TAX.

Module 1- General Principles of Taxation Reviewer

CONCEPT, NATURE, UNDERLYING BASIS AND PURPOSE 1. Concept Taxation: act of laying tax; the process or means by which the sovereign through its law-making body raises income to defray the necessary expenses of government

- Inherent power of state to demand enforced contributions for PP - Taxes: enforced proportional contribution from persons and
property levied by states law-making body by virtue of its sovereignty for the support of government and public needs

To provide funds or property with which to promote the general welfare and protection of its citizens Commissioner v. Pineda Son may be held for full amount of taxes due on the estate and not merely on his corresponding share of the estate; BIR must be given the necessary discretion to avail itself of the most expeditious way to collect tax. Taxes are the lifeblood of government and their prompt and certain availability are an imperious need. Vera v. Fernandez Upon taxation depends the governments ability to serve the people for whose benefit taxes are collected. Commissioner v Algue Taxation is the indispensable and inevitable price for civilized society. Without taxes government would be paralyzed. Hence, despite the natural reluctance to surrender part of one's hard earned income to taxing authorities, every person who is able to must contribute his share in the running of 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 moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

2.

Nature of power of taxation a. Inherent in sovereignty it is an incident or attribute of sovereignty, being essential to the existence of every government. It exists apart from the constitution b. Inherently legislative only Congress can impose taxes although levy of a tax may also be made by local legislative body subject to such limitations provided by law (sec5 Art X) c. Subject to constitutional and inherent limitations Theory and Basis

3.

- How did it originate?

Power of taxation proceeds from the theory that existence of government is a necessity; it cannot continue without means to pay its expenses; for these means it has a right to compel all its citizens and property w/in its limits to contribute. is found in the reciprocal duties of protection and support between state and inhabitants. For his contribution, taxpayer receives general advantages and protection which government affords him and his property. Benefits-received principle o Not only those who are able and do pay taxes can enjoy the privileges and protection; theyre also enjoyed by those who dont pay because theyre not able to. State: duty to protect citizen in enjoyment of his rights o From contribution received, government renders no special commensurate benefit to any particular person or property o Only benefit taxpayer is entitled to: derived from enjoyment of privileges of living in an organized society established and safeguarded by the devotion of taxes to public purpose

- Basis

PRINCIPLES OF A SOUND TAX SYSTEM 1. Fiscal adequacy sources of revenue taken as a whole must be sufficient to meet the demands of public expenditure 2. Equity or theoretical justice tax burden should be in proportion to taxpayers ability to pay 3. Administrative feasibility tax laws should be capable of convenient, just and effective administration

ASPECTS OF TAXATION A. Levying or imposition of the tax which is a legislative act

4.

Purpose

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B. collection of the tax levied, essentially administrative

4.

ESSENTIAL CHARACTERISTICS OF TAX A. B. C. D. E. F. G. enforced contribution proportionate in character; generally based on ability to pay generally payable in money levied on persons and property by the state which has jurisdiction over the person/property by the law-making body of the state for public purpose

purpose a. general raise revenue for government needs b. special ex: protective tariffs or customs duties on imported goods to enable similar products manufactured locally to compete with such imports in domestic market scope or authority imposing tax a. national ex: NIR taxes, customs duties b. municipal or local ex: RET, professional tax gradation a. proportional ex: RET, VAT b. Graduated or progressive rate increases with tax base. Ex: IT, estate tax, donors tax c. Regressive rate decreases ad tax base increases.

5.

6.

CLASSIFICATION OF TAXES

1.

Subject matter

a.

Poll fixed amount; on persons residing within a specified territory, whether citizens or not, without regard to their property or occupation or biz. Ex: community tax b. Property real or personal; in proportion to value or in accordance with some other reasonable methods of apportionment. Ex: real estate tax c. Excise imposed upon performance of an act, enjoyment of a privilege, engagement in an occupation. Ex: VAT, estate tax, tax on cig

DISTINGUISHED FROM CERTAIN KINDS OF EXACTIONS

1.

License Fee police power; purposes of regulation; amount limited to necessary expenses of inspection and regulation, imposed on the right to exercise a privilege

Procter and Gamble v. Municipality of Jagna License fee should be commensurate with cost of regulation. Morcoin v. City of Manila Useful v non-useful occupation: stricter standards for useful to encourage engagement in such occupation. Amount imposed on nonuseful occupation may be very large without necessarily being considered unreasonable. Golden Ribbon Lumber v. City of Butuan If one doesnt pay the license fees, activity will become illegal. Progressive Development Corp v QC Local governments are allowed wide discretion in determining the rates of imposable license fees, even in cases of purely police power measures.

2.

Burden or Incidence a. Direct tax for which taxpayer is primarily liable or which he cannot shift to another. Ex: IT, estate tax, donors b. Indirect demanded from one in the expectation and intention that he shall indemnify himself at expense of another; person who absorbs or bears burden is other than the one on whom it is imposed and required by law to pay tax. Ex: VAT, percentage tax, customs duties Determination of amount a. Specific fixed amount, by head or number, some standard or weight or measurements. Ex: tax on wine, cig b. Ad valorem fixed proportion of the value of property wrt which tax is imposed. Ex: RET, excise tax on cars

3.

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PAL v Edu If the purpose is primarily revenue, or if revenue is AT LEAST one of the real and substantial purposes, then the exaction is properly called a tax. Even if an exaction has a regulation purpose, such does not discount its tax character if it generates revenue

ABAKADA President given power, subject to Secretary of Finance Dissent: Sison v. Ancheta Quoted Malcolm, that the power to tax is an attribute of sovereignty; strongest of all powers of government, but that its still subject to restrictions. Commissioner v. Algue Taxpayer has the right to complain about unreasonable exercise of power of taxation. Taxation must be exercised reasonably. Symbiotic relationship: rationale of taxation; should dispel the erroneous notion that its an arbitrary method of exaction by those in the seat of power . Pepsi Cola v. Municipality of Tanauan Legislative powers may be delegated to local governments in respect of matters of local concern.

2.

Toll paid for the use of something; demand of proprietorship; amount depends on the cost of construction or maintenance of public improvement used; may be imposed by private entities or individuals, not just government

City of Ozamis v. Lumapas The exaction in this case is not a toll but a license fee as such fees were to cover expenses for suspension, inspection and control to ensure smooth flow of traffic and for public convenience and safety. Vehicles are charged only when they stop to pick up passengers, not really for the use of the street.

3. 4.

Special assessment or levy levied only on land, based wholly on benefits Debt or ordinary obligations assignable; may be paid in kind; one cannot be imprisoned for its non-payment; draws interest

1.

Victorias Milling v. PPA Debt arises from contracts, tax comes from law. Philex Mining Corp v. CIR** Taxes cannot be subject to compensation because government and the taxpayer are not creditors and debtors of each other. Debts are due to government in its corporate capacity, while taxes are due to government in its sovereign capacity.

Inherent limitations a. taxation is for a public purpose implied from Constitution Public purpose: synonymous with governmental purpose; affects inhabitants and not merely individuals > depends on state of times > Proceeds of tax must be used: for support of government, for any of its recognized objects, to promote welfare of community > Benefit to public must be PRIMARY

SCOPE AND LIMITATIONS - Power to impose tax: aptly described as one so unlimited in force and so searching in extent that courts scarcely venture to declare it subject to restrictions, except such as rest in the discretion of the authority exercising it. Nevertheless, it is subject to limitations.

Pascual v. Sec of Public Works If benefit to the public is incidental, it is NOT for public purpose. If its for PP with an incidental benefit, then it is valid. SC held that legislature is without power to appropriate public revenues for anything but a public purpose; it is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax and not the magnitude of the interests to be affected nor the degree to which the general advantage to community, and thus public welfare, may be ultimately benefited by their promotion. Incidental advantage to the public does not justify their aid by the use of public money. The construction of feeder roads, if such roads were private property, would not be for a public purpose. Appropriation made by Congress for that purpose is null and void, and subsequent donation will not cure the defect.

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Lutz v. Araneta Public purpose can include protection of a huge industry (sugar production); great public concern. Protection encourages growth. Gomez v. Palomar Eradication of a dreaded disease is a PP benefit. There is an incidental benefit certain group, but it is still for a public eradication of TB, which could afflict not even if citizen does not directly to the Philippine TB Society, a purpose as primary purpose is only the members of PTBS.

Cervantes v. Auditor General Relevant ratio: so long as legislature lays down a policy and a standard is established by a statute, there is no undue delegation. Maceda v. Macaraig For valid delegation, required standard need not be expressed; sec 3 of law: greater national interest. All forms- demonstrates intention of law to give NPC all the tax exemptions it has been enjoying before, including indirect taxes. Territorial 51 Am Jur 88: taxation may be exercised only within territorial jurisdiction of taxing authority > Rationale: Tax laws do not operate beyond countrys territorial limits Property w/in jurisdiction of another state receives no protection for which tax is supposed to be compensation Exceptions: 1) Privity of relationship justifying the levy e.g. citizens income even if he resides abroad; based on his relation as a citizen to the state; he still enjoys protection from government 2) Sale/ transfer of shares of stock offshore. Said shares receive protection and benefit of our laws; domestic corporation d. Subject to International Comity under IC, property of a foreign state or government may not be taxed by another. > Basis: - Sovereign equality not to exercise sovereignty over another - Usage among states that when one enters the territory of another, there is an implied understanding that the former doesnt intend to degrade its dignity by placing itself under jurisdiction of the other - rue of IL that a foreign government may not be sued without its consent; useless to assess tax since it cannot be collected > Sec 2 Art II: Constitution adopted generally accepted principles of IL as part of the law of the land. Exemption of government agencies and instrumentalities funds raised from taxes collected are given to these instrumentalities for their operation anyway, absurd to tax c.

Valentin Tio v. Videogram Regulatory Board 30% tax imposed on video industry primarily to regulate it (piracy, IP rights violations, pornography), to curb growth. It is also to protect the movie industry; public purpose. **cf. with Lutz, disfavoring an industry to protect another; valid and can be considered for PP b. Inherently legislative power to tax cannot be delegated; also implied from the Constitution > arises from doctrine of separation of powers Exceptions: 1) Sec 28(2), Art VI, President authorized, subject to such limitations and restrictions that Congress may impose 2) LGUs expressly allowed by the Constitution to create their own sources of revenue, subject to limitations provided by law 3) AA, certain aspects of taxing that arent legislative; e.g. valuation of property for taxation purposes, assessment and collection, and others like computation and adjustment of taxes

2.

NPC v. Albay FIRB empowered merely to recommend tax exemptions. AA; it could not by itself validly prescribe or revoke exemptions, or restore liability. Cu Unjieng v. Patstone Cost of licensing, regulating and surveillance shouldnt materially increase with construction of the arcade; revenue, not just regulation; rests on taxing power. Thus, power of municipality must be expressly granted by charter or statute. Nothing in Manilas charter indicates L intention to confer it with power to impose license tax for construction of buildings. To hold the fee valid = judicial legislation; court cannot directly exercise taxing power by lending validity to an invalid law.

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them. Taxing them will increase their budget, meaning appropriation given by government increases as well. > Today, exemption applies only to those performing purely governmental functions 2. constitutional limitations a. sec 1 Art II - Due Process Substantive: under authority of valid law Procedural: compliance with fair reasonable methods of procedure Equal Protection: treated alike under like circumstances b. sec 10 Art III : non-impairment of obligations in contracts

2)

Which classification is germane to the purpose of legislation 3) Applicable not only to present conditions but also to future conditions substantially identical to those of the present 4) It applies equally to all those who belong to the same class Eastern Theatrical Co. v. Alfonso Equality and uniformity and taxation mean that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. Basco v. PAGCOR Mere fact that some gambling activities like cockfighting, horse racing, sweepstakes, lotteries, and races are legalized under certain conditions, while others are prohibited, does not render the applicable laws unconstitutional. Association of Customs Brokers v. Municipal Board of Manila Ordinance infringes uniformity rule. Tax on all motor vehicles; no distinction: whether for hire/private, or whether vehicle was registered in Manila or outside Manila but occasionally uses its streets. Distinction important because ordinance intends to burden ONLY those registered in Manila, as may be inferred from use of operating. No pretense that it applies also to vehicles that come to Manila for temporary visits as it cannot be denied that they contribute in no small degree to the deterioration of the streets. Fact that they are benefited by the use, they should also be made to share the corresponding burden. Sison v. Ancheta Different classes, so treat differently. Tax regime for compensation earners differs from business/professional income earners. e. 28(2): delegation of power of taxation to President, subject to restrictions and limitations that Congress may impose Exception to non-delegation of power to tax 28(3): religious, charitable and educational institutions exempt from Property tax

and

Exception: franchises granted by legislature (may be

amended) Sec 20 Art III: no imprisonment for non-payment of poll tax. Rationale: freedom to choose ones residence (liberty of abode) sec 28(1) Art VI - Uniformity: in burden, not in amount - Equity: proportionate to ones ability to pay Equal Protection Like treatment, like circumstances Uniformity and Equity proper relative treatment of persons in unlike circumstances - there SHOULD be difference in treatment

c. d.

City of Baguio v. De Leon Tax is considered uniform where it operates with the same force and effect in every place where the subject may be found, or that it applies equally to all persons, firms and corporations placed in similar situation. Pepsi Cola v. City of Butuan While uniformity does not require identity or equality under all circumstances, classification to be valid must be reasonable and this requirement is not deemed sufficient UNLESS (requirements for valid classification):

f.

1)

It is based upon substantial distinctions

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Herrera v. QC Board of Assessment Appeals Admission of pay patients does not detract from the charitable character of a hospital if all of its funds are devoted exclusively to the maintenance of the institution as public charity. Existence of midwifery school does not affect exemption; garage in the building incidental to the operation of the school and hospital, did not affect charitable character of hospital and educational nature of school. To be exempt: actually, directly and exclusively used; use, not ownership. Abra Valley College v. Aquino exclusively for educational purposes, exclusive = primary. TEST OF EXEMPTION: use of property for purposes mentioned in Constitution. Exemption not limited to property actually indispensable, but extends to facilities incidental and reasonably necessary to accomplish purpose. In this case, tax assessment valid not because of 2nd floor use by director, but because of 1st floor use for commercial purposes. g. h. 28(4): no law granting tax exemption shall be passed without the concurrence of majority of all the members of the Congress 29(3) : tax levied for a special purpose >> treated as a special fund and paid out for such purpose ONLY. If purpose has been fulfilled or abandoned, balance transferred to general funds of government

l.

Sec 4(3) Art XIV : all revenues, assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes exempt; proprietary educational institutions too, BUT subject to limitations

Non-stock, non-profit educational institution All revenues and donations and assets: exempt from property tax under sec 28 Art VI and under Sec 4(3) Art XIV

Educational institution for profit Exempt from property tax under Art sec 28 Art VI; needs an enabling law to enjoy exception under sec 4 (3) Art XIV

INTERPRETATION AND CONSTRUCTION OF TAX STATUTES In interpreting tax statutes, the legislative intent must be considered; reasonable construction with a view to carrying out their intent and purpose. Good faith of taxpayer: not sufficient justification for exemption from payment of surcharges.

Gaston v. Republic Planters Bank No trust fund; fees were in the nature of a tax to promote the sugar industry; special fund, Development and Stabilization Fund, to finance the growth and development of sugar industry and all its component and stabilization of the market. Fact that state took possession if money pursuant to law = sufficient to constitute them as state funds, even though held for a special purpose. i. 27(2) : Presidents power to veto

General Rule:

If statute is clear and unambiguous, no need for implementation. Exception: If there is DOUBT, tax statutes are construed strictly against government and liberally in favor of taxpayer Commissioner v. Firemans Insurance Co Doubt, tax statutes are construed most strongly against government and in favor of the subjects or citizens. Taxes are burdens, and burdens are not to be imposed, nor presumed to be imposed beyond what statutes expressly and clearly impose. CIR v. CA Refund is considered an exemption, and thus must be construed strictly against the taxpayer, BUT ONLY in this situation. Floro Cement v. Gorospe

Exception to non-delegation of power to tax

j. Sec 5(2b) Art VIII : SC all cases involving legality of any tax, impost, assessment, or toll, or any penalty in relation thereto Exception to non-delegation of power to tax Sec 5(2) Art X : each LGU: power to create own sources of revenue; levy taxes and fees; shall accrue exclusively to it

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He who claims an exemption must be able to point out some provision of law creating that right; it cannot be allowed to exist upon a mere vague implication or inference. Luzon Stevedoring v. CTA Claim for exemption construed strictly against taxpayer. NPC v. Albay PD 776 empowered FIRB merely to recommend tax exemptions. Republic v. IAC Tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violative of a revenue or tax law, partakes of an absolute forgiveness or waiver of its right to collect what otherwised be due it. Wonder Mechanical Engineering Corp v. CTA Tax exemption must be clearly expressed and cannot be established by implication. Maceda v. Macaraig Rule of strict interpretation does not apply in the cases of exemption in favor of a government political subdivision or instrumentality. The practical effect of such an exemption is merely to reduce the amount of money that government has to handle in the course of its operations. Provisions granting exemptions to government agencies may be construed liberally in favor of non-tax liability of such agencies, Penid v. Virata Tax statutes offering rewards to informers must be liberally construed in favor of the informers. CIR v. CA, ADMU It is illogical and impractical to determine who are exempted without first determining who are covered by tax provision. Republic v. Gancayco Prescriptive period for collection of tax is suspended only by grant of request for reinvestigation. Extrajudicial demands alone do not suspend said period. NIRC is a special law; prevails over Civil Code. US v. De Guzman

Construction, laws adopted from foreign laws: legislative history and case decisions in such foreign cuntries People v. Pagpaguitan Where a local rule is patterned from another country, decisions of court in such country construing the rule are entitled to great weight in interpreting the local rule.

CLASSIFICATION OF TAX EXEMPTIONS Tax exemption grant of immunity or privilege to particular persons, corporations or class from tax which persons/ corporations /particular class within the same state or taxing district are obliged to pay; freedom from a financial charge/ burden to which others are subjected. Inherent in the power to tax unless restricted by law The moment a local government is granted the power to tax, it also has the power to grant tax exemptions unless forbidden by law

RATIONALE: public interest will be subserved by exemption allowed May proceed from a CONTRACT o EX: franchise (special type, with government)

Who can revoke contract w/o impairing it? National Govt

If tax exemption under franchise is revoked by local government, it will COLLIDE with non-impairment clause ** LGUs have NO INHERENT power to tax. Grant of franchise on to an entity is a limitation on LGs power to tax Nature of tax exemption: Mere personal privilege, cannot be assigned Generally revocable, since its a privilege UNLESS founded on a contract protected from impairment o Implies a waiver on the part of government to collect taxes due o Not necessarily discriminatory, provided it has reasonable foundation or rationale basis

1. 2.

Express made by provisions of law Implied or by omission when tax levied on certain classes does not mention other classes, all those not mentioned: deemed exempted

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3.

Contractual agreed to by the taxing authority in contracts lawfully entered into by them under enabling laws, may NOT be revoked without impairing the obligations of contracts

Tax laws are civil in nature. IR laws not being political in nature remained in force during period of enemy occupation and were actually enforced by occupation government. Though the GR is prospective application, there is no prohibition on its retroactive application. Central Azucarera de Don Pedro v CTA Collection of interest in tax cases is not penal in nature; it is but just compensation for delay in payment. Constitutional prohibition against ex post facto law is not applicable to collection of interest on back taxes Lorenzo v. Posadas Exception to general rule; inheritance taxation is governed by statute in force at the time of the death of the decedent. Republic v. Fernandez Prohibition against ex post facto laws applies only to criminal matters. Retrospective laws, when not of criminal nature, do not come in conflict with the Constitution UNLESS obnoxious on other grounds. CIR v. Marubeni Corporation Where a tax statute amending a tax law is silent as to whether it operates retroactively, amendment will not be given retroactive effect sa as to subject to tax past transactions not subject to tax under the original actevery case of doubt must be resolved AGAINST its retroactive effect.

General Rule: tax exemptions are strictly construed against

taxpayers; he who claims must be able to justify it with express grants Exceptions: (when exemptions are liberally construed) i. when the law so provides for liberal construction ii. exemptions in favor of the government, its political subdivisions and instrumentalities Cagayan Electric Company v. Commissioner A franchise is subject to amendment, alteration, or repeal by Congress when the public interest so requires. As such the franchise is the law between the parties and they are bound by the terms thereof. Province of Misamis Oriental v. Cagayan Electric PD 231 may only be imposed on companies with franchises that do not contain the in lieu of all taxes proviso; such exemption is part of the inducement for acceptance of the franchise and the rendition of public service. As a charter is in the nature of a private contract, imposition of another franchise tax on the corporation by local authority is impairment of the contract between national government and the corp. CIR v. CTA A legislative franchise partakes the nature of a contract.

2.

Imprescriptibility of taxes unless provided by the tax itself

CERTAIN DOCTRINES IN TAXATION

1.

Prospectivity of tax laws

General Rule: tax laws are prospective in operation Exception: may be applied retroactively if expressly declared, or is
clearly the legislative intent Hydro Resources v. CA Laws shall have no retroactive effect unless contrary is provided. Hilado v. Collector

Commissioner v. Ayala Securities Corporation Limitations on the right of government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary and that where the government has not by statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible

3.

Double taxation STRICT SENSE - taxing twice, same: property, purpose, taxing authority, jurisdiction, period, kind or character - prohibited

BROAD SENSE - Indirect duplicate taxation - all cases in which there is a burden of two or more pecuniary impositions - not prohibited

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** no express prohibition on DT in the Costitution; however, though

not forbidden, it is something not favored and should whenever possible be avoided or prevented **Only DT in SS impermissible: collides with DP, equality, uniformity Villanueva v. City of Iloilo No double taxation in the prohibited sense; same taxing jurisdiction but different character. No constitutional prohibition against double taxation in the Constitution. Not favored but permissible, provided some other consti provision is not thereby violated (e.g. uniformity) Procter and Gamble v. Municipality of Jagna, supra Different subject matters, so there is no double taxation. Commissioner v. Lednicky Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity.

should add tax to the price , pays the tax and endeavors to recover by improving his production process thereby turning out his units of products at the lower cost; tax transformed into a gain through medium of production

d.

Exemption - grant of immunity or privilege to particular persons or corporations or class from a tax which persons, corporations, or a particular class within the same state or taxing district are obliged to pay Tax evasion illegal or fraudulent means to defeat or lessen the payment of tax; punishable by law; takes place only when there are no proceeds. o factors: (1) end to be achieved; (2) accompanying state of mind; (3) a course of action o since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case o absence of taxation Tax avoidance legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability EVASION Escape from taxation accomplished by breaking the letter of the law; illegal means e.g. deliberate omission to report a taxable item Tax evader breaks the law, penal liability AVOIDANCE Escape accompanied by legal procedure or means which may be contrary to the intent of sponsors of the law but nevertheless do not violate the letter of the law Tax avoider sidesteps the law; legal means

e.

4.

Power to tax involves power to destroy NO, it does not.

Sison v. Ancheta Malcolm: the power to tax is an attribute of sovereignty. It is the strongest of al the powers of government. According to Frankfurter, the comment of Marshall that it does is merely rhetoric. According to Holmes, the power to tax is not the power to destroy while this Court sits. Justice Fernando: so it is in the Philippines.

f.

5.

Escape from taxation

a.

Shifting transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to another or someone else; direct tax cannot be shifted, shifting is only possible when there is an exchange of commodities Capitalization reduction in the price of the tax object equal to the capitalized value of the future taxes which the purchaser expects to be called upon to pay; occurs when the tax falls on an income-producing quality Transformation manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he

b.

c.

Delpher Trades Corporation v. IAC Property was transferred as share; estate planning, reduces estate tax. The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them by means which the law permits, cannot b doubted.

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6.

Doctrine of equitable recoupment NOT APPLICABLE in RP There is equitable recoupment when:

- there

- when

is erroneous or overpayment or illegal imposition of tax and the taxpayers claim for refund is barred by the statute of limitations (for example, belatedly filed), government is unjustly enriched, and a tax is being presently assessed against said taxpayer, the present tax may be recouped or set off against the lapsed claim the government failed to collect a tax and the period has prescribed, and taxpayer has to his credit a tax illegally or erroneously collected or overpaid, whose refund I not yet barred, the government need not make a refund of all the illegally or erroneously collected tax, but it may set off.

Francia v. IAC NO set off, as theres no basis for compensation. Payment for expropriation cannot be used to set off, no legal compensation; there can be no offsetting of taxes against claims that taxpayer may have against the government. Collection of tax cannot await results of lawsuit against government. Anyway, in this case there is no more receivable from the government, already deposited in PNB. Philex Mining Corporation v. CIR NO set off. Taxes are not debts.

General Rule: taxes CAN NOT be set off; not debt. is there an exception? Vitug, citing Garlitos, says that if a debt is
liquidated, it may be subject of set-off. But Philex abandoned doctrine in Garlitos. Despite liquidation of debt, no set off.

Collector v. UST Doctrine is a common law principle and is not binding in Philippine jurisdiction without a law from Congress adopting the same. This is so because the law does not want anyone to sleep on their rights, so it may not work to tempt both the collecting authority and the taxpayer to delay and neglect their respective pursuits of legal action within the period set by law.

8.

Mandatory or directory provisions DIRECTORY Designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings Omission to provisions do consequences follow these not have such

7.

Set-off of taxes

Republic v. Mambulao Lumber Company Internal revenue taxes cannot be the compensation. NO set off.

subject

of

set-off

or

MANDATORY intended for security of citizens, or designed to insure equality of taxation or certainty as to the nature and amount of each persons tax Omission to follow these provisions renders invalid the act or proceeding to which it relates

2 elements of a valid compensation: 1) parties are mutual creditors and debtors of each other 2) debt is due, demandable, and liquidated In case of SET OFF, element #1 is missing Domingo v. Garlitos AN ABBERATION! Set off is allowed because there is already an appropriation; the estates claim against government has been recognized. Both the claim of the government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable as well as fully liquidated.

Hijos de Pedro P. Rojas v. Rafferty Manila charter requires assessor and collector to notify persons whose tax is proposed to be changed, during the time period fixed by the statute. This provision is mandatory; an assessor cannot make a valid assessment unless he has given proper notice.

9.

Compromises NOT prohibited Requirements: doubtful validity of assessment financial capability to pay

SOURCES OF TAX LAWS

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1. 2.

3.
4. 5.

Constitution legislation or statutes, NIRC administrative r&r, rulings and opinions of tax officials, LG Code judicial decisions treaties

1 & 2: independent sources 3 & 4: based on Constitution and existing laws

TAX TREATIES Agreement between Philippines and other countries >> Also a source of tax law; same force and effect as statutes >> addresses double taxation in its broad sense

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