Northwestern University

College of Law
Laoag City, Ilocos Norte

BASIC TAXATION
general
principles
2024
Asst. City Pros. Mariegold Aurelio-Cabrales,CPA
INTRODUCTION

Disclaimer: this material and the succeeding ones are

exclusively prepared for our beloved JD students of the
College of Law, NWU, who, will soon be barristers and with
much hope, confidence and prayers, will become worthy
members of the legal profession. Knowledge knows no
shortcuts: this material is a simplified aid to somehow
introduce the subject in the least “traumatic manner”. This
is never intended to replace the old school tax textbooks. –
acpmfaccpa
 GENERAL PRINCIPLES

Taxation Defined
It is an enforced proportional contribution, imposed by the
State by its sovereign capacity, to support the government.
Pcgg V. Cojuanco, [Link]. 147062, Dec. 14, 2001.

It is the power by which the sovereign, through its law making body, raises
revenue to defray the necessary expenses of the government. It is merely a
way of apportioning the costs of government among those who is some
measure are privileged to enjoy its benefits and must bear the burdens (51
AM. Jur.34)

It is a mode by which governments make exactions for revenue in order

to support their existence and carry out their legitimate objectives.
Taxation may refer to either or both the power to tax or the act or
process by which the taxing power is exercised. (Vitug, 2006)
“Taxation is the indispensable and inevitable price for civilized society; without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one’s hard earned income to
the taxing authorities, every person who is able must contribute his share in the running
of the government, for its part, it 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” Commissioner vs. Algue, 158 SCRA 9

“Taxes are the LIFEBLOOD of the Government and their prompt and certain availability are an imperious
need.” Com. vs. Pineda, 21 SCRA 105, cited in Portland Cement vs. CTA G.R. No. L-29059

The government chiefly relies on taxation to obtain the means

to carry on its operations. Taxes are essential to its very
existence. (CIR v. Solidbank Corp., G.R. No. 148191, Nov. 25, 2003)
Three elements of taxation:
1. It is an enforced proportional contribution from persons and properties.
2. It is imposed by the State by virtue of its sovereignty.
3. It is levied for the support of the government.
PCGG v. Cojuangco, GR No. 147062, 12/14/2001
STATE POLICY OF TAXATON In Re: TRAIN LAW
1. Promoting sustainable growth and inclusive economic growth by rationalization of
Philippine internal revenue system.
2. To provide equitable relief to improve levels of disposable income and increase
economic activity.
3. Provide social protection and all the needs under its jurisdiction.

PURPOSES OF TAXATION
1. Primary or revenue purpose
[Link] or non-revenue purposes

“A person who never made a mistake never tried anything new.”

 Nature of Taxation
A. Inherent attribute of sovereignty –

It is an essential and inherent attribute of sovereignty, belonging as a matter of right

to every independent government, without being expressly conferred by the people
(Pepsi-Cola Bottling Company of the Phil. v. Mun. of Tanauan, Leyte, 69 SCRA 460)

B. Legislative in character

It is based on the principle that taxes are a grant of the people who are taxed, and the
grant must be made by the immediate representative of the people, and where the
people have laid the power, there it must remain and be exercised (CIR v. Fortune
Tobacco Corporation, 559 SCRA 160, 2008).
Characteristics of Taxation
“C U P S”
 DISTINCTIONS AMONG THE
THREE INHERENT POWERS OF THE STATE
POLICE POWER
POWER OF EMINENT DOMAIN
POWER OF TAXATION
THEORIES AND BASIS OF TAXATION

1. Lifeblood theory
2. Necessity theory
3. Benefits-protection theory (doctrine of
symbiotic relationship)
4. Jurisdiction over subject and objects or
Doctrine of Territoriality
 THEORIES AND BASIS OF TAXATION, continuation

2. Necessity theory
- without taxes, government cannot fulfill its mandate promoting the general
welfare and well-being of the people. (CIR vs. BPI, G.R. #134062, April 17, 2017)
- emanates from necessity. Without taxes, the government cannot fulfill its mandate
of promoting the general welfare and wellbeing of the people (Gerochi v. DOE, 527
SCRA 696, 2007).
3. Benefits-protection theory (doctrine of
symbiotic relationship)
-taxation arises because of the reciprocal relation of protection and support
between the state and the taxpayers. The state gives protection and for it to
continue giving protection, it must be supported by taxpayers in the form of taxes.
(CIR vs. Algue, Inc., GR No. L-28896, Feb. 17, 1988)
4. Jurisdiction over subject and objects or
Doctrine of Territoriality
 PRINCIPLES OF A SOUND TAX SYSTEM
“F - A - T”
*** The absence of one principle
F – Fiscal Adequacy – collection of taxes except for Theoretical Justice will not
should be in direct relation to the estimated
needs of the government. Thus, revenue invalidate a tax law.
generated should neither be excessive or
deficient.

A – Administrative Feasibilty
The rules and regulations governing the
taxation should be efficiently administered
and implemented by the enforcing authority
with the least burden to the taxpayer

T- Theoretical Justice – tax impositions

should be based on the taxpayer’s ability to
pay.

CASH OR “IN KIND”?

QUERY?
If the power of taxation is deemed to be SUPREME and UNLIMITED why then do such limitations
still exist?

Constitutional provisions do not give rise to the power to tax but merely impose limitations
on what would otherwise be an invincible power. Churchill and Tait v. Concepcion, 34 Phil. 969,
Sept. 22, 1916

Types of Due Process in Taxation:

SUBSTANTIAL and PROCEDURAL

SCOPE AND LIMITATIONS OF TAXATION

Inherent Limitations
Constitutional Limitations
 INHERENT LIMITATIONS
I. Public Purpose -
The proceeds of tax must be used for:
(a) the support of the State or
(b) some recognized objective of the gov’t or to directly promote the welfare of the community.
1. DUTY TEST – if the thing undertaken by the public appropriation is an act which is the duty of a government to
provide.
****Jurisprudence states that “public purpose” should be given a broad interpretation. It not limited to those
purposes which are traditionally viewed as essentially government functions, but also includes those purposes
designed to promote social justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost
housing and urban agrarian reform (Planters Products, Inc. v. Fertiphil Corp, G.R. No. 166006, March 14, 2008).
2. PROMOTION OF GENERAL WELFARE TEST - Whether the proceeds of the tax will directly promote the welfare of the
community in equal measure.
When a tax law is only a mask to exact funds from the public when its true intent is to give undue benefit and advantage
to a private enterprise, that law will not satisfy the requirement of "public purpose" (Planters Products, Inc. v. Fertiphil
Corp, G.R. No. 166006, March 14, 2008).

cases: ******
• Pascual v. Secretary of Public Works, G.R. No. L-10405, Dec. 29, 1960
• Lutz v. Araneta, G.R. No. L-7859, 22 Dec. 1955
INHERENT LIMITATIONS, cont.
2. Inherently legislative
GENERAL RULE: The power to tax is exclusively vested in the legislative body, being inherent in
nature; hence, it may not be delegated (Delegata potestas non potest delegari)
EXCEPTIONS:
1. Delegation to Local Government;
2. Delegation to the President as allowed by the Constitution;
3. Delegation to administrative agencies ; See ABAKADA Guro Party List v. Ermita, etc., et al.,
G. R. No. 168056, Sept. 1, 2005
3. Territorial -Taxation may be exercised only within the territorial jurisdiction, the taxing
authority (61 Am. Jur. 88). Within the territorial the taxing authority may determine the “place of
taxation” or “tax situs.
The absence of flight operations to and from the Phils. is not determinative of the source of income or the
site of income taxation. Admittedly, BOAC was an off-line int’l airline. The test of taxability is the "source";
and the source of an income is that activity which produced the income. The passage documentations in these
cases were sold in the Phils. and the revenue therefrom was derived from a activity regularly pursued within
the Phils. And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from
foreign cities", it cannot alter the fact that income from the sale of tickets was derived from the Phils. The
word "source" conveys one essential idea, that of origin, and the origin of the income herein is the Philippines.
CIR v. BRITISH OVERSEAS AIRWAYS CORP., GR Nos. 65773-74, 1987-04-30
 INHERENT LIMITATIONS, cont.
4. International Comity The Constitution expressly adopted the generally accepted principles of international law as
part of the law of the land (Art. II, Sec. 2, 1987 Constitution)
Tax treaties are entered into "to reconcile the national fiscal legislations of the contracting parties and, in turn, help
the taxpayer avoid simultaneous taxations in two different jurisdictions." They are entered into to minimize, if not
eliminate, the harshness of int’l juridical double taxation, which is why they are also known as double tax treaty or
double tax agreements. (Air Canada v. CIR, G.R. No. 169507, 11 Jan. 2016)
Doctrine of Sovereign Equality Par in parem non habet imperium. As between equals, there is no sovereign.
An Exchange of Notes is considered an executive agreement binding on states. Hence, an Exchange of Notes between
the Phils. & Japan which states that the Philippine Government will assume taxes initially to be paid by Japanese firms
should be respected. (Mitsubishi Corp.-Manila Branch v. CIR, G.R. No. 175772, 05 June 2017)
Observance of any treaty obligation binding upon the Philippine government is anchored on the constitutional provision that the Phils.
“adopts the generally accepted principles of int’l law as part of the law of the land. (Sec. 2, Art. II, 1987 Consti.)
Pacta sunt servanda is a fundamental international law principle that requires agreeing parties to comply with their treaty obligations in
good faith.
Hence, the application of the provisions of the NIRC must be subject to the provisions of tax treaties entered into by the Phils. with foreign
countries. (Air Canada vs. CIR, G.R. No. 169507, 11 Jan. 2016)
5. Exemption of gov’t entities, agencies &instrumentalities – As a matter of public policy,
properties of the State & of its municipal subdivisions devoted to govt uses and purposes is
generally deemed exempt from taxation although no express provision in the law is made
therefore (Am. Jur. 503)
 CONSTITUTIONAL LIMITATIONS

Provisions Directly affecting Taxation

1. Prohibition against imprisonment for nonpayment of poll tax
2. Uniformity and equality of taxation
3. Grant by Congress of authority to the president to impose tariff rates
4. Prohibition against taxation of religious, charitable entities, & educational entities
5. Prohibition against taxation of non-stock, non-profit educational institutions
6. Majority vote of Congress for grant of tax exemption
7. Prohibition on use of tax levied for special purpose
8. President’s veto power on (1) appropriation, (2) revenue, (3) tariff bills (ART bill)
9. Non-impairment of jurisdiction of the Supreme Court
[Link] of power to the LGUs to create its own sources of revenue
[Link] of Revenue and Tariff Bills
[Link] appropriation or use of public money for religious purposes
 Prohibition against No person shall be imprisoned for debt or non-payment of a poll
imprisonment for tax (Art. III, Sec. 20).
nonpayment of poll tax While a person may not be imprisoned for non-pyt of a cedula, he
may be imprisoned for non-pyt of other kinds of taxes where the
law expressly provides (J. Dimaampao)

Uniformity vs. The rule of taxation shall be uniform and equitable.

Equitability The Congress shall evolve a progressive system of taxation.
(Sec. 28(1), Art. VI, 1987 Constitution)

▪ UNIFORMITY – It means that all taxable articles or kinds of property of the same classes shall be
taxed at the same rate. (CIR v. Lingayen Gulf Elec. Co., G.R. No. L-23771, 04 Aug. 1988)
▪ EQUITABILITY – Taxation is said to be equitable when its burden falls on those better able to pay
▪ EQUALITY –The burden of the tax falls equally and impartially upon all the persons and property
subject to it.

The equal protection clause is not infringed by legislation which applies only to those falling within
a specified class. If the groupings are characterized by substantial distinctions that make real
differences, one class may be treated an regulated differently from another (Southern Luzon Drug Corp.
v. DSWD, G.R. No. 199669, April 25, 2017)
 WHAT CONSTITUTES A VALID CLASSIFICATION? S –A – G- E
1. It must be based on Substantial distinctions
2. It must apply to All members of the same class; Uniformity does not forfend classification as
3. It must be Germane to the purposes of the law; long as:
4. It must apply both to Existing and future conditions; 1) the standards that are used therefor are
substantial and not arbitrary;
2) the categorization is germane to achieve the
In equality w/c results in singling out one particular
legislative purpose;
class for taxation for taxation or exemption infringes
3) the law applies, all things being equal to both
no constitutional limitation. Commissioner vs. Lingayen
present and future conditions, and
Gulf Electric 164 SCRA 27
4) the classification applies equally well to all
those belonging to the same class. (Rufino R.
Tan v. Ramon R. Del Rosario, Jr. G.R. No.
109289, Oct. 13, 1994.

On the 20% discount granted to SCs and PWDs

The equal protection clause is not infringed by legislation

which applies only to those falling within a specified class.
If the groupings are characterized by substantial distinctions
that make real differences, one class may be treated and
regulated differently from another. (Southern Luzon Drug
Corp. v. DSWD, G.R. No. 199669, 25 Apr.2017)
Grant by Congress of
The Congress may, by law, authorize the President to fix within
authority to the specified limits and subject to such limitations & restrictions at it may
president to impose impose, tariff rates, import and export quotas, tonnage and wharfage
tariff rates dues and other duties or imposts within the framework of the nat’l
devt. program of the Govt. (Art. VI, Sec. 28 [2])

Flexible Tariff Clause - provides the authority given to the

President to adjust tariff rates under Sec. 1608 of R.A. No.
10863, known as Customs Modernization and Tariff Act (CMTA) of
2016

Assuming there is a conflict between the specific limitation in the Constitution and the
general executive power of control and supervision, the former prevails in the specific
instance of safeguard measures such as tariffs and imposts and would thus serve to qualify
the general grant to the President of the power to exercise control and supervision over
his/her subalterns. (Southern Cross Cement Corp. v. Cement Manufacturers Association of
the Phil., G.R. No. 158540, 03 Aug. 2005)
 Prohibition against Charitable institutions, churches and parsonages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands,
taxation of religious, buildings, and improvements, actually, directly, and exclusively used for
charitable entities, and religious, charitable, or educational purposes shall be exempt from
educational entities taxation (Art. IV, Sec. 28 [3])    

Covers real properties only - “LBI” land, bldgs., improvements

An organization must meet the substantive test of charity. Charity is essentially a gift to an
indefinite number of persons which lessens the burden of government. Charitable institutions
provide for free goods and services to the public which would otherwise fall on the shoulders
of government. (CIR v. St. Luke’s Medical Center, Inc., G.R. No. 195909, 26 Sept. 2012)

In the case of Lung Center of the Phils. v. City Assessor of

MEANING OF Quezon City (433 SCRA 119), the Court ruled that under
ACTUALLY the 1987 Constitution, for "lands, buildings, and
DIRECTLY improvements" of the charitable institution to be
See Abra Valley College,
EXCLUSIVELY considered exempt, the same should not only be
Inc. vs. Aquino 162 SCRA
106 now abandoned! "exclusively" used for charitable purposes; it is
required that such property be used "actually" and
"directly" for such purposes.
 All revenues and assets of non-stock, nonprofit educational institutions
Prohibition against used actually, directly, and exclusively for educational purposes shall be
taxation of non-stock, exempt from taxes and duties. Subject to conditions prescribed by law, all
grants, endowments, donations, or contributions used actually, directly, and
non-profit educational exclusively for educational purposes shall be exempt from tax (Sec 4 (3] and
institutions [4], Art XIV).

Art. VI Sec.28 (3) Art XIV. Sec.4 (3)

SUBJECT Religious, educational, Non-stock, nonprofit
charitable educational
institution

TAXES Property Tax Income tax, Customs

IMPOSED duties, Property tax

The tax exemption granted by the Constitution to non-stock, non-profit educational institutions is
conditioned only on the actual, direct, and exclusive use of their assets, revenues, and income for
educational purposes. A plain reading of the 1987 Constitution would show that Sec. 4(3), Art. XIV does
not require that the revenues and income must have also been sourced from educational activities or
activities related to the purposes of an educational institution. The phrase “all revenues” is unqualified
by any reference to the source of revenues. (CIR vs. De La Salle University, Inc., G.R. No. 196596, 09 Nov.
2016)
 Majority vote of No law granting any tax exemption shall be passed without the concurrence
of a majority of all the members of Congress (Sec. 28 [4], Art. VI)
Congress for grant
of tax exemption A relative majority or plurality of votes (majority of a quorum) is
sufficient for withdrawal of a tax exemption.

Prohibition on use All money collected on any tax levied for a special purpose shall be treated
as a special fund and paid out for such purpose only. If the purpose for
of tax levied for which a special fund was created has been fulfilled or abandoned, the
special purpose balance, if any, shall be transferred to the general funds of the govt. (Sec.
29[3], Art. VI

President’s veto power

The President shall have the power to veto any particular item or items in an
on (1) appropriation,
appropriation, revenue or tariff bill but the veto shall not affect the item or
(2) revenue, (3) tariff items which he does not object (Art. VI, Sec. 27[2]).
bills (ART bill)
The Supreme Court shall have the power to review, revise, reverse, modify
Non-impairment of or affirm on appeal on certiorari as the laws or the Rules of Court may
jurisdiction of the provide, final judgments or orders of lower courts in xxx all cases involving
Supreme Court the legality of any tax, impost, assessment, or toll or any penalty imposed
in relation thereto (Art. VIII, Sec. 5[2][b]).
 Each LGU shall have the power to create its own sources of revenues and to
Grant of power to the levy taxes, fees and charges subject to such guidelines and limitations as the
LGUs to create its own Congress may provide, consistent with the basic policy of local autonomy.
sources of revenue Such taxes, fees, and charges shall accrue exclusively to the local
governments (Art. X, Sec. 5)

All appropriation, revenue or tariff bills, bills authorizing increase of the public
Origin of Revenue debt, bills of local application, and private bills shall originate exclusively in the
House of Representatives, but the Senate may propose or concur with
and Tariff Bills amendments (Art VI, Sec. 24)

No public money or property shall be appropriated, applied, paid or

employed directly or indirectly for the use, benefit or support of any sect,
No appropriation or church, denomination, sectarian institution, or system of religion or of any
use of public money priest, preacher, minister, or other religious teacher or dignitary as such
EXCEPT when such priest, preacher, minister or dignitary is assigned to the
for religious purposes. armed forces or to any penal institution or govt. orphanage or leprosarium
(Art. VI, Sec. 29[2])
“No law shall be made respecting an establishment of religion, or
Free exercise of prohibiting the free exercise thereof. The free exercise and enjoyment of
religious worship religious profession and worship, without discrimination or preference,
shall forever be allowed. No religious test shall be required for the exercise
w/o discrimination of civil or political rights.” (Art. III, Sec. 5.
 STAGES OF
TAXATION

1. Levy or 2. Assessment &

imposition collection 3. Payment /4. Refund
(tax legislation) (tax
administration)
Characteristics of taxes
1. It is levied by the state which has jurisdiction over the person or property;
2. It is levied by the state through its law-making body;
3. It is an enforced contribution not dependent on the will of the person taxed;
4. It is generally payable in money;
5. It is proportionate in character;
6. It is levied on persons and property;
7. It is levied for a public purpose.

REQUISITES OF A VALID TAX

1. It should be for a public purpose.
2. It should be uniform.
3. The person or property being taxed should be within
the jurisdiction of the taxing authority.
4. The tax must not impinge on the inherent and
constitutional limitations on the power of taxation.
TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS
 Tariff
 Toll
 License Fee versus
 Special Assessment
 Penalty
KINDS OF TAXES
• As to object:
• As to burden or incidence:
• As to tax rates:
• As to purposes:
• As to scope or authority to impose:
• As to graduation:
SITUS OF TAXATION It is the place or authority that has the right to impose and collect taxes
(CIR v. Marubeni Corp., G.R. No. 137377, Dec. 18, 2001).

doctrine of mobilia sequuntur personam

“movables follow the person”
Means that the situs of personal property is the domicile of the owner.

CONSTRUCTION AND INTERPRETATIONS

GR: Tax statutes must be construed strictly against the government and liberally in
favor of the taxpayer (MCIAA v. Marcos, G.R. No. 120082 Sept. 11, 1996). The imposition of a
tax cannot be presumed.

XPN: Unless a statute imposes a tax clearly, expressly and unambiguously, what applies
is the equally well-settled rule that the imposition of a tax cannot be presumed. Where
there is doubt, tax laws must be construed strictly against the government and in favor
of the taxpayer. This is because taxes are burdens on the taxpayer, and should not be
unduly imposed or presumed beyond what the statutes expressly and clearly import (CIR
v. The Philippine American Accident Insurance, Inc., 453 SCRA 668, G.R. No. 141658 March 18,
2005).
Ambiguities in tax laws are strictly construed against the government.
In answering the question of who is subject to tax statues, it is basic
that in case of doubt, such statues are to be construed strongly
against the government and in favor of the subjects or citizens
because burdens are not to be imposed nor presumed to be
imposed beyond what statues expressly and clearly import. As
burdens, taxes should not be unduly exacted nor assumed beyond
the plain meaning of the tax laws. For this Court to subject the entire
amount of MEDICARD’s gross receipt without exclusion, the authority
should have been reasonably founded from the language of the
statute. That language is wanting in this case. The CIR’s interpretation
of gross receipts in the present case is patently erroneous.
(MEDICARD PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL
REVENUE; G.R. NO. 222743; APRIL 5, 2017; J. REYES
DOCTRINES IN TAXATION
Prospectivity of tax laws
Ex pos facto law as applied in taxation

Imprescritibility of taxes
Double taxation (duplicate taxation)
Power to tax involves the power to destroy
US Chief Justice Marshall dictum - The power to tax involves the
power to destroy.
Justice Holmes dictum –“The power to tax is not the power to
destroy while this Court sits.
Tax avoidance and tax evasion
Compensation and set-off
 DOUBLE TAXATION

Taxing the object/subject within the territorial jurisdiction twice, by the same taxing authority
for the same period, with the same purpose and involving the same or similar kind of tax.

There is no constitutional prohibition against double taxation in the

Philippines. It is something not favored, but is permissible, provided
some other constitutional requirement is not thereby violated, such
as the requirement that taxes must be uniform. (Villanueva Milling vs. City of
Iloilo, G.R. L-26521, Dec. 28, 1968)
DOUBLE TAXATION
DIRECT DOUBLE TAXATION

INDIRECT DOUBLE TAXATION

 DOUBLE TAXATION
BAR 2004 A municipality, BB, has an ordinance which requires that all stores, restaurants, and other
establishments selling liquor should pay a fixed annual fee of P20,000. Subsequently, the municipal board
proposed an ordinance imposing a sales tax equivalent to 5% of the amount paid for the purchase or
consumption of liquor in stores, restaurants & other establishments. The mayor, CC, refused to sign the
ordinance on the ground that it would constitute double taxation. Is the refusal of the mayor justified?
Reason briefly.

NO. The refusal of the mayor is not justified. The impositions are of
different nature & character. The fixed annual fee is in the nature of a
license fee imposed through the exercise of police power while the 5%
tax on purchase or consumption is a local tax imposed through the
exercise of taxing powers. Both a license fee & a tax may be imposed
on the same business or occupation, or for selling the same article and
this is not in violation of the rule against double taxation (Campania
Gen. de Tabacos de Filipinos v. City of Mla., 8 SCRA 367 [1963]).
DOUBLE TAXATION

FORMS OF ESCAPE FROM

TAXATION

[Link] of tax burden

[Link] avoidance
[Link] evasion
[Link]
[Link]
[Link] exemption
PROBLEM:

Hope is a franchise holder who pays franchise tax in lieu of income tax
of which the computation is based on gross sales. The local government
where it is based imposes business taxes that is computed also on gross
sales. Hope insists that there is double taxation. Is there double taxation?

ANSWER:

There is no double taxation. A franchise tax is a tax based on the privilege of

transacting business and exercising corporate franchise granted by the state
only on franchise holders. Whereas, a city or business tax of the LGU is a
percentage tax based on a given ration between the sales or receipts imposed
on any person engaged in the sale of goods and services. Thus Hope is wrong
because these tow taxes are not of the same kind or character. (Sky cable corp.
vs. City Treas. Of Q.C., CTA case # 102, 2014)
DOUBLE TAXATION
INTERNATIONAL JURIDICAL DOUBLE TAXATION

• It is the imposition of comparable taxes in two or more states on the same

taxpayer in respect to the same subject matter and for identical periods.
This double taxation usually takes when a person is a resident of the first
contracting State and derives income from or owns capital in the other
contracting State and both State impose taxes on such income and capital.

• It is eliminated if the two contracting States enter into a tax treaty.

CIR v. S.C. and Son, Inc. G.R. No. 127105, June 25, 1999)

Power to tax involves the power to destroy

Q: Is the power to tax a power to destroy?
A: There are two views on this:
 US Chief Justice Marshall dictum Justice Holmes dictum
“The power to tax involves the power to destroy.” “The power to tax is not the power to destroy while
this Court sits.”
It is a destructive power which interferes with the While taxation is said to be the power to destroy, it’s
personal & property rights of the people and takes by no means unlimited. When a legislative body
from them a portion of their property for the having the power to tax a certain subject matter
support of the govt. (Paseo Realty & Devt. Corp. v. CA,actually imposes such a burdensome tax as
G.R. No. 119286, Oct. 13, 2004). Therefore, it should be
effectually to destroy the right to perform the act or
exercised with caution to minimize injury to the to use the property subject to the tax, the validity of
proprietary rights of the taxpayer. It must be the enactment depends upon the nature & character
exercised fairly, equally and uniformly, lest the tax of the right destroyed. If so great an abuse is
collector kill the ‘hen that lays the golden egg’ manifested as to destroy natural & fundamental
(McCulloch v. Maryland, 4 Wheat, 316 4 L ed. 579, 607) rights which no free gov’t consistently violate, it’s the
(Roxas v. CTA, 23 SCRA 276). duty of the judiciary to hold such an act
NOTE: It is more reasonable to say that this unconstitutional.
maxim is to describe degree of vigor with
which the taxing power may be employed in
order to raise revenue, and not the purposes
for which the taxing power may be used
(Cooley, 1876).
BASIS OF COMPARISON TAX AVOIDANCE TAX EVASION
NATURE Tax saving device within This connotes fraud
the means sanctioned by through the use of
law. This method should pretenses and
be used by the taxpayer in forbidden devices
good faith to lessen or defeat
taxes
LEGALITY Legal and not subject to Illegal and subject
criminal penalty to civil and criminal
liabilities.
EFFECT Minimization of taxes Almost always
results in the
absence of tax
payments
CIR v. Estate of Benigno Toda Jr., G.R. No. 147188, Sept. 14,2004
 When the act complained of, which may include a legislative enactment,
directly involves the illegal disbursement of public funds derived from
taxation that the “taxpayer’s suit” may be allowed

In a citizen’s suit, the interest of the petitioner assailing Locus Standi – It is the ability of
the constitutionality of a statute must be direct and a party to demonstrated to the
personal. He must be able to show, not only that the law court sufficient connection to and
or any government act is invalid, but also that he harm from the law or action
challenged to support that party’s
sustained or is in imminent danger of sustaining some
participation in the case (White
direct injury as a result of its enforcement, and not Light vs. City of Manila, G.R. 122846
merely that he suffers thereby in some indefinite way. It Jan. 20,2009)
must appear that the person complaining has been or is
about to be denied some right or privilege to which he is
lawfully entitled or that he is about to be subjected to
some burdens or penalties by reason of the statute or act
complained of (Francisco, Jr. v. Nagmamalasakit na mga
Manananggol ng mga Manggagawang Pilipino, Inc., 415
SCRA 44, G.R. No. 160262, Nov. 10, 2003)
G.R. No. 191667 April 17, 2013

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
EDUARDO M. CACAYURAN, Respondent taxpayers suit
 HOWEVER, in Coconut Oil Refiners Association, Inc., a
2005 case, it was held that a taxpayer’s suit may be
allowed to prosper even when there is no direct injury to
the party claiming the right of judicial review where
serious constitutional questions are involved.

It is the imposition of a tax upon a tax.

Tax This occurs when a tax is added as part of the
tax base. It has no basis in law. Pp. vs.
Pyramiding Sandiganbayan, GR No. 152532, August 6,
2005.
Thank You!

- Fiscal Mariegold Aurelio Cabrales