pals taxation reviewer 2014

8/11/2019 PALS Taxation REVIEWER 2014

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Bar Ops Pilipinas 2015

Philippine Association of Law Schools

COVERAGELAW ON TAXATION2014 BAR EXAMINATIONS

I. General Principles of TaxationA. Definition and concept of taxation

Taxation is the power by which the sovereign raises revenue to defray the necessary expensesof the government. It is merely a way of apportioning the cost of government among thosewho in some measure are privileged to enjoy its benefits and must bear its burdens. It includes,in its broadest and most general sense, every charge or burden imposed by the sovereignpower upon persons, property, or property rights for the use and support of the governmentand to enable it to discharge its appropriate functions, and in that broad definition there isincluded a proportionate levy upon persons or property and all the various other methods anddevices by which revenue is exacted from persons and property for public purposes. (51 Am.Jur 34-35)Taxation is described as a destructive power which interferes with the personal and property

rights of the people and takes from them a portion of their property for the support of thegovernment. (Paseo Realty & Development Corporation v. Court of Appeals, GR No. 119286,October 13, 2004)

B. Nature of taxation

Taxation is inherent in nature, being an attribute of sovereignty. (Chamber of Real Estate andBuilders Association, Inc. v. Romulo, 614 SCRA 605 (2010))

As an incident of sovereignty, the power to tax has been described as unlimited in its range,acknowledging in itsvery nature no limits, so that security against its abuse is to be found onlyin the responsibility of the legislature which imposes the tax on the constituency who are to payit. (Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667 (1996))

The power of taxation is an essential and inherent attribute of sovereignty, belonging as amatter of right to every independent government, without being expressly conferred by thepeople. (Pepsi-Cola Bottling Company of the Phil. V. Mun. of Tanauan, Leyte, 69 SCRA 460)

The power to tax is inherent in the State, such power being inherently legislative, based on theprinciple that taxes are a grant of the people who are taxed, and the grant must be made bythe immediate representative of the people, and where the people have laid the power, there itmust remain and be exercised. (Commissioner of Internal Revenue v. Fortune TobaccoCorporation, 559 SCRA 160 (2008))

The power of taxation is essentially a legislative function. The power to tax includes theauthority to:(1) determine the

(a) nature (kind);(b) object (purpose);(c) extent (amount of rate);(d) coverage (subjects and objects);


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(e) apportionment of the tax (general or limited application);(f) situs (place) of the imposition; and(g) method of collection;

(2) grant tax exemptions or condonations; and(3) specify or provide for the administrative as well as judicial remedies that either thegovernment or the taxpayer may avail themselves in the proper implementation of the taxmeasure. (Petron v. Pililla, GR No. 158881, April 16, 2008)

In other words, the legislature wields the power to define what tax shall be imposed, why itshould be imposed, how much tax shall be imposed, against whom (or what) it shall beimposed and where it shall be imposed. (Chamber of Real Estate and Builders Association, Inc.v. Romulo, 614 SCRA 605 (2010))

C. Characteristics of taxation

As aprincipal attribute of sovereignty, the exercise of taxing power derives itssource from the

very existence of the state whose social contract with its citizens obliges it to promote publicinterest and common good. (National Power Corporation v. City of Cabanatuan, GR No. 149110,

April 9, 2003)

The power to tax is so unlimited in force and so searching in extent, that courts scarcelyventure to declare that it is subject to any restrictions whatever, except such as rest in thediscretion of the authority which exercises it. (Tio v. Videogram Regulatory Board et al., 151SCRA 213)

It is a settled principle that the power of taxation by the state is plenary. Comprehensive andsupreme, the principal check upon its abuse resting in the responsibility of the members of thelegislature to their constituents. (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,G.R. No. 166006, March 14, 2008)

Taxes being the lifeblood of the government that should be collected without unnecessaryhindrance, every precaution must be taken not to unduly suppress it. (Republic v. Caguioa, 536SCRA 193 (2007))

The power to tax is sometimes called the power to destroy. Therefore, it should be exercisedwith caution to minimize injury to the proprietary rights of the taxpayer. It must be exercisedfairly, equally and uniformly, lest the tax collector kills the hen that lays the golden egg.(Commissioner of Internal Revenue v. SM Prime Holdings, Inc., 613 SCRA 774 (2010))

In order to maintain the general publics trust and confidence in the government, this powermust be used justly and not treacherously. (Roxas y Cia v. Court of Tax Appeals, 23 SCRA 276)

Tax laws are prospective in operation, unless the language of the statute clearly providesotherwise. (Commissioner of Internal Revenue v. Acosta, 529 SCRA 177 (2007))


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D. Power of taxation compared with other powers

1. Police power

Police Power is the power to make, ordain and establish all manner of wholesome andreasonable laws, statutes and ordinances whether with penalties or without, not repugnant tothe Constitution, the good and welfare of the commonwealth, and for the subjects of the same.(Metropolitan Manila Development Authority v. Garin, GR No. 130230, April 15, 2005)

The main purpose of police power is the regulation of a behavior or conduct, while taxation isrevenue generation. The "lawful subjects" and "lawful means" tests are used to determine thevalidity of a law enacted under the police power. The power of taxation, on the other hand, iscircumscribed by inherent and constitutional limitations. (PLANTERS PRODUCTS, INC. v.FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)

The motivation behind many taxation measures is the implementation of police power goals.Progressive income taxes alleviate the margin between rich and poor; the so-called sin taxes

on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake ofthese potentially harmful products. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENTMANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005)

Taxation is distinguishable from police power as to the means employed to implement thesepublic good goals. Those doctrines that are unique to taxation arose from peculiarconsiderations such as those especially punitive effects of taxation, and the belief that taxes arethe lifeblood of the state yet at the same time, it has been recognized that taxation may bemade the implement of the states police power. (SOUTHERN CROSS CEMENT CORPORATIONv. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August3, 2005)

Unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost thegovernments general funds but to provide means for the rehabilitation and stabilization of athreatened industry, the coconut industry, which is so affected with public interest as to bewithin the police power of the State. The subject laws are akin to the sugar liens imposed bySec. 7(b) of P.D. 388, and the oil price stabilization funds under P.D. 1956, as amended by E.O.137. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SANIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

If generation of revenue is the primary purpose and regulation is merely incidental, theimposition is a tax; but if regulation is the primary purpose, the fact that revenue is incidentallyraised does not make the imposition a tax. (GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA

696 (2007))

While it is true that the power of taxation can be used as an implement of police power, theprimary purpose of the levy is revenue generation. If the purpose is primarily revenue, or ifrevenue is, at least, one of the real and substantial purposes, then the exaction is properlycalled a tax. (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION, G.R. No. 166006,March 14, 2008)


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It has been the settled law that municipal license fees could be classified into those imposed forregulating occupations or regular enterprises, for the regulation or restriction of non-usefuloccupations or enterprises and for revenue purposes only. Licenses for non-useful occupationsare also incidental to the police power and the right to exact a fee may be implied from thepower to license and regulate, but in fixing the amount of the license fees the municipalcorporations are allowed a much wider discretion in this class of cases. (ERMITA-MALATEHOTEL AND MOTEL OPERATORS ASSOCIATION, INC., HOTEL DEL MAR INC. and GO CHIU v.THE HONORABLE CITY MAYOR OF MANILA, G.R. No. L-24693, July 31, 1967)

2. Power of eminent domainBe it stressed that the privilege enjoyed by senior citizens does not come directly from theState, but rather from the private establishments concerned. Accordingly, the tax credit benefitgranted to these establishments can be deemed as their just compensation for private propertytaken by the State for public use. (COMMISSIONER OF INTERNAL REVENUE v. CENTRALLUZON DRUG CORPORATION G.R. No. 159647 April 15, 2005)

Besides, the taxation power can also be used as an implement for the exercise of the power of

eminent domain. Tax measures are but "enforced contributions exacted on pain of penalsanctions" and "clearly imposed for a public purpose." In recent years, the power to tax hasindeed become a most effective tool to realize social justice, public welfare, and the equitabledistribution of wealth. (COMMISSIONER OF INTERNAL REVENUE v. CENTRAL LUZON DRUGCORPORATION G.R. No. 159647 April 15, 2005)

E. Purpose of taxation1. Revenue-raising2. Non-revenue/special or regulatory

The Court was satisfied that the coco-levy funds were raised pursuant to law to support a

proper governmental purpose. They were raised with the use of the police and taxing powers ofthe State for the benefit of the coconut industry and its farmers in general. (PAMBANSANGKOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v. EXECUTIVESECRETARY G.R. Nos. 147036-37 April 10, 2012)

In relation to the regulatory purpose of the imposed fees, the imposition questioned mustrelate to an occupation or activity that so engages the public interest, morals, safety anddevelopment as to require regulation for the protection and promotion of such public interest;the imposition must also bear a reasonable relation to the probable expenses of regulation,taking into account not only the costsof direct regulation, but also its incidental consequencesas well. (CHEVRON PHILIPPINES, INC. v. BASES CONVERSION DEVELOPMENT AUTHORITY,630SCRA 519 (2010))

As an elementary principle of law, license taxation must not be so onerous to show a purposeto prohibit a business which is not injurious to health or morals. (TERMINAL FACILITIES ANDSERVICES CORPORATION v. PHILIPPINE PORTS AUTHORITY, 378 SCRA 82 (2002))

It is a police power measure. The objectives behind its enactment are: "(1) To be able toimpose payment of the license fee for engaging in the business of massage clinic (2) in order toforestall possible immorality which might grow out of the construction of separate rooms for


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erroneous notion that it is an arbitrary method of exaction by those in the seat of power.(COMMISSIONER OF INTERNAL REVENUE v. ALGUE, INC., and THE COURT OF TAX APPEALS,G.R. No. L-28896, February 17, 1988)

The expenses of government, having for their object the interest of all, should be borne by

everyone, and the more man enjoys the advantages of society, the more he ought to holdhimself honored in contributing to those expenses. (ABAKADA GURO PARTY LIST (FormerlyAASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLEEXECUTIVE SECRETARY EDUARDO ERMITA, G.R. No. 168056, September 1, 2005)

4. Jurisdiction over subject and objects

H. Doctrines in taxation1. Prospectivity of tax laws

Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC arose because thelast paragraph of Section 204(c) was not found in Section 230 of the old Code. After a thorough

consideration of this matter, we find that we cannot give retroactive application to Section204(c) abovecited. We have to stress that tax laws are prospective in operation, unless thelanguage of the statute clearly provides otherwise.(COMMISSIONER OF INTERNAL REVENUE v.ROSEMARIE ACOSTA G.R. No. 154068 August 3, 2007)

2. Imprescriptibility3. Double taxationa) Strict sense

Double taxation means taxing the same property twice when it should be taxed only once; thatis, "taxing the same person twice by the same jurisdiction for the same thing." It is obnoxious

when the taxpayer is taxed twice, when it should be but once. Otherwise described as "directduplicate taxation," the two taxes must be imposed on the same subject matter, for the samepurpose, by the same taxing authority, within the same jurisdiction, during the same taxingperiod; and they must be of the same kind or character. (COMMISSIONER OF INTERNALREVENUE v. SOLIDBANK CORPORATION G.R. No. 148191 November 25, 2003)

b) Broad sense

Subjecting interest income to a 20% FWT and including it in the computation of the 5% GRT isclearly not double taxation: First, the taxes herein are imposed on two different subjectmatters; Second, although both taxes are national in scope because they are imposed by thesame taxing authority -- the national government under the Tax Code -- and operate within the

same Philippine jurisdiction for the same purpose of raising revenues, the taxing periods theyaffect are different; Third, these two taxes are of different kinds or characters. (COMMISSIONER OF INTERNAL REVENUE v. SOLIDBANK CORPORATION G.R. No. 148191November 25, 2003)

Regulation and taxation are two different things, the first being an exercise of police power,whereas the latter involves the exercise of the power of taxation. While R.A. 2264 provides thatno city may impose taxes on forest products and although lumber is a forest product, the tax in


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4. Escape from taxationa) Shifting of tax burden

Section 135(a) should be construed as prohibiting the shifting of the burden of the excise tax tothe international carriers who buy petroleum products from the local manufacturers. Saidinternational carriers are thus allowed to purchase the petroleum products without the excisetax component which otherwise would have been added to the cost or price fixed by the localmanufacturers or distributors/sellers. (COMMISSIONER OF INTERNAL REVENUE v. PILIPINASSHELL PETROLEUM CORPORATION, G.R. No. 188497, February 19, 2014)

(i) Ways of shifting the tax burden

It may indeed be that the economic burden of the tax finally falls on the purchaser; when itdoes the tax becomes a part of the price which the purchaser must pay. It does not matter thatan additional amount is billed as tax to the purchaser. The method of listing the price and thetax separately and defining taxable gross receipts as the amount received less the amount ofthe tax added, merely avoids payment by the seller of a tax on the amount of the tax.(PHILIPPINE ACETYLENE CO., INC. v. COMMISSIONER OF INTERNAL REVENUE, G.R. No. L-19707, August 17, 1967)

(ii) Taxes that can be shifted(iii) Meaning of impact and incidence of taxation

In indirect taxation, a distinction is made between the liability for the tax and burden of the tax:The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,properties or services to the buyer. In such a case, what is transferred is not the seller's liabilitybut merely the burden of the VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THESECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

b) Tax avoidance

Tax avoidance is the tax saving device within the means sanctioned by law. This method shouldbe used by the taxpayer in good faith and at arms length. (COMMISSIONER OF INTERNALREVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188 September 14, 2004)

c) Tax evasion

Tax evasion, on the other hand, is a scheme used outside of those lawful means and whenavailed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.

(COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R. No.147188 September 14, 2004)

Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., thepayment of less than that known by the taxpayer to be legally due, or the non-payment of taxwhen it is shown that a tax is due; (2) an accompanying state of mind which is described asbeing "evil," in "bad faith," "willfull," or "deliberate and not accidental"; and (3) a course ofaction or failure of action which is unlawful.(COMMISSIONER OF INTERNAL REVENUE v. THEESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188 September 14, 2004)


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Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax tobe paid especially that the transfer from him to RMI would then subject the income to only 5%individual capital gains tax, and not the 35% corporate income tax. Altonagas sole purpose ofacquiring and transferring title of the subject properties on the same day was to create a taxshelter. (COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR.G.R. No. 147188 September 14, 2004)

5. Exemption from taxationa) Meaning of exemption from taxation

It is the legislature, unless limited by a provision of the state constitution, that has full power toexempt any person or corporation or class of property from taxation, its power to exempt beingas broad as its power to tax. Other than Congress, the Constitution may itself provide forspecific tax exemptions, or local governments may pass ordinances on exemption only fromlocal taxes. (JOHN HAY PEOPLES ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R.No. 119775, October 24, 2003)

b) Nature of tax exemption

Taxation is the rule and exemption is the exception. (FELS ENERGY, INC. v. PROVINCE OFBATANGAS, 516 SCRA 186 (2007))

Since the power to tax includes the power to exempt thereof which is essentially a legislativeprerogative, it follows that a municipal mayor who is an executive officer may not unilaterallywithdraw such an expression of a policy thru the enactment of a tax.(PHILIPPINE PETROLEUMCORPORATION v. MUNICIPALITY OF PILILLA, G.R. No. 90776, June 3, 1991)

A tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemptionby the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller.The excise tax imposed on petroleum products under Section 148 is the direct liability of themanufacturer who cannot thus invoke the excise tax exemption granted to its buyers who areinternational carriers; nevertheless, the manufacturer, as the statutory taxpayer who is directlyliable to pay the excise tax on its petroleum products, is entitled to a refund or credit of theexcise taxes it paid for petroleum products sold to international carriers (COMMISSIONER OFINTERNAL REVENUE v. PILIPINAS SHELL PETROLEUM CORPORATION, G.R. No. 188497,February 19, 2014)

c) Kinds of tax exemption

(i) Express(ii) Implied

It bears repeating that the law looks with disfavor on tax exemptions and he who would seek tobe thus privileged must justify it by words too plain to be mistaken and too categorical to bemisinterpreted. (WESTERN MINOLCO CORPORATION v. COMMISSIONER OF INTERNALREVENUE, G.R. No. L-61632, August 16, 1983)


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(iii) Contractual

Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemptionmay thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule iswhere the exemption was granted to private parties based on material consideration of amutual nature, which then becomes contractual and is thus covered by the non-impairmentclause of the Constitution. (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)

d) Rationale/grounds for exemption

In recent years, the increasing social challenges of the times expanded the scope of stateactivity, and taxation has become a tool to realize social justice and the equitable distribution ofwealth, economic progress and the protection of local industries as well as public welfare andsimilar objectives. Taxation assumes even greater significance with the ratification of the 1987Constitution. (BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONAL POWERCORPORATION, G.R. No. 152675, April 28, 2004)

The PPI says that the discriminatory treatment of the press is highlighted by the fact thattransactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716 but anenumeration of some of these transactions will suffice to show that by and large this is not soand that the exemptions are granted for a purpose. As the Solicitor General says, suchexemptions are granted, in some cases, to encourage agricultural production and, in othercases, for the personal benefit of the end-user rather than for profit.(ARTURO M. TOLENTINOv. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.115455, October 30, 1995)

e) Revocation of tax exemption

Since the law granted the press a privilege, the law could take back the privilege anytimewithout offense to the Constitution. The reason is simple: by granting exemptions, the Statedoes not forever waive the exercise of its sovereign prerogative; indeed, in withdrawing theexemption, the law merely subjects the press to the same tax burden to which other businesseshave long ago been subject. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE andTHE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

The rule is that a special and local statute applicable to a particular case is not repealed by alater statute which is general in its terms, provisions and application even if the terms of thegeneral act are broad enough to include the cases in the special law unless there is manifestintent to repeal or alter the special law.(THE PROVINCE OF MISAMIS ORIENTAL, representedby its PROVINCIAL TREASURER v. CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC.,

G.R. No. L-45355, January 12, 1990)

This Court recognized the removal of the blanket exclusion of government instrumentalitiesfrom local taxation as one of the most significant provisions of the 1991 LGC. Specifically, westressed that Section 193 of the LGC, an express and general repeal of all statutes grantingexemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by theNPC under its Charter.(BATANGAS POWER CORPORATION v. BATANGAS CITY and NATIONALPOWER CORPORATION, G.R. No. 152675, April 28, 2004)


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Erroneous application and enforcement of the law by public officers do not preclude subsequentcorrect application of the statute, and the government is never estopped by the mistake orerror on the part of its agents. (PHILIPPINE BASKETBALL ASSOCIATION v. COURT OF

APPEALS, 337 SCRA 358)

6. Compensation and set-off

Taxes cannot be the subject of set-off or compensation for the following reasons: (1) taxes areof distinct kind, essence and nature, and these impositions cannot be classed in the samecategory as ordinary obligations; (2) the applicable laws and principles governing each arepeculiar, not necessarily common to each; and (3) public policy is better subscribed if theintegrity and independence of taxes are maintained. (REPUBLIC v. MAMBULAO LUMBERCOMPANY, 4 SCRA 622 (1962))

Taxes cannot be subject to compensation for the simple reason that the Government and thetaxpayers are not creditors and debtors of each other, debts are due to the Government in itscorporate capacity, while taxes are due to the Government in its sovereign capacity. (SOUTH

AFRICAN AIRWAYS v. COMMISSIONER OF INTERNAL REVENUE, 612 SCRA 665 (2010))

However, if the obligation to pay taxes and the taxpayers claim against the government areboth overdue, demandable, as well as fully liquidated, compensation takes place by operation oflaw and both obligations are extinguished to their concurrent amounts. (DOMINGO v.GARLITOS, 8 SCRA 443 (1963))

7. Compromise8. Tax amnestya) Definition

A tax amnesty is a general pardon or the intentional overlooking by the State of its authority toimpose penalties on persons otherwise guilty of violating a tax law. It partakes of an absolutewaiver by the government of its right to collect what is due it and to give tax evaders who wishto relent a chance to start with a clean slate. (ASIA INTERNATIONAL AUCTIONEERS, INC. v.COMMISSIONER OF INTERNAL REVENUE G.R. No. 179115 September 26, 2012)

A tax amnesty, much like a tax exemption, is never favored or presumed in law. The grant of atax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer andliberally in favor of the taxing authority. (ASIA INTERNATIONAL AUCTIONEERS, INC. v.COMMISSIONER OF INTERNAL REVENUE G.R. No. 179115 September 26, 2012)

b) Distinguished from tax exemption

9. Construction and interpretation of:a) Tax laws(i) General rule

Verily, taxation is a destructive power which interferes with the personal and property for thesupport of the government. Accordingly, tax statutes must be construed strictly against the


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government and liberally in favor of the taxpayer. (MCIAA v. Marcos, G.R. No. 120082September 11, 1996)

The rule that tax exemptions should be construed strictly against the taxpayer presupposes thatthe taxpayer is clearly subject to the tax being levied against him. Unless a statute imposes atax clearly, expressly and unambiguously, what applies is the equally well-settled rule that theimposition of a tax cannot be presumed. This is because taxes are burdens on the taxpayer,and should not be unduly imposed or presumed beyond what the statutes expressly and clearlyimport. (COMMISSIONER OF INTERNAL REVENUE v. THE PHILIPPINE AMERICAN ACCIDENTINSURANCE COMPANY, INC.G.R. No. 141658 March 18, 2005)

(ii) Exceptionb) Tax exemption and exclusion(i) General rule

But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the lawfrowns against exemptions from taxation and statutes granting tax exemptions are thus

construed in strictissimi juris against the taxpayers and liberally in favor of the taxingauthority. (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)

Entrenched in our jurisprudence is the principle that tax refunds are in the nature of taxexemptions which are construed in strictissimi juris against the taxpayer and liberally in favor ofthe government. As tax refunds involve a return of revenue from the government, the claimantmust show indubitably the specific provision of law from which her right arises; it cannot beallowed to exist upon a mere vague implication or inference nor can it be extended beyond theordinary and reasonable intendment of the language actually used by the legislature in grantingthe refund. (COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No. 154068

August 3, 2007)

Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in thenature of a claim for exemption and the law is construed in strictissimi juris against thetaxpayer. The pieces of evidence presented entitling a taxpayer to an exemption arealso strictissimi scrutinized and must be duly proven. (KEPCO PHILIPPINES CORPORATION v.COMMISSIONER OF INTERNAL REVENUE G.R. No. 179961 January 31, 2011)

The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is torequire PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR fromexemption from the payment of corporate income tax. It is a basic precept of statutoryconstruction that the express mention of one person, thing, act, or consequence excludes allothers as expressed in the familiar maxim expressio unius est exclusio alterius. (PHILIPPINE

AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL REVENUEG.R. No. 172087 March 15, 2011)

It is a basic precept of statutory construction that the express mention of one person, thing,act, or consequence excludes all others as expressed in the familiar maxim expressio unius estexclusio alterius.Not being a local water district, a cooperative registered under R.A. No. 6938,or a non-stock and non-profit hospital or educational institution, petitioner clearly does notbelong to the exception and it is therefore incumbent upon it to point to some provisions of the


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LGC that expressly grant itsexemption from local taxes.(NATIONAL POWER CORPORATION v.CITY OF CABANATUAN G.R. No. 149110 April 9, 2003)

Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed"broad, pragmatic analysis" alone without substantial supportive evidence, lest governmentaloperations suffer due to diminution of much needed funds. While international comity is invokedin this case on the nebulous representation that the funds involved in the loans are those of aforeign government, scrupulous care must be taken to avoid opening the floodgates to theviolation of our tax laws. (COMMISSIONER OF INTERNAL REVENUE v. MITSUBISHI METALCORPORATION G.R. No. L-54908 January 22, 1990)

The claimed statutory exemption of the John Hay SEZ from taxation should be manifest andunmistakable from the language of the law on which it is based; it must be expressly granted ina statute stated in a language too clear to be mistaken. If it were the intent of the legislature togrant to the John Hay SEZ the same tax exemption and incentives given to the Subic SEZ, itwould have so expressly provided in the R.A. No. 7227. (JOHN HAY PEOPLES ALTERNATIVECOALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)

The Court in PLDT v. City of Davao, held that in approving Section 23 of RA No. 7925, Congressdid not intend it to operate as a blanket tax exemption to all telecommunications entities. TheCourt also clarified the meaning of the word "exemption" in Section 23 of RA 7925: that theword "exemption" as used in the statute refers or pertains merely to an exemption fromregulatory or reporting requirements of the Department of Transportation and Communicationor the National Transmission Corporation and not to an exemption from the grantees taxliability. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21,2009)

In Philippine Long Distance Telephone Company (PLDT) v. Province of Laguna, the issue that

the Court had to resolve was whether PLDT was liable to pay franchise tax to the Province ofLaguna in view of the "in lieu of all taxes" clause in its franchise and Section 23 of RA 7925. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubtsare resolved in favor of municipal corporations in interpreting statutory provisions on municipaltaxing powers, the Court held that Section 23 of RA 7925 could not be considered as havingamended petitioner's franchise so as to entitle it to exemption from the imposition of localfranchise taxes. (SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491,July 21, 2009)

The "in lieu of all taxes" clause in a legislative franchise should categorically state that theexemption applies to both local and national taxes; otherwise, the exemption claimed should bestrictly construed against the taxpayer and liberally in favor of the taxing authority. (SMART

COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)

PLDTs contention that the in-lieu-of-all-taxes clause does not refer to tax exemption but totax exclusion and hence, thestrictissimi juris rule does not apply. The Supreme Court explainsthat these two terms actually mean the same thing, such that the rule that tax exemptionshould be applied in strictissimi juris against the taxpayer and liberally in favor of thegovernment applies equally to tax exclusions (PHILIPPINE LONG DISTANCE TELEPHONECOMPANY vs PROVINCE OF LAGUNA G.R. No. 151899, August 16, 2005)


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(ii) Exception

However, if the grantee of the exemption is a political subdivision or instrumentality, the rigidrule of construction does not apply because the practical effect of the exemption is merely toreduce the amount of money that has to be handled by the government in the course of itsoperations. (MCIAA v. Marcos, G.R. No. 120082, September 11, 1996)

There is parity between tax refund and tax exemption only when the former is based either ona tax exemption statute or a tax refund statute. Obviously, that is not the situation here sinceFortune Tobaccos claim for refund is premised on its erroneous payment of the tax, or betterstill, the governments exaction in the absence of a law. (COMMISSIONER OF INTERNALREVENUE v. FORTUNE TOBACCO CORPORATION, G.R. Nos. 167274-75, July 21, 2008)

A claim for tax refund may be based on statutes granting tax exemption or tax refund and insuch case, the rule of strict interpretation against the taxpayer is applicable as the claim forrefund partakes of the nature of an exemption, a legislative grace, which cannot be allowed

unless granted in the most explicit and categorical language. Tax refunds (or tax credits), onthe other hand, are not founded principally on legislative grace but on the legal principle whichunderlies all quasi-contracts abhorring a persons unjust enrichment at the expense of another.(COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION, G.R. Nos.167274-75, July 21, 2008)

As a necessary corollary, when the taxpayers entitlement to a refundstands undisputed, theState should not misuse technicalities and legalisms, however exalted, to keep money notbelonging to it. The government is not exempt from the application of solutio indebiti, a basicpostulate proscribing one, including the State, from enriching himself or herself at the expenseof another. (COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION,

G.R. Nos. 167274-75, September 11, 2013)

c) Tax rules and regulations(i) General rule only

While administrative agencies, such as the Bureau of Internal Revenue, may issue regulationsto implement statutes, they are without authority to limit the scope of the statute to less thanwhat it provides, or extend or expand the statute beyond its terms, or in any way modifyexplicit provisions of the law. Hence, in case of discrepancy between the basic law and aninterpretative or administrative ruling, the basic law prevails. (FORT BONIFACIO DEVELOPMENTCORPORATION v. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, September 4,2012)

Revenue Memorandum Circulars (RMCs) must not override, supplant, or modify the law, butmust remain consistent and in harmony with the law they seek to apply and implement.(COMMISSIONER OF INTERNAL REVENUE v. SM PRIME HOLDINGS, INC. 613 SCRA 774 (2010))

Admittedly the government is not estopped from collecting taxes legally due because ofmistakes or errors of its agents. But like other principles of law, this admits of exceptions in the


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Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III, Section 5 of P.D. 1468completely ignore the fact that coco-levy funds are public funds raised through taxation. Andsince taxes could be exacted only for a public purpose, they cannot be declared privateproperties of individuals although such individuals fall within a distinct group of persons. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGANv. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

The Court of course grants that there is no hard-and-fast rule for determining what constitutespublic purpose. But the assailed provisions, which removed the coco-levy funds from thegeneral funds of the government and declared them private properties of coconut farmers, donot appear to have a color of social justice for their purpose. (PAMBANSANG KOALISYON NGMGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R.Nos. 147036-37 April 10, 2012)

It would be a robbery for the State to tax its citizens and use the funds generated for a privatepurpose. When a tax law is only a mask to exact funds from the public when its true intent is togive undue benefit and advantage to a private enterprise, that law will not satisfy the

requirement of "public purpose." (PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,G.R. No. 166006, March 14, 2008)

Jurisprudence states that "public purpose" should be given a broad interpretation. It does notonly pertain to those purposes which are traditionally viewed as essentially governmentfunctions, such as building roads and delivery of basic services, but also includes thosepurposes designed to promote social justice. (PLANTERS PRODUCTS, INC. v. FERTIPHILCORPORATION, G.R. No. 166006, March 14, 2008)

b) Inherently legislative(i) General rule

The power to tax is purely legislative, and which the central legislative body cannot delegateeither to the executive or judicial department of the government without infringing upon thetheory of separation of powers. ((Pepsi-Cola Bottling Company of the Phil. V. Mun. of Tanauan,Leyte, 69 SCRA 460)

The powers which Congress is prohibited from delegating are those which are strictly, orinherently and exclusively, legislative. Purely legislative power, which can never be delegated,has been described as the authority to make a complete lawcomplete as to the time when itshall take effect and as to whom it shall be applicableand to determine the expediency of itsenactment. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.

ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R.No. 168056 September 1, 2005)

(ii) Exceptions(a) Delegation to local governments

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may beexercised by local legislative bodies, no longer merely by virtue of a valid delegation as before,


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disregard the restrictions imposed by the principal. (SOUTHERN CROSS CEMENTCORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.158540, August 3, 2005)

Delegation of legislative powers to the President is permitted in Sections 23 (2) and 28 (2) ofArticle VI of the Constitution. By virtue of a valid delegation of legislative power, it may also beexercised by the President and administrative boards, as well as the lawmaking bodies of allmunicipal levels, including the barangay. (Camarines North Electric Cooperative v. Torres, GRNo. 127249, February 27, 1998)

(c) Delegation to administrative agencies

Clearly, the legislature may delegate to executive officers or bodies the power to determinecertain facts or conditions, or the happening of contingencies, on which the operation of astatute is, by its terms, made to depend, but the legislature must prescribe sufficient standards,policies or limitations on their authority. While the power to tax cannot be delegated toexecutive agencies, details as to the enforcement and administration of an exercise of such

power may be left to them, including the power to determine the existence of facts on which itsoperation depends. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.

ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R.No. 168056 September 1, 2005)

In the present case, in making his recommendation to the President on the existence of eitherof the two conditions, the Secretary of Finance is not acting as the alter ego of the President oreven her subordinate; he is acting as the agent of the legislative department, to determine anddeclare the event upon which its expressed will is to take effect. Thus, being the agent ofCongress and not of the President, the President cannot alter or modify or nullify, or set asidethe findings of the Secretary of Finance and to substitute the judgment of the former for that ofthe latter. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARAand ED VINCENT S. ALBANO v. THE HONORABLE EXECUTIVE SECRETARY G.R. No. 168056September 1, 2005)

c) Territorial(i) Situs of taxation(a) Meaning(b) Situs of income tax

The important factor therefore which determines the source of income of personal services isnot the residence of the payor, or the place where the contract for service is entered into, orthe place of payment, but the place where the services were actually rendered.

(COMMISSIONER OF INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793, August29, 2006)

(1) From sources within the Philippines

The reinsurance premiums remitted to appellants by virtue of the reinsurance contracts,accordingly, had for their source the undertaking to indemnify Commonwealth Insurance Co.against liability. Said undertaking is the activity that produced the reinsurance premiums, and


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(3) Value-Added Tax (VAT)

As a general rule, the VAT system uses the destination principle as a basis for the jurisdictionalreach of the tax. Goods and services are taxed only in the country where they are consumed;thus, exports are zero-rated, while imports are taxed.(COMMISSIONER OF INTERNAL REVENUEv.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June29, 2005)

Consumption is "the use of a thing in a way that thereby exhausts it, and applied to services,the term means the performance or "successful completion of a contractual duty, usuallyresulting in the performers release from any past or future liability." The services rendered byrespondent are performed or successfully completed upon its sending to its foreign client thedrafts and bills it has gathered from service establishments here; thus, its services, having beenperformed in the Philippines, are also consumed in the Philippines. (COMMISSIONER OFINTERNAL REVENUE v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R.No. 152609, June 29, 2005)

Unlike goods, services cannot be physically used in or bound for a specific place where theirdestination is determined but instead, there can only be a "predetermined end of acourse" when determining the service "location or position for legal purposes." Respondentsfacilitation service has no physical existence, yet takes place upon rendition, and therefore uponconsumption, in the Philippines. (COMMISSIONER OF INTERNAL REVENUE v.AMERICANEXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June 29, 2005)

d) International comitye) Exemption of government entities, agencies, and instrumentalities

The Court rules that the Authority [PFDA] is not a GOCC but an instrumentality of the national

government which is generally exempt from payment of real property tax. However, saidexemption does not apply to the portions of the IFPC which the Authority leased to privateentities. (Philippine Fisheries Development Authority v. Court of Appeals, G.R. No. 169836, 31July 2007)

As property of public dominion, the Lucena Fishing Port Complex is owned by the Republic ofthe Philippines and thus exempt from real estate tax.(PHILIPPINE FISHERIES DEVELOPMENT

AUTHORITY (PFDA) v. CENTRAL BOARD OF ASSESSMENT APPEALS, G.R. No. 178030,December 15, 2010)

2. Constitutional limitationsa) Provisions directly affecting taxation

(i) Prohibition against imprisonment for non-payment of poll tax(ii) Uniformity and equality of taxation

Equality and uniformity in taxation means that all taxable articles or kinds of property of thesame class shall be taxed at the same rate. The taxing power has the authority to makereasonable and natural classifications for purposes of taxation; inequalities which result from asingling out of one particular class for taxation or exemption infringe no constitutional limitation.


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lessens the burden of government. In other words, charitable institutions provide for free goodsand services to the public which would otherwise fall on the shoulders of government. (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.195909 September 26, 2012)

In Lung Center, this Court declared: "exclusive" is defined as possessed and enjoyed to theexclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "ina manner to exclude; as enjoying a privilege exclusively." The words "dominant use" or"principal use" cannot be substituted for the words "used exclusively" without doing violence tothe Constitution and the law. Solely is synonymous with exclusively. (COMMISSIONER OFINTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26,2012)

Services to paying patients are activities conducted for profit. There is a "purpose to make profitover and above the cost" of services.(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'SMEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)

Section 30(E) and (G) of the NIRC requires that an institution be "operated exclusively" forcharitable or social welfare purposes to be completely exempt from income tax. An institutionunder Section 30(E) or (G) does not lose its tax exemption if it earns income from its for-profitactivities. Such income from for-profit activities, under the last paragraph of Section 30, ismerely subject to income tax, previously at the ordinary corporate rate but now at thepreferential 10% rate pursuant to Section 27(B). (COMMISSIONER OF INTERNAL REVENUE v.ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)

A gift tax is not a property tax, but an excise tax imposed on the transfer of property by way ofgift inter vivos, the imposition of which on property used exclusively for religious purposes, doesnot constitute an impairment of the Constitution. The phrase "exempt from taxation," as

employed in the Constitution should not be interpreted to mean exemption from all kinds oftaxes.(REV. FR. CASIMIRO LLADOC v. The COMMISSIONER OF INTERNAL REVENUE, G.R. No.L-19201, June 16, 1965)

(v) Prohibition against taxation of non-stock, non-profit institutions

An organization may be considered as non-profit if it does not distribute any part of its incometo stockholders or members. However, despite its being a tax exempt institution, any incomesuch institution earns from activities conducted for profit is taxable, as expressly provided in thelast paragraph of Section 30. (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICALCENTER, INC. G.R. No. 195909 September 26, 2012)

(vi) Majority vote of Congress for grant of tax exemption

The incentives under R.A. No. 7227 are exclusiveonly to the Subic SEZ, hence, the extension ofthe same to the John Hay SEZ finds no support therein. The challenged grant of tax exemptionwould circumvent the Constitution's imposition that a law granting any tax exemption musthave the concurrence of a majority of all the members of Congress. (JOHN HAY PEOPLES

ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)


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(vii) Prohibition on use of tax levied for special purpose

The coco-levy funds, on the other hand, belong to the government and are subject to itsadministration and disposition. Thus, these funds, including its incomes, interests, proceeds, orprofits, as well as all its assets, properties, and shares of stocks procured with such funds mustbe treated, used, administered, and managed as public funds; the coco-levy funds are evidentlyspecial funds.(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWASA NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

(viii) Presidents veto power on appropriation, revenue, tariff bills

An "item" in a revenue bill does not refer to an entire section imposing a particular kind of tax,but rather to the subject of the tax and the tax rate; thus, in the portion of a revenue bill whichactually imposes a tax, a section identifies the tax and enumerates the persons liable thereforwith the corresponding tax rate. To construe the word "item" as referring to the whole sectionwould tie the President's hand in choosing either to approve the whole section at the expenseof also approving a provision therein which he deems unacceptable or veto the entire section at

the expense of foregoing the collection of the kind of tax altogether. (COMMISSIONER OFINTERNAL REVENUE v. HON. COURT OF TAX APPEALS, G.R. No. L-47421, May 14, 1990)

(ix) Non-impairment of jurisdiction of the Supreme Court(x) Grant of power to the local government units to create its own sources ofrevenue

For a long time, the country's highly centralized government structure has bred a culture ofdependence among local government leaders upon the national leadership. The only way toshatter this culture of dependence is to give the LGUs a wider role in the delivery of basicservices, and confer them sufficient powers to generate their own sources for the purpose. (NATIONAL POWER CORPORATION v. CITY OF CABANATUAN G.R. No. 149110 April 9, 2003)

Republic Act No. 7716, otherwise known as the "Expanded VAT Law," did not remove or abolishthe payment of local franchise tax; it merely replaced the national franchise tax that waspreviously paid by telecommunications franchise holders and in its stead VAT. The imposition oflocal franchise tax is not inconsistent with the advent of the VAT, which renders functus officiothe franchise tax paid to the national government for VAT inures to the benefit of the nationalgovernment, while a local franchise tax is a revenue of the local government unit. (SMARTCOMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)

(xi) Flexible tariff clause(xii) Exemption from real property taxes

For real property taxes, the incidental generation of income is permissible because the test ofexemption is the use of the property and this test requires that the institution use the propertyin a certain way, i.e. for a charitable purpose. Thus, the Court held that the Lung Center of thePhilippines did not lose its charitable character when it used a portion of its lot for commercialpurposes since the effect of failing to meet the use requirement is simply to remove from thetax exemption that portion of the property not devoted to charity. (COMMISSIONER OF


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INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909 September 26,2012)

The Constitution exempts charitable institutions only from real property taxes while the NIRCextends the exemption to income taxes. However, the way Congress crafted Section 30(E) ofthe NIRC is materially different from Section 28(3), Article VI of the Constitution: Section 30(E)of the NIRC defines the corporation or association that is exempt from income tax while Section28(3), Article VI of the Constitution does not define a charitable institution, but requires that theinstitution "actually, directly and exclusively" use the property for a charitable purpose.(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.195909 September 26, 2012)

To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requiresthat a charitable institution use the property "actually, directly and exclusively" for charitablepurposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that acharitable institution must be "organized and operated exclusively" for charitable purposes.(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.

195909 September 26, 2012)

(xiii) No appropriation or use of public money for religious purposesb) Provisions indirectly affecting taxation(i) Due process

In Sison, Jr. v. Ancheta, et al., we held that the due process clause may properly be invoked toinvalidate, in appropriate cases, a revenue measure when it amounts to a confiscation ofproperty. But in the same case, we also explained that we will not strike down a revenuemeasure as unconstitutional (for being violative of the due process clause) on the mereallegation of arbitrariness by the taxpayer.(Chamber of Real Estate and Builders Association,Inc. v. Romulo, 614 SCRA 605 (2010))

The support for the poor is generally recognized as a public duty and has long been anaccepted exercise of police power in the promotion of the common good but, in the instantcase, the declarations do not distinguish between wealthy coconut farmers and theimpoverished ones. Consequently, such declarations are void since they appropriate publicfunds for private purpose and, therefore, violate the citizens right to substantive due process.(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGANv. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

(ii) Equal protection

The real estate industry is, by itself, a class and can be validly treated differently from otherbusiness enterprises. What distinguishes the real estate business from other manufacturingenterprises, for purposes of the imposition of the CWT, is not their production processes but theprices of their goods sold and the number of transactions involved. (Chamber of Real Estateand Builders Association, Inc. v. Romulo, 614 SCRA 605 (2010))

PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislativerecords of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on


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Ways and Means, show that PAGCORsexemption from payment of corporate income tax, asprovided in Section 27 (c) of R.A. No. 8424, or the National Internal Revenue Code of 1997,was not made pursuant to a valid classification based on substantial distinctions. The legislativerecords show that the basis of the grant of exemption to PAGCOR from corporate income taxwas PAGCORs own request to be exempted. (PHILIPPINE AMUSEMENT AND GAMINGCORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15,2011)

(iii) Religious freedom

The constitutional guaranty of the free exercise and enjoyment of religious profession andworship carries with it the right to disseminate religious information. Any restraints of such rightcan only be justified like other restraints of freedom of expression on the grounds that there isa clear and present danger of any substantive evil which the State has the right to prevent. (AMERICAN BIBLE SOCIETY v. CITY OF MANILA, G.R. No. L-9637, April 30, 1957)

It may be true that in the case at bar the price asked for the bibles and other religious

pamphlets was in some instances a little bit higher than the actual cost of the same but thiscannot mean that appellant was engaged in the business or occupation of selling said"merchandise" for profit. For this reason We believe that the City of Manila Ordinance No. 2529requiring the payment of license fee cannot be applied to appellant, for in doing so it wouldimpair its free exercise and enjoyment of its religious profession and worship as well as itsrights of dissemination of religious beliefs. (AMERICAN BIBLE SOCIETY v. CITY OF MANILA,G.R. No. L-9637, April 30, 1957)

With respect to Ordinance No. 3000 which requires the obtention of the Mayor's permit beforeany person can engage in any of the businesses, trades or occupations enumerated therein, Wedo not find that it imposes any charge upon the enjoyment of a right granted by theConstitution, nor tax the exercise of religious practices. But as the City of Manila is powerless tolicense or tax the business of plaintiff Society, We find that Ordinance No. 3000 is alsoinapplicable to said business, trade or occupation of the plaintiff.(AMERICAN BIBLE SOCIETY v.CITY OF MANILA, G.R. No. L-9637, April 30, 1957)

The Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds derived fromthe sales are used to subsidize the cost of printing copies which are given free to those whocannot afford to pay so that to tax the sales would be to increase the price, while reducing thevolume of sale. Granting that to be the case, the resulting burden on the exercise of religiousfreedom is so incidental as to make it difficult to differentiate it from any other economicimposition that might make the right to disseminate religious doctrines costly. (ARTURO M.TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL

REVENUE, G.R. No. 115455, October 30, 1995)

On the other hand the registration fee of P1,000.00 imposed by Sec. 107 of the NIRC, asamended by Sec. 7 of R.A. No. 7716, although fixed in amount, is really just to pay for theexpenses of registration and enforcement of provisions such as those relating to accounting inSec. 108 of the NIRC. That the PBS distributes free bibles and therefore is not liable to pay the

VAT does not excuse it from the payment of this fee because it also sells some copies.


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(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OFINTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

The withdrawal of the exemption did not also violate freedom of religion as regards theactivities of PBS on religious articles, as the Free Exercise of Religious clause does not prohibitimposing a generally applicable sale and use tax on the sale of religious materials by a religiousorganization as held by the US Supreme Court in Jimmy Swaggart Ministries v. Board ofEqualization (1990).The VAT registration fee does not constitute censorship of such freedom as held in the

American Bible Society case. The fee is a mere administrative fee and not imposed on theexercise of a privilege, much less a constitutional right. But for the purpose of defraying cost ofregistration which is a requirement and a central feature in the VAT system so as to providerecord of tax credits of the taxpayer.(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCEand THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

(iv) Non-impairment of obligations of contracts

Contractual tax exemptions, in the real sense of the term and where the non-impairment clauseof the Constitution can rightly be invoked, are those agreed to by the taxing authority incontracts, such as those contained in government bonds or debentures, lawfully entered into bythem under enabling laws in which the government, acting in its private capacity, sheds itscloak of authority and waives its governmental immunity. Truly, tax exemptions of this kind maynot be revoked without impairing the obligations of contracts. but these contractual taxexemptions are not to be confused with tax exemptions granted under franchisesthe latterpartakes the nature of a grant which is beyond the purview of the non-impairment clause of theConstitution. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THEBUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15, 2011)

Even though such taxation may affect particular contracts, as it may increase the debt of oneperson and lessen the security of another, or may impose additional burdens upon one classand release the burdens of another, still the tax must be paid unless prohibited by theConstitution, nor can it be said that it impairs the obligation of any existing contract in its truelegal sense." Indeed not only existing laws but also "the reservation of the essential attributesof sovereignty, is read into contracts as a postulate of the legal order." (ARTURO M.TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNALREVENUE, G.R. No. 115455, October 30, 1995)

J. Stages of taxation1. Levy

Levy is an exercise of the power to tax, which is exclusively legislative in nature and character.Clearly, taxes are not levied by the executive branch of government. (NPC v. Albay, 186 SCRA198 (1990))

2. Assessment and collection3. Payment4. Refund


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K. Definition, nature, and characteristics of taxes

Taxes are enforced proportional contributions from persons and property, levied by the State byvirtue of its sovereignty for the support of the government and for all its public needs. (PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGANv. EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)

L. Requisites of a valid taxM. Tax as distinguished from other forms of exactions1. Tariff2. Toll

A tax is imposed under the taxing power of the government principally for the purpose ofraising revenues to fund public expenditures; toll fees, on the other hand, are collected byprivate tollway operators as reimbursement for the costs and expenses incurred in theconstruction, maintenance and operation of the tollways. Taxes may be imposed only by thegovernment under its sovereign authority, toll fees may be demanded by either the government

or private individuals or entities, as an attribute of ownership. (RENATO V. DIAZ and AURORAMA. F. TIMBOL v. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

Fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense.Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of

VAT as an indirect tax. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OFFINANCE, G.R. No. 193007, July 19, 2011)

3. License fee

To be considered a license fee, the imposition must relate to an occupation or activity that soengages the public interest in health, morals, safety and development as to require regulationfor the protection and promotion of such public interest; the imposition must also bear areasonable relation to the probable expenses of regulation, taking into account not only thecosts of direct regulation but also its incidental consequences as well. Accordingly, a charge of afixed sum which bears no relation at all to the cost of inspection and regulation may be held tobe a tax rather than an exercise of police power. (PROGRESSIVE DEVELOPMENT CORP. v.QUEZON CITY, G.R. No. L-36081, April 24, 1989)

If the purpose is primarily revenue, or if revenue is at least, one of the real and substantialpurposes, then the exaction is properly called a tax. (LAND TRANSPORTATION OFFICE v. CITYOF BUTUAN, G.R. No. 131512, January 20, 2000)

4. Special assessment5. Debt

Taxes cannot be the subject of compensation because the government and taxpayer are notmutually 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. (CALTEX PHILIPPINES, INC. v. THEHONORABLE COMMISSION ON AUDIT, G.R. No. 92585, May 8, 1992)


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N. Kinds of taxes1. As to objecta) Personal, capitation, or poll taxb) Property taxc) Privilege tax

A contractor's tax is generally in the nature of an excise tax on the exercise of a privilege ofselling services or labor rather than a sale on products; and is directly collectible from theperson exercising the privilege.Being an excise tax, it can be levied by the taxing authority onlywhen the acts, privileges or business are done or performed within the jurisdiction of saidauthority. (COMMISSIONER OF INTERNAL REVENUE v. MARUBENI CORPORATION, G.R. No.137377, December 18, 2001)

A franchise tax is a tax on the privilege of transacting business in the state and exercisingcorporate franchises granted by the state. It is not levied on the corporation simply for existingas a corporation, upon its property or its income, but on its exercise of the rights or privilegesgranted to it by the government. (CITY OF IRIGA v. CAMARINES SUR III ELECTRIC

COOPERATIVE, INC., G.R. No. 192945, September 5, 2012)

2. As to burden or incidencea) Directb) Indirect

In context, direct taxes are those that are exacted from the very person who, it is intended ordesired, should pay them; they are impositions for which a taxpayer is directly liable on thetransaction or business he is engaged in. On the other hand, indirect taxes are those that aredemanded, in the first instance, from, or are paid by, one person in the expectation andintention that he can shift the burden to someone else. (COMMISSIONER OF INTERNALREVENUE VS PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, G.R. No. 140230, December15, 2005)

Indirect taxes, like VAT and excise tax, are different from withholding taxes: To distinguish, inindirect taxes, the incidence of taxation falls on one person but the burden thereof can beshifted or passed on to another person, such as when the tax is imposed upon goods beforereaching the consumer who ultimately pays for it. On the other hand, in case of withholdingtaxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. Theburden of taxation is not shifted to the withholding agent who merely collects, by withholding,the tax due from income payments to entities arising from certain transactions and remits thesame to the government. (ASIA INTERNATIONAL AUCTIONEERS, INC. v. COMMISSIONER OFINTERNAL REVENUE G.R. No. 179115 September 26, 2012)

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, areregressive since what it simply provides is that Congress shall "evolve a progressive system oftaxation." The constitutional provision has been interpreted to mean simply that "direct taxesare to be preferred [and] as much as possible, indirect taxes should be minimized."(ARTUROM. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNALREVENUE, G.R. No. 115455, October 30, 1995)


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The seller remains directly and legally liable for payment of the VAT, but the buyer bears itsburden since the amount of VAT paid by the former is added to the selling price. Once shifted,the VAT ceases to be a tax and simply becomes part of the cost that the buyer must pay inorder to purchase the good, property or service. (RENATO V. DIAZ and AURORA MA. F. TIMBOLv. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

3. As to tax ratesa) Specificb) Ad valoremc) Mixed4. As to purposesa) General or fiscalb) Special, regulatory, or sumptuary5. As to scope or authority to imposea) Nationalinternal revenue taxesb) Localreal property tax, municipal tax6. As to graduation

a) Progressiveb) Regressivec) Proportionate

INCOME TAXATIONA. Income taxation

1. Income tax systemsa) Global tax systemGlobal treatment is a system where the tax treatment views indifferently the taxbase and generally treats in common all categories of taxable income of thetaxpayer. (TAN v. DEL ROSARIO, JR. 237 SCRA 324)b) Schedular tax systemSchedular approach is a system employed where the income tax treatment variesand made to depend on the kind or category of taxable income of the taxpayer.(TAN v. DEL ROSARIO, JR. 237 SCRA 324)c) Semi-schedular or semi-global tax system

2. Features of the Philippine income tax lawa) Direct taxb) Progressivec) Comprehensived) Semi-schedular or semi-global tax system

3. Criteria in imposing Philippine income taxa) Citizenship principleb) Residence principlec) Source principle

A non-resident German citizen, president of a domestic corporation, filed a claim

for refund with the BIR, contending that her sales commission income is not

taxable in the Philippines because the same was a compensation for her services

rendered in Germany and therefore considered as income from sources outside


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the Philippines. While it is the rule that source of income relates to the

property, activity or service that produced the income, the documents presented

by respondent did not constitute substantial evidence that it was in Germany

where she performed the income-producing service and thus the tax refund

should be denied. (Commissioner of Internal Revenue vs. Juliane Baier-Nickel,

G.R. No. 153793, August 29, 2006)

4. Types of Philippine income tax5. Taxable period

a) Calendar periodb) Fiscal periodc) Short period

6. Kinds of taxpayersa) Individual taxpayers

(i) Citizens(a) Resident citizens

(b) Non-resident citizens(ii) Aliens

(a) Resident aliens(b) Non-resident aliens

(1) Engaged in trade or business(2) Not engaged in trade or business

(iii) Special class of individual employees(a) Minimum wage earner(b) Corporations

(i) Domestic corporations(ii) Foreign corporations

Marubeni Japan claimed a refund for excess taxes it had paid,

contending that since it had a Philippine branch, it is a resident

foreign corporation liable to pay only10% intercorporate final tax

on dividends received from a domestic corporation (and not to the

branch profit remittance tax) following the principal-agent theory.

Marubeni Japan is considered a non-resident foreign corporation

as to the dividends because when the foreign corporation

transacts business in the Philippines independently of its branch,

the principal-agent relationship is set aside. (Marubeni Corp. vs.

Commissioner of Internal Revenue, et al., G.R. No. 76573,

September 14, 1989)

BOAC is a resident foreign corporation because it maintained ageneral sales agent in the Philippines. There is no specific criterionas to what constitutes doing or engaging in or "transactingbusiness. The term implies a continuity of commercial dealingsand arrangements, and contemplates, to that extent, theperformance of acts or works or the exercise of some of thefunctions normally incident to, and in progressive prosecution of


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commercial gain or for the purpose and object of the businessorganization. In order that a foreign corporation may be regardedas doing business within a State, there must be continuity ofconduct and intention to establish a continuous business, such asthe appointment of a local agent, and not one of a temporarycharacter. (CIR vs BOAC, G.R. No. L-65773-74 April 30, 1987)

(a) Resident foreign corporations(b) Non-resident foreign corporations

(iii) Joint venture and consortiumc) PartnershipsPursuant to reinsurance treaties, a number of local insurance firms formedthemselves into a pool in order to facilitate the handling of business contractedwith a nonresident foreign reinsurance company. The insurance pool is deemed apartnership or association taxable as a corporation under the NIRC becauseSection 24 (on tax on corporations) [now Sec. 27 of the 1997 NIRC] coveredthese unregistered partnerships and even associations or joint accounts, which

had no legal personalities apart from their individual members; moreover, theinsurance pool, though unregistered, satisfies the requisites of a partnership: (1)mutual contribution to a common stock, and (2) joint interest in the profits.(Afisco Insurance Corp., et al. vs. Court of Appeals, et al., G.R. No. 112675,January 25, 1999)

The original purpose of the co-owners of the two lots was to divide the lots forresidential purposes. If later on they found it not feasible to build theirresidences on the lots because of the high cost of construction, then they had nochoice but to resell the same to dissolve the co-ownership. The division of theprofit was merely incidental to the dissolution of the co-ownership which was inthe nature of things a temporary state. The sharing of gross returns does not ofitself establish a partnership, whether or not the persons sharing them have a

joint or common right or interest in any property (Obillos Jr. vs CIR, G.R. No. L-68118, October 29, 1985)d) General professional partnershipse) Estates and trustsf) Co-ownerships

7. Income taxationa) Definitionb) Naturec) General principles

8. Income

a) Definitionb) Naturec) When income is taxable

(i) Existence of income(ii) Realization of income

(a) Tests of realization(b) Actual vis--vis constructive receipt

(iii) Recognition of income


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(iv) Methods of accounting(a)

Cash method vis--vis accrual methodThe accrual method relies upon the taxpayers right to receiveamounts or its obligation to pay them, in opposition to actualreceipt or payment, which characterizes the cash method ofaccounting. Amounts of income accrue where the right toreceive them become fixed, where there is created anenforceable liability. Similarly, liabilities are accrued whenfixed and determinable in amount, without regard toindeterminacy merely of time of payment. For a taxpayerusing the accrual method, the determinative question is, whendo the facts present themselves in such a manner that thetaxpayer must recognize income or expense? The accrual ofincome and expense is permitted when the all-events test hasbeen met. This test requires: (1) fixing of a right to income orliability to pay; and (2) the availability of the reasonableaccurate determination of such income or liability. (CIR vs

Isabela Cultural Corp., GR 172231, February 12, 2007)(b) Installment payment vis--vis deferred payment vis--vis percentage completion (in long-term contracts)

d) Tests in determining whether income is earned for tax purposes(i) Realization test(ii) Claim of right doctrine or doctrine of ownership, command,or control(iii) Economic benefit test, doctrine of proprietary interest(iv) Severance test(v) All events test

9. Gross incomea) Definitionb) Concept of income from whatever source derivedc) Gross income vis--vis net income vis--vis taxable incomed) Classification of income as to source

(i) Gross income and taxable income from sources within thePhilippines(ii) Gross income and taxable income from sources without thePhilippines(iii) Income partly within or partly without the Philippines

e) Sources of income subject to tax(i) Compensation income(ii) Fringe benefits

(a) Special treatment of fringe benefits(b) Definition(c) Taxable and non-taxable fringe benefits

(iii) Professional income(iv) Income from business(v) Income from dealings in property

(a) Types of properties(1) Ordinary assets


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(2) Capital assetsThe proceeds from the inherited land of petitioners, whichthey subdivided into small lots and in the processconverted into a residential subdivision and given thename Don Mariano Subdivision, is taxable as ordinaryincome. Property initially classified as a capital asset maythereafter be treated as an ordinary asset if a combinationof the factors indubitably tend to show that the activitywas in furtherance of or in the course of the taxpayer'strade or business; thus, a sale of inherited real propertyusually gives capital gain or loss even though the propertyhas to be subdivided or improved or both to make itsalable--however, if the inherited property is substantiallyimproved or very actively sold or both it may be treated asheld primarily for sale to customers in the ordinary courseof the heir's business. (Tomas Calasanz, et al. vs.Commissioner of Internal Revenue, et al., G.R. No. L-

26284, October 9, 1986)

(b) Types of gains from dealings in property(1) Ordinary income vis--vis capital gain(2) Actual gain vis--vis presumed gain(3) Long term capital gain vis--vis short-termcapital gain(4) Net capital gain, net capital loss(5) Computation of the amount of gain or loss(6) Income tax treatment of capital loss

(a) Capital loss limitation rule (applicable toboth corporations and individuals)(b) Net loss carry-over rule (applicable onlyto individuals)

(7) Dealings in real property situated in thePhilippines(8) Dealings in shares of stock of Philippinecorporations

(a) Shares listed and traded in the stockexchange(b) Shares not listed and traded in the stockexchange

(9) Sale of principal residence

(vi) Passive investment income(a) Interest income(b) Dividend income

(1) Cash dividend(2) Stock dividendStock dividends, strictly speaking, represent capital and do notconstitute income to itsrecipient. So that the mere issuance thereof is not yet subject to


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income tax as they are nothing but an enrichment throughincrease in value of capitalinvestment.However, the redemption or cancellation of stockdividends, depending on the time and manner it was made, isessentially equivalent to a distribution of taxable dividends,making the proceeds thereof taxable income to the extent itrepresents profits. The exception was designed to prevent theissuance and cancellation or redemption of stock dividends, whichis fundamentally not taxable, from being made use of as a devicefor the actual distribution of cash dividends, which is taxable. (CIRvs CA, G.R. No. 108576 January 20, 1999)(3) Property dividend(4) Liquidating dividend

(c) Royalty income(d) Rental income

(1) Lease of personal property(2) Lease of real property

(3) Tax treatment of(a) Leasehold improvements by lessee(b) VAT added to rental/paid by the lessee(c) Advance rental/long term lease

(vii) Annuities, proceeds from life insurance or other types of insurance(viii) Prizes and awards(ix) Pensions, retirement benefit, or separation pay(x) Income from any source whatever

(a) Forgiveness of indebtedness(b) Recovery of accounts previously written-off whentaxable/when not taxable(c) Receipt of tax refunds or credit(d) Income from any source whatever(e) Source rules in determining income from within and without

(1) Interests(2) Dividends(3) Services(4) Rentals(5) Royalties(6) Sale of real property(7) Sale of personal property(8) Shares of stock of domestic corporation

(f) Situs of income taxation (see page 2 under inherent

limitations, territorial)(g) Exclusions from gross income

(1) Rationale for the exclusions(2) Taxpayers who may avail of the exclusions(3) Exclusions distinguished from deductions and taxcredit(4) Under the Constitution


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Severance of employment is a condition sine qua non for the

release of retirement benefits. Retirement benefits are not meant

to recompense employees who are still in the employ of the

government. (Devt. Bank of the Phil. vs. Commission on Audit,

G.R. No. 144516, February 11, 2004)

(h) Winnings, prizes, and awards, including those insports competition

(6) Under special laws(a) Personal Equity and Retirement Account

(h) Deductions from gross income(1) General rules

(a) Deductions must be paid or incurred inconnection with the taxpayers trade, business orprofession(b) Deductions must be supported by adequatereceipts or invoices (except standard deduction)

(c) Additional requirement relating to withholding(2) Return of capital (cost of sales or services)

(a) Sale of inventory of goods by manufacturersand dealers of properties(b) Sale of stock in trade by a real estate dealer anddealer in securities(c) Sale of services

(3) Itemized deductions(a) Expenses

(1) Requisites for deductibility(a) Nature: ordinary and necessaryThe expenses paid by Atlas for the services

rendered by a public relations firm, aimed

at creating a favorable image for Atlas, is

not an allowable deduction as business

expense under the NIRC. Efforts to

establish reputation are akin to acquisition

of capital assets and, therefore, expenses

related thereto are not business expense

but capital expenditures. (Atlas

Consolidated Mining & Devt. Corp. vs.

Commissioner of Internal Revenue, G.R. No.

L-26911, January 27, 1981)

A stock listing fee paid annually to a stockexchange for the privilege of having acorporations stock listed is an ordinary andbusiness expense. This is distinguished froma single payment made to the stock


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exchange, which is considered a capitalexpenditure. (Atlas Consolidated Mining &Devt. Corp. vs. Commissioner of InternalRevenue, G.R. No. L-26911, January 27,1981)

The subject media advertising expense for

Tang incurred by respondent corporation

was not an ordinary and necessary

expense, but rather a capital expenditure

because it failed the two conditions set by

U.S. jurisprudence in determining whether

or not it is an ordinary expense: first,

reasonableness of the amount incurred and

second, the amount incurred must not be a

capital outlay to create goodwill for the

product and/or private respondents

business. The subject expense for the

advertisement of a single product is

inordinately large; furthermore, the

corporations venture to protect its brand

franchise was tantamount to efforts to

establish a reputation and was akin to the

acquisition of capital assets. (Commissioner

of Internal Revenue vs. General Foods, Inc.,

G.R. No. 143672, April 24, 2003)

(b) Paid and incurred during taxableyear(2) Salaries, wages and other forms ofcompensation for personal services actuallyrendered, including the grossed-up monetaryvalue of the fringe benefit subjected to fringebenefit tax which tax should have been paidPayment by the taxpayer-corporation to itscontrolling stockholder (Hoskins) of 50% of itssupervision fees (paid by a client of the corporation

for the latter's services as managing agent of asubdivision project) or the amount of P99,977.91 isnot a deductible ordinary and necessary expensebecause it does not pass the test of reasonablecompensation. If independently, a one-timeP100,000.00-fee to plan and lay down the rules forsupervision of a subdivision project were to be paidto an experienced realtor such as Hoskins, itsfairness and deductibility by the taxpayer could be


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(1) Requisites for deductibility(2) Other types of losses

(a) Capital losses(b) Securities becoming worthless

Securities becoming worthless resultingfrom China Banks equity investment in theFirst CBC Capital (Asia) Ltd., a Hongkongsubsidiary, is capital loss and not anordinary loss. An equity investment is acapital, not ordinary, asset of the investorthe sale or exchange of which results ineither a capital gain or a capital loss; sharesof stock would be ordinary assets only to adealer in securities or a person engaged inthe purchase and sale of, or an activetrader (for his own account) in, securities.(China Banking Corp. vs. Court of Appeals,

et al., G.R. No. 125508, July 19, 2000)(c) Losses on wash sales of stocks orsecurities(d) Wagering losses(e) Net Operating Loss Carry-Over(NOLCO)

(e) Bad debtsIn claiming deductions for bad debts, the only evidentiary

support given by PRC was the explanation posited by its

accountant, whose allegations were not supported by any

documentary evidence. One of the requisites to qualify as

bad debt is that the debt must be actually ascertained tobe worthless and uncollectible during the taxable year, and

the taxpayer must prove that he exerted diligent efforts to

collect the debts by (1) sending of statement of accounts;

(2) sending of collection letters; (3) giving the account to a

lawyer for collection; and (4) filing a collection case in

court. (Philippine Refining Company vs. Court of Appeals,

et al., G.R. No. 118794, May 8, 1996)

(1) Requisites for deductibility(2) Effect of recovery of bad debts

(f) DepreciationDepreciation is the gradual diminution in the useful valueof tangible property resulting from wear and tear andnormal obsolescense. The term is also applied toamortization of the value of intangible assets, the use ofwhich in the trade or business is definitely limited induration. Depreciation commences with the acquisition ofthe property and its owner is not bound to see his property


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gradually waste, without making provision out of earningsfor its replacement. (Basilan Estates, In

pals taxation reviewer 2014

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