon necessity. It is a necessary burden to preserve the State’s sovereign and a means to give the citizenry an army to resist aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements for the enjoyment of the citizenry, and those which come within the State’s territory and facilities and protection which a government is supposed to provide.

Tio vs Videogram Regulatory Board

No. L-75697. June 18, 1987

Facts:

            Petitioner, on his own behalf and purportedly on behalf of another videogram operators adversely affected, assails the constitutionality of PD 1987: An Act Creating the Videogram Regulatory Board with broad powers to regulate and supervise the videogram industry

Issue:

            Whether or not the levy of 30% tax under PD 1987 as for a public purpose, and therefore a valid imposition.

Ruling:

            Yes.

            It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition.

Doctrine:

-          Tax imposed under the DECREE is not harsh, oppressive, confiscatory and in restraint of trade but regulatory and a revenue measure. The levy is for public purpose.

Vera vs Fernandez

No. L-31364. March 30, 1979

Facts:

            The motion for allowance of claim and payment of taxes dated May 28, 1969 was filed on June 3, 1969. The claim represents the indebtedness to the Government of the late Tongoy for deficiency income taxes. The Administrator opposed the motion solely on the ground that the claim was barred under Section 5, Rule 86 of ROC.

Issue:

            Whether or not the Statute of Non-claims (Sec 5, ROC) barred the claim of the Government for unpaid taxes, though it was filed within the period of limitations prescribed in NIRC.

Ruling:

            No.

            Claims for taxes may be collected even after the distribution of the decedent’s estate among his heirs who shall be liable therefore in proportion of their share in the inheritance. The reason for the more liberal treatment of claims for taxes against a decedent’s estate in the form of exception from the application of the statute of non-claims, is not hard to find.

Doctrine:

-          Taxes are the lifeblood of the Government and their prompt and certain availability are imperious need.

-          Upon taxation depends the Government’s ability to serve the people for whose benefit taxes are collected.

Taxation

A.   General Principles

1.    Taxation

a.    Definition

-      It is an inherent power by which the sovereign through its law making body raises income to defray the necessary expenses of government by apportioning the cost among those who, in some measure are privileged to enjoy its benefits and, therefore, must bear its burden.

b.    Basis

c.    Theories

d.    Purpose

1.    Revenue - To raise funds or property to enable the State to promote the general welfare and protection of the people.

2.    Non-Revenue

a.    Promotion of general welfare

b.    Regulation of activities/industries

c.    Reduction of social inequality

d.    Encourage economic growth

e.    Protection

e.    Objects

f.     Nature

-      Two-fold:

1.    Inherent

Its exercise is guaranteed by the mere existence of the state. It could be exercised even in the absence of constitutional grant.

The power to tax proceeds upon the theory that the existence of a government is a necessity and this power is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent state or government.

g.    Stages/Aspects

2.    Principles of Sound Tax System (Canons of Taxation)

a.    Fiscal Adequacy

-      Revenue raised must be sufficient to meet government/public expenditures and other public needs.

b.    Administrative feasibility

-      Tax laws must be clear and concise

-      Capable of effective and efficient enforcement

-      Convenient as to time and manner of payment; must not obstruct business growth and economic development

3.    Taxation distinguished from Police Power and Eminent Domain

	Taxation	Police Power	Eminent Domain
Authority who exercises the power	Government or its political subdivision	Government or its political subdivision	Government or public service companies and public utilities
Purpose	To raise revenue	Promotion of general welfare through regulations	To facilitate the taking of private property for public purpose
Persons affected	Upon the community or class of individuals	Upon the community or class of individuals	On an individual as the owner of a particular property
Amount of monetary imposition	No ceiling except inherent limitations	Limited to the cost of regulation, issuance or surveillance	No imposition, the owner is paid the fair market value of his property
Benefits received	Protection of a secured organized society, benefits received from government/ No direct benefit	Maintenance of healthy economic standard of society/ No direct benefit	The person receives the fair market value of the property taken from him/ Direct benefit results
Non-Impairment of Contracts	Generally do not impair contracts unless the government is party to contract granting exemption for a consideration	Contracts may be impaired	Contracts may be impaired

-      Similarities:

1.    Inherent powers of the State.

2.    All are necessary attributes of the sovereign.

3.    They exist independently of the Constitution.

4.    They constitute the three methods by which the State interferes with private rights and property.

5.    They presuppose equivalent compensation.

6.    The legislature can exercise all the three powers.

4.    Taxes

a.    Definition

b.    Nature

c.    Characteristics

d.    Distinguished from other Impositions/ forms of exactions

e.    Classification

5.    Extent/Scope of the Power of Taxation

6.    Limitations on the power of taxation

a.    Inherent

1.    Taxation should be for public purpose.

2.    Taxation is inherently legislative.

3.    The Government is exempt from tax.

-      RA7160 expressly prohibits the LGUs from levying taxes from the National Government, its agencies and instrumentalities and other LGUs.

-      NIRC provides that the National Government may levy taxes upon government-owned and controlled corporations, agencies and isntrumentalities.

4.    Territoriality

-      Taxing authority cannot impose taxes on subjects beyond its territorial jurisdiction.

b.    Constitutional

1.    Due Process Clause

-      The enforced contribution from the people cannot be made without law authorizing the same.

-      Two aspects:

a.    Substantive due process requires the tax statute must be within the constitutional authority of Congress and that it must be fair, just and reasonable.

b.    Procedural Due Process requires notice and hearing, or at least an opportunity to be heard.

2.    Equal Protection Clause

-      Taxpayers of the same footing should be treated alike, both as to privileges conferred as well as on obligations imposed.

-      Violation in two ways:

a.    When tax payers belonging to the same classification are treated differently from one another

b.    When tax payers belonging to different classifications are treated alike.

-      Requisites for a valid classification:

a.    There must be substantial distinctions that make real differences;

b.    These must be germane and relevant to the purpose of law;

c.    The distinction or classification must not only be applicable to present but also to future conditions;

d.    The distinction must apply to persons, things, and transactions belonging to the same class.

3.    Freedom of religion

-      Two clauses:

a.    The non-establishment clause;

b.    The free-exercise clause.

4.    Non-impairment of contracts

-      It applies to the power of taxation but not to police power and eminent domain. Further, it applies only where one party is the Government and other, a private individual.

5.    Non-Imprisonment for Non-Payment of Tax

-      A poll tax is a tax imposed in persons without any qualification. Example: Community Tax Certificate.

7.    Certain Doctrines in Taxation

a.    Prospectivity of Tax Laws

b.    Imprescriptibility of Taxes

c.    Double Taxation

«  The imposition by the same taxing body of two taxes on what essentially the same thing; the imposition of two taxes on the same property during the same period and for the same taxing purpose.

-      It is allowed because there is no prohibition.

-      It is not allowed if the following elements are present;

1.    The taxes are levied by the same taxing authority;

2.    For the same subject matter;

3.    For the same taxing period; and

4.    For the same purpose.

«  International Judicial Double taxation is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods.

d.    Escape from taxation

e.    Exemption from taxation

f.     Set off

«  Doctrine of Set-off or compensation in taxation applies when the government and the taxpayer are mutually debtors and creditors of each other.

«  Doctrine of equitable recoupment refers to a case where the taxpayer has a claim for refund but he was not able to file a written claim due to the lapse of the prescription period within which to make refund is allowed. The taxpayer is allowed to credit such refund to his existing tax liability,

g.    Compromise

h.   Tax amnesty

i.     Taxpayer’s suit

8.    Tax Laws/Statutes

a.    Definition

b.    Nature

c.    Construction and interpretation

d.    Sources