Tax Digests

TITLE: PAL v. EDU AUTHOR: Gil Aquino FACTS Under its franchise, PAL is exempt from payment of taxes, except for the 2% on gross revenue or earning from its operations. In 1971, Commissioner Edu issued a regulation requiring all tax exempt entities, among them PAL, to pay motor vehicles registration fees. PAL paid under protest, citing Calalang v. Lorenzo where it was held that motor vehicle registration fees are in reality taxes. Edu denied the request for refund citing Republic v. Philippine Rabit Bus Lines, Inc. where it was said that motor vehicle registration fees are regulatory exactions and not revenue measures. ISSUE W/N motor vehicle registration fees are taxes (as opposed to regulatory fees) DISPOSITION YES. Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law. Presently, this is covered by the Land Transportation Code.t appears clear that the legislative intent and purpose behind the law requiring owners of vehicles to pay their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency.

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, or if revenue is at least one of the real and substantial purposes, then the exaction is properly called a tax. These exactions are sometimes called regulatory taxes. Indeed, taxation may be made the implement of the state’s police power. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition of the registration, operation or ownership of a motor vehicle as a “tax or fee.” It is quite apparent that vehicle registration fees were originally simple exactions intended only for regulatory purposes in the exercise of the State’s police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modern life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier denomination of registration payments as “fees,” their nature has become that of “taxes.”

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PROGRESSIVE DEVELOPMENT CORPORATION v Quezon City FELICIANO, J.: Progressive Development Corporation, owner and operator of a public market known as the "Farmers Market & Shopping Center" , Petition for Prohibition with Preliminary Injunction against QUEZON CITY bon the ground that the supervision fee or license tax imposed is in reality a tax on income which QUEZON CITY may not impose, the same being expressly prohibited by Republic Act No. 2264, as amended. Lower court ruled that the questioned imposition is not a tax on income, but rather a privilege tax or license fee which local governments, like QUEZON CITY, are empowered to impose and collect. ISSUE: WON the tax imposed by QUEZON CITY on gross receipts of stall rentals is properly characterized as partaking of the nature of an income tax or, alternatively, of a license fee. DISPOSITION: It is a license fee the five percent (5%) tax imposed in Ordinance No. 9236 constitutes, not a tax on income, not a city income tax , but rather a license tax or fee for the regulation of the business in which the petitioner is engaged. Republic Act No. 2264, Local Autonomy Act, provides that: Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licenses at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for service rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city, municipality or municipal district and otherwise to levy for public purposes just and uniform taxes licenses or fees: ... 6 Republic Act No. 2264 confers broad taxing authority extending to almost "everything, excepting those which are mentioned therein," provided that the tax levied is "for public purposes, just and uniform," does not transgress any constitutional provision and is not repugnant to a controlling statute. Local Autonomy Act and the Charter of QUEZON CITY clearly show that QUEZON CITY is authorized to fix the license fee collectible from and regulate the business of petitioner as operator of a privately-owned public market. Tax versus License Fee

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The term "tax" frequently applies to all kinds of exactions of monies which become public funds. It is often loosely used to include levies for revenue as well as levies for regulatory purposes such that license fees are frequently called taxes although license fee is a legal concept distinguishable from tax: the former is imposed in the exercise of police power primarily for purposes of regulation, while the latter is imposed under the taxing power primarily for purposes of raising revenues. if the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax license fee: the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development 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 costs of direct regulation but also its incidental consequences as well. The "Farmers' Market and Shopping Center" being a public market in the' sense of a market open to and inviting the patronage of the general public, even though privately owned, petitioner's operation thereof required a license issued by the QUEZON CITY City, the issuance of which, applying the standards set forth above, was done principally in the exercise of the QUEZON CITY's police power.

OSMEÑA vs.ORBOS Tumlos, Gina Facts: President Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024. The same EO also authorized the investment of the fund in Gov’t securities, with the earnings from such placements accruing to the fund. expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for determination by the Ministry of Finance. petition alleges that the status of the OPSF as of Mar 31, 1991 showed a "Terminal Fund Balance deficit" of some P12.877B; 8 that to abate the worsening deficit, "the Energy Regulatory Board . . issued an Orderapproving the increase in pump prices of 3

petroleum products," and at the rate of recoupment, the OPSF deficit should have been fully covered in a span of six (6) months

also contends that the "delegation of legislative authority" to the ERB violates § 28 (2). Art VI of the Consti 2) The Congress may, by law, authorize the President to fix, within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national development program of the Gov’t; and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits, limitations and restrictions must be quantitative, that is, the law must not only specify how to tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how much to tax." petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies collected, which form part of the OPSF, should be maintained in a special account of the general fund for the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a special purpos the challenge posed by the petitioner is premised on the view that the powers granted to the ERB under P.D. 1956 partake of the nature of the taxation power of the State. Issue: WON powers granted to the ERB under P.D. 1956 partake of the nature of the taxation power of the State. Held: No Ratio: 4

but this notwithstanding, Orbos, in his capacity as Executive Secretary, Estanislao, in his capacity as Secretary of Finance; de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board — "are poised to accept, process and pay claims not authorized under P.D. 1956." petition further avers that the creation of the trust fund violates §29(3), Article VI of the Constitution All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purposes only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Gov’t. petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channeled to another Gov’t objective." Petitioner further points out that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created.He

the Court recalls its holding inValmonte v. Energy Regulatory Board, et al. a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy; b) Any increase in the tax collection as a result of the lifting of tax exemptions of Gov’t corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy: c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment of persons or companies engaged in the business of importing, manufacturing and/or marketing petroleum products; d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil and petroleum products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy. The OPSF was established precisely to protect local consumers from the adverse consequences that such frequent oil price adjustments may have upon the economy. Thus, the OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil and petroleum products paid by consumers as well as some tax revenues are inputted and from which amounts are drawn from time to time to reimburse oil companies, when appropriate

situations arise, for increases in, as well as underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism through which the domestic consumer prices of oil and petroleum products are stabilized, instead of fluctuating every so often, and oil companies are allowed to recover those portions of their costs which they would not otherwise recover given the level of domestic prices existing at any given time.To the extent that some tax revenues are also put into it, the OPSF is in effect a device through which the domestic prices of petroleum products are subsidized in part. It appears to the Court that the establishment and maintenance of the OPSF is well within that pervasive and nonwaivable power and responsibility of the Gov’t to secure the physical and economic survival and well-being of the community, that comprehensive sovereign authority we designate as the police power of the State. that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund” With regard to the alleged undue delegation of legislative power, the Court finds that the provision conferring the authority upon the ERB to impose addt’l amounts on petroleum products provides a sufficient standard by w/c authority must be exercised 5

§ 8(c) of P.D. 1956 expressly authorizes the ERB to impose additional amounts to augment the resources of the Fund. What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax." The Court is cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose addt’l amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State For a valid delegation of power, it is essential that the law delegating the power must be (1) complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix a standard — limits of which are sufficiently determinate or determinable — to which the delegate must conform As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there must be a standard, which implies at the very least that the legislature itself determines matters of principle and lays down fundamental policy.The standard though does not have to be spelled out specifically. It could be implied from the policy and purpose of the act considered as a whole

It would seem that from the above-quoted ruling, the petition for prohibition should fail.The standard, as the Court has already stated, may even be implied. In that light, there can be no ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable standard which guides the exercise of the power granted to the ERB. what the law intended was to permit the additional imposts for as long as there exists a need to protect the general public and the petroleum industry from the adverse consequences of pump rate fluctuations This Court thus finds no serious impediment to sustaining the validity of the legislation; the express purpose for which the imposts are permitted and the general objectives and purposes of the fund are readily discernible, and they constitute a sufficient standard upon which the delegation of power may be justified. In relation to the third question — respecting the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization Fund, because allegedly in contravention of § 8, paragraph 2 (2) of P.D. 1956, the Court finds for the petitioner. SolGen, for his part, contends that "(t)o place said (term) within the restrictive confines of the rule ofejusdem generis would reduce (E.O. 137) to a meaningless provision Court holds that the reimbursement of financing charges is not authorized by paragraph 2 of § 8 of P.D. 1956, for the reason 6

that they were not incurred as a result of the reduction of domestic prices of petroleum products. Under the same provision, however, the payment of inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher price. Reimbursement for cost underrecovery from the sales of oil to the NPC is equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and regulations Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been presented to show how this is prohibited by P.D. 1956. Nor has the SolGen taken any effort to defend the propriety of this refund. Unless the impropriety or illegality of the overpayment refund has been clearly and specifically shown, there can be no basis upon which to nullify the same. COMPANIA GENERAL DE TOBACOS DE FILIPINAS VS. MANILA GR L-16619, 29 June 1963 Ponente: Dizon, J. Facts: Compania General de Tabacos de Filipinas (Tabacalera), a wholesale and retail liquor dealer, paid the City of Manila the fixed license fees prescribed by Ordinance 3358 for the years 1954 to 1957. In 1954, City Ordinance 3634 and 3816 were passed; where the term “general merchandise” found therein included all articles

in Sections 123 to 148 of the Tax Code (thus, also liquor under Sections 133 to 135). The Tabacalera paid its wholesaler’s and retailer’s taxes. In 1954, the City Treasurer addressed a letter to an accounting firm, expressing the view that liquor dealers paying the annual wholesale and retail fixed tax under Ordinance 3358 are not subject to the wholesale and retail dealers’ taxes prescribed by City Ordinances 3634, 3301, and 3816. The Tabacalera, upon learning of said stopped including quarterly sworn declarations required by the latter ordinances, and in1957, demanded refund of the alleged overpayment. The claim was disallowed. Issue/Held: Whether City of Manila may impose on Tabacalera a license fee (Ordinance 3358) and a sales tax (Ordinances 3634, 3301 and 3816) at the same time. YES. Republic v Bacolod Murcia Tine Cengca Facts: R.A. 632 – charter of Philippine Sugar Institute (PSI) provided for the levying on the annual sugar production a tax of 10 centavos per picul of sugar to be known as Sugar Research and Stabilization Fund. This will be collected for 5 years to be paid my sugar cane planters and sugar centrals

PSI bought Insular Sugar Refinery but it only incurred losses, the sugar centrals thinking that the purchase of the Insular Sugar 7

Refinery was detrimental to their interest and is not beneficial to them decided to stop paying their dues since the levy is just a special assessment and not a tax (revenue generating) As a special assessment: it can only be used for specific purpose, it is a levy upon a property which is supposed to derive benefits / improvements from such assessment Issue: WON the 10 centavo levy is a tax. Disposition: Yes. This is a special assessment. This is the exercise of the state’s police power for the general welfare of the populace. The fund is solely for the use of PSI and its work in improving sugar production. The purchase of the refinery which caused losses is immaterial, because PSI can better appreciate (and therefore perform their mandate better) the plight of sugar planters, mills and centrals if it experiences their problems first hand. PHILEX MINING CORPORATIO v. COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS (1998) PONENTE:ROMERO Taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and a debt.

Debts are due to the government in its corporate capacity, while taxes are due to the government in its sovereign capacity FACTS: 1. The BIR asks Philex to settle its excise taxes (including surcharges and interests) from 2nd Quarter 1991 to 2nd Quarter 1992 (123M++) 2. Philex protests and claims that it has about 119M++ pending claims in the CTA for VAT input tax credit/refund from the period of 1989-1991. Philex wants these credits to offset its tax liabilities. (legal compensation) 3. While the case with the CTA was pending, a Tax Credit Certificate in the amount of 13M++ was issued to Philex, which effectively lowered Philex's tax liabilities to around 110M++ 4. CTA: Philex to pay BIR 110M++. No legal compensation because both obligations must be liquidated or due and demandable. Since the tax credits/refunds are claims still pending in another case in the CTA, these are not yet liquidated and cannot offset Philex's tax liabilities. Moreover, taxes cannot be subject to set-off on compensation since claim for taxes is not a debt or contract 5. CA: Affirms CTA.

6. A few days after Philex's MR to the CA was denied, it received its VAT refund credits for the periods 1989-1991, and several quarters of 1992, and 1994. (Total:~ 205M++) 8

7. Philex now claims that its claims have been "liquidated" and offsetting or legal compensation is proper. ISSUE: WON taxes can be subject to legal compensation? (NO) DISPOSITION: 1. To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities. PETITION DISMISSED. CASE DIGEST by LILIAN DY

Caltex v. COA Facts: Caltex: Department of Finance issued Circular No. 4-88 allowing reimbursement. Denial of claim for reimbursement would be inequitable. NCC (compensation)and Sec. 21, Book V, Title I-B of the Revised Administrative Code (Retention of Money for Satisfaction of Indebtedness to Government) allows offsetting. Amounts due do not arise as a result of taxation since PD 1956 did not create a source of taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions distinguishes it from tax. COA: Based on Francia v. IAC, no offsetting of taxes is allowed against the the claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law. Issue: WON Caltex is entitled to offset its claims for reimbursement against its remittances to the OPSF. NO Ratio: It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be subject of compensation because the government and taxpayer are not mutually 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. 9

Technically, the oil companies merely act as agents for the Government in the latter’s collection since the taxes are, in reality, passed unto theend-users – the consuming public. Their primary obligation is to account for and remit the taxes collection to the administrator of the OPSF. There is not merit in Caltex’s contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State. The oil industry is greatly imbued with public interest as it vitally affects the general welfare. PD 1956, as amended by EO No. 137 explicitly provides that the source of OPSF is taxation. TITLE: National Power Corporation v. City of Cabanatuan AUTHOR: Justice Puno 1. National Power Corporation (NPC), a GOCC, sells electric power to the residents of Cabanatuan City, posting a gross income of P107,814,187.96 in 1992. 2. Pursuant to Sec. 37 of Ordinance No. 165-92, the City of Cabanatuan assessed NPC a franchise tax amounting to

P808,606.41, representing 75% of 1% of the latter's gross receipts for the preceding year. 3. NPC refused to pay the tax assessment, arguing that the City of Cabanatuan has no authority to impose tax on government entities and that as a non-profit organization, it is exempted from payment of all forms of taxes, charges, duties or fees based on Sec. 13 of RA 6395, as amended. 4. The City of Cabanatuan filed a collection suit in the RTC. It alleged that that NPC’s exemption from local taxes has been repealed by Sec. 193 of RA 7160. 5. RTC dismissed the case. Tax exemption privileges granted to NPC subsists due to ff reasons: · RA 6395 is a particular law and it may not be repealed by RA 7160 which is a general law · Sec. 193 of RA 7160 is in the nature of an implied repeal which is not favoured · Local governments have no power to tax instrumentalities of the national government 6. CA reversed on the ground that Sec. 193, in relation to Sec. 137 and 151 of the LGC, expressly withdrew the exemptions granted to the petitioner. MR denied. 7. NPC filed petition for review before SC.

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ISSUE: WoN NPC is liable to pay the franchise tax as assessed by the City of Cabanatuan? YES DISPOSITION: Petition DENIED. CA AFFIRMED. 1. Taxes are the lifeblood of the government, for without taxes, the government can neither exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives its source from the very existence of the state whose social contract with its citizens obliges it to promote public interest and common good. The theory behind the exercise of the power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of promoting the general welfare and well-being of the people. (RELEVANT) 2. Sec. 151 in relation to Sec. 137 of the LGC clearly authorizes the City Government to impose on the petitioner the franchise tax in question. 3. A franchise tax is "a tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state." To determine whether the petitioner is covered by the franchise tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the respondent city government. BOTH requisites were satisfied. 4. Sec. 193 of the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by private and public corporations. It is an express, albeit general, repeal of all statutes granting tax exemptions from local taxes. NPC does not fall under

the exceptions under Sec. 193 since it is not a local water district, a cooperative registered under R.A. No. 6938, or a non-stock and nonprofit hospital or educational institution. Commissioner v. Algue, Inc. (158 SCRA 9 February 17, 1988) CRUZ, J.: By: Ernesto Herrera III Facts: Algue, Inc., a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. The Commissioner disallowed claimed expenses of Algue, Inc. amounting to P75,000.00 contending that it was not ordinary, reasonable or necessary business expense. Algue, Inc. contended that the same arose from promotional fees that were paid in relation for their work in the creation of the Vegetable Oil Investment Corporation and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company, in which they received income amounting to P125,000.00. Issues: WON the P75,000 expenses claimed by Algue, Inc. should be allowed. 11

Held: The CTA correctly found by evidence that the said amount pertaining to promotional fees were actually disbursed by the said companies. Likewise, it was found by evidence that the same were not paid in one lump sum (contravening BIR’s argument that it was fictitious) but was actually made periodically with complete accounting to make up the total of P75,000.00. Also, the CTA found that the amount was not excessive because it pertained to 60% of the total commission which was received. It is said that taxes are what we pay 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 to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. TITLE: Caltex v COA AUTHOR: Kirby Hipolito Facts:

1. Sec. 8, PD 1956, as amended by EO 137 created OPSF (Oil Price Stabilization Fund), additional tax on petroleum. 3. In 1989, COA sent a letter to Caltex directing it to remit to OPSF its collection of the additional tax on petroleum authorized under PD 1956 and pending such remittance, all of its claims from the OPSF shall be held in abeyance. 4. Caltex requested COA for an early release of its reimbursement certificates. 5. COA denied the request. It disallowed recovery of financing charges, inventory losses and sales to Marcopper and Atlas but allowed the recovery of product sale or those arising from export sales. 6. CALTEX: Department of Finance issued Circular No. 4-88 allowing reimbursement. Denial of claim for reimbursement would be inequitable. NCC (compensation) and Sec. 21, Book V, Title I-B of the Revised Administrative Code (Retention of Money for Satisfaction of Indebtedness to Government) allows offsetting. Amounts due do not arise as a result of taxation since PD 1956 did not create a source of taxation, it instead established a special fund. This lack of public purpose behind OPSF exactions distinguishes it from tax. 7. COA: There’s no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law (Francia v IAC).

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ISSUE: Whether or not petitioner can avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement. NO RATIO: 1. It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such ad ebt, demand, contract or judgment as is allowed to be set-off. 2. Technically, the oil companies merely act as agents for the Government in the latter’s collection since the taxes are, in reality, passed unto the end-users – the consuming public. Their primary obligation is to account for and remit the taxes collection to the administrator of the OPSF. 3. PURPOSE OF THIS TAX: There is not merit in Caltex’s contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State.

4. The oil industry is greatly imbued with public interest as it vitally affects the general welfare. 5. PD 1956, as amended by EO No. 137 explicitly provides that the source of OPSF is taxation DECISION: COA AFFIRMED PASCUAL v. SECRETARY OF PUBLIC WORKS THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees. FACTS: Petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted an action for declaratory relief, praying that an item in Republic Act 920 (An Act Appropriating Funds for Public Works) be declared null and void. RA 920 contained an item of P85,000 “for the construction, reconstruction, repair, extension and improvement” of Pasig feeder road terminals. Pascual alleged that said feeder roads were nothing but projected and planned subdivision roads within the Antonio Subdivision. Respondent Jose Zulueta, a member of the Senate of the Philippines, is the owner of Antonio Subdivision. Pascual alleged that the appropriation in question was clearly for a private, not a public purpose. The construction of said roads, would have the effect of relieving Zulueta of the burden of constructing his subdivision streets or roads at his own expenses, and would “greatly enhance or increase the value of the subdivision” of Zulueta. Over five months after the effectivity of the Act, the property was 13

allegedly donated to the Government for the purpose of legalizing the appropriation in question. Zulueta moved to dismiss, contending that a law passed by Congress and approved by the President can never be illegal because Congress is the source of all laws. The lower court held that the appropriation in question was for a private purpose. But it upheld the appropriation upon the ground that Pascual may not contest the legality of the donation because the same does not affect him directly. If valid, said donation cured the constitutional infirmity of the appropriation. ISSUE: WON the appropriation in question is valid HELD/RATIO: NO. Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void.

enterprises or business, does not justify their aid by the use public money. VALENTIN TIO vs. VIDEOGRAM REGULATORY BOARD (1987, MELENCIO-HERRERA) Topic: Inherent Limitation: Public Purpose FACTS: This petition was filed by Tio on his own behalf and on behalf of other videogram operators adversely affected. It assails the constitutionality of PD 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry. It contained a tax provision: The rationale behind the enactment of the PD1987, is set out in its preambular clauses as follows: (*** important to note for “public purpose”) 1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues; 2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition of videograms, and such earnings have not been subjected to tax, 14

It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of private

thereby depriving the Government of approximately P180 Million in taxes each year; 3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses and theaters; 4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an environment conducive to growth and development of all business industries, including the movie industry which has an accumulated investment of about P3 Billion; 5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for their livelihood, but also provide an additional source of revenue for the Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms; 6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral

character and promote their physical, intellectual, and social wellbeing; 7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant malpractices which have flaunted our censorship and copyright laws; 8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the national economic recovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of paragraphs supplied). Tio's attack on the constitutionality of the PD1987 rests on the following grounds: (*** Tio had 6 grounds but only one pertains to tax) The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process clause of the Constitution; ISSUE: Whether or not the tax provision of PD 1978 is valid. HELD: Yes. It is valid. RATIO: Tio submits that the 30% tax imposed is harsh and oppressive, confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. The power to impose taxes is one so unlimited in force and so 15

searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. The tax imposed by the PD1987 is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another.

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation". Taxation has been made the implement of the state's police power. At bottom, the rate of tax is a matter better addressed to the taxing legislature. DISPOSITIVE: Petition is dismissed. Digest by Agee Romero (for Bryan Maga) Title: Commissioner vs. Santos Author: Mohammadsali, Al-azree Facts: · Guild of Philippine Jewellers, Inc. is a Filipino association of jewelers. Some of its members were investigated by BIR Regional Office 4-A. Imported articles were later placed under preventive embargo. The BIR proceeded to inventory the items and requested that they be not sold, pending determination whether taxes thereon have been duly paid. · One of the investigated jewelry firm filed a petition for declaratory relief with prayer for P.I and TRO against the Regional Director. The Guild later joined the petition.

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· The trial court later rendered judgment declaring that Sec. 104 of the Tariff and Custom Code was inoperative and without force and effect against the petitioners. · The OSG filed the petition against the trial court judge (it was not stated, but the petition was brought under Rule 65, certiorari and prohibition). Issue: WON the trial court could pass upon the taxation policy behind the law? Disposition: No. The reasons why jewelry, a non-essential item, is taxed as it is in this country are deliberated upon by our legislature; they are beyond the reach of judicial questioning. Courts cannot question the wisdom of our laws. The arguments they presented focus on the wisdom of the provisions of law which they seek to nullify. Courts can only look into the validity of a provision, that is, whether or not it has been passed according to the procedures laid down by law, and thus cannot inquire as to the reasons for its existence. Granting arguendo that the private respondents may have provided convincing arguments why the jewelry industry in the Philippines should not be taxed as it is, it is to the legislature that they must resort to for relief, since with the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. Kapatiran v. Tan

Ponente: Padilla, J Date: June 30, 1988 Facts: 4 petitions, seek to nullify EO 273, issued by the President of the Philippines on 25 July 1987, to take effect on 1 January 1988, and which amended certain sections of the National Internal Revenue Code and adopted the VAT for being unconstitutional in that its enactment is not allegedly within the powers of the President; that the VAT is oppressive, discriminatory, regressive, and violates the due process and equal protection clauses and other provisions of the 1987 Constitution. Issues: WON EO 273 is unconstitutional Held: NO, IT IS CONSTITUTIONAL Ratio: It should be recalled that under Proclamation No. 3, which decreed a Provisional Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of the Provisional Constitution states: Sec. 1. Until a legislature is elected and convened under a new Constitution, the President shall continue to exercise legislative powers. On 15 October 1986, the Constitutional Commission of 1986 adopted a new Constitution for the Republic of the Philippines which was ratified in a plebiscite conducted on 2 February 1987. 17

Article XVIII, sec. 6 of said Constitution, hereafter referred to as the 1987 Constitution, provides:

serve therein by voting affirmatively for the approval of said Constitution, had taken their oath of office. To uphold the submission of petitioner Valmonte would stretch the definition of the word "convene" a bit too far. It would also defeat the purpose of the framers of the 1987 Constitutional and render meaningless some other provisions of said Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress to conveneonce every year on the fourth Monday of July for its regular session would be a contrariety, since Congress would already be deemed to be in session after the individual members have taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of enacting a law calling for a special election to elect a President and Vice-President in case a vacancy occurs in said offices, would also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to decide a conflict between the President and the Cabinet as to whether or not the President and the Cabinet as to whether or not the President can re-assume the powers and duties of his office, would also be redundant. The same is true with the portion of Art. VII, sec. 18, which requires Congress to convene within twenty-four (24) hours following the declaration of martial law or the suspension of the privilage of the writ of habeas corpus. The 1987 Constitution mentions a specific date when the President loses her power to legislate. If the framers of said Constitution had intended to terminate the exercise of legislative powers by the President at the beginning of the term of office of the members of Congress, they should have so stated (but did not) in clear and 18

Sec. 6. The incumbent President shall continue to exercise legislative powers until the first Congress is convened. It should be noted that, under both the Provisional and the 1987 Constitutions, the President is vested with legislative powers until a legislature under a new Constitution is convened. The first Congress, created and elected under the 1987 Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days before Congress convened on 27 July 1987, was within the President's constitutional power and authority to legislate. Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June 1987 (not 27 July 1987). He contends that the word "convene" is synonymous with "the date when the elected members of Congress assumed office." The contention is without merit. The word "convene" which has been interpreted to mean "to call together, cause to assemble, or convoke," 1 is clearly different from assumption of office by the individual members of Congress or their taking the oath of office. As an example, we call to mind the interim National Assembly created under the 1973 Constitution, which had not been "convened" but some members of the body, more particularly the delegates to the 1971 Constitutional Convention who had opted to

unequivocal terms. The Court has not power to re-write the Constitution and give it a meaning different from that intended. TRANSPORTATION OFFICE [LTO] vs. CITY OF BUTUAN (2000, Vitug) Topic: Delegation of power of taxation to LGUs

exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx xxx xxx

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles. Relying on the foregoing provisions of the law, the Sangguniang Panglungsod of Butuan passed an Ordinance that provided for, among other things, the payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the issuance of a permit for the driving thereof. LTO explains that one of the functions of the national government that, indeed, has been transferred to local government units is the franchising authority over tricycles-for-hire of the Land Transportation Franchising and Regulatory Board ("LTFRB") but not, the authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles. In order to settle the variant positions of the parties, the City of Butuan filed with the trial court a petition for "prohibition, mandamus, injunction with a prayer for preliminary restraining order ex-parte" seeking the declaration of the validity of the Ordinance and the prohibition of the registration of tricycles-forhire and the issuance of licenses for the driving thereof by the LTO. RTC: held that the authority to register tricycles, the grant of the corresponding franchise, the issuance of tricycle drivers' license, 19

FACTS: City of Butuan asserts that one of the salient provisions introduced by the Local Government Code is in the area of local taxation which allows LGUs to collect registration fees or charges along with, in its view, the corresponding issuance of all kinds of licenses or permits for the driving of tricycles. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments.5 Sec. 129 and Section 133 of the Local Government Code read: Sec. 129. Power to Create Sources or Revenue. — Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise provided herein, the

and the collection of fees had all been vested in the LGUs. It issued a permanent writ of injunction against LTO, prohibiting and enjoining LTO from registering tricycles and issuing licenses to drivers of tricycles. CA: sustained the trial court. ISSUE: Whether under the present set up the power of the LTO to register, tricycles in particular, as well as to issue licenses for the driving thereof, has likewise devolved to LGUs. HELD: NO. RATIO: The delegated powers pertain to the franchising and regulatory powers exercised by the LTFRB and not to the functions of the LTO relative to the registration of motor vehicles and issuance of licenses for the driving thereof. DOTC, through the LTO and the LTFRB, has been tasked with implementing laws pertaining to land transportation. The LTO is a line agency under the DOTC whose powers and functions, pursuant to Land Transportation and Traffic Code, deal primarily with the registration of all motor vehicles and the licensing of drivers thereof. The LTFRB is the governing body tasked to regulate the operation of public utility or "for hire" vehicles and to grant franchises or certificates of public convenience In short, registration and licensing functions are vested in the LTO while franchising and regulatory responsibilities had been vested in the LTFRB.

Under the Local Government Code, certain functions of the DOTC were transferred to the LGUs, thusly: Sec. 458. Powers, Duties, Functions and Compensation. — xxx xxx xxx

(3) Subject to the provisions of Book II of this Code, enact ordinances granting franchises and authorizing the issuance of permits or licenses, upon such conditions and for such purposes intended to promote the general welfare of the inhabitants of the city and pursuant to this legislative authority shall: xxx xxx xxx

(VI) Subject to the guidelines prescribed by the Department of Transportation and Communications, regulate the operation of tricycles and grant franchises for the operation thereof within the territorial jurisdiction of the city. (Emphasis supplied). LGUs now have the power to regulate the operation of tricycles-forhire and to grant franchises for the operation thereof. The devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, is aimed at curbing the alarming increase of accidents in national highways involving tricycles. It has been the perception that local governments are in good position to achieve the end desired by the law-making body because of their proximity to the situation that can enable them to address that serious concern better than the national government.

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The delegated powers pertain to the franchising and regulatory powers exercised by the LTFRB and not to the functions of the LTO relative to the registration of motor vehicles and issuance of licenses for the driving thereof. Clearly unaffected by the Local Government Code are the powers of LTO requiring the registration of all kinds of motor vehicles "used or operated on or upon any public highway" in the country. If the tricycle registration function of respondent LTO is decentralized, the incidence of theft of tricycles will most certainly go up, and stolen tricycles registered in one local government could be registered in another with ease. The determination of ownership thereof will also become very difficult. (REGARDING CLASS TOPIC ON DELEGATION OF POWER TO TAX TO LGUS): The reliance made by Butuan on the broad taxing power of LGUs (LGC 133) is tangential. Police power and taxation, along with eminent domain, are inherent powers of sovereignty, which the State might share with LGUs by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature but the similarities just about end there. The basic aim of police power is public good and welfare. Taxation, in its case, focuses on the power of government to raise revenue in order to support its existence and carry out its legitimate objectives. The grant of one does not necessarily carry with it the grant of the other. The two powers are separate and distinct powers. To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power, which evidently has not been intended.

If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of the Local Government Code in the same manner that the specific devolution of LTFRB's power on franchising of tricycles has been provided. Repeal by implication is not favored. The power over tricycles granted under Section 458(8)(3)(VI) of the Local Government Code to LGUs is the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax provisions of Section 133(1) of the Local Government Code must not be held to have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of the State, whose basic objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and the competence of drivers. A statute must not be construed in isolation but must be taken in harmony with the extant body of laws. DISPOSITIVE: CA Decision REVERSED and SET ASIDE. Digest by Agee Romero BASCO V. PAGCOR AUTHOR: JOEL SANTOS (EDITED A DIGEST I FOUND) (14 May 1991) G.R. No. 91649

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Attorneys Humberto Basco, Edilberto Balce, Socrates Maranan and Lorenzo Sanchez, petitioners vs Philippine Amusement and Gaming Corporation (PAGCOR), respondent. DOCTRINE: “The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax." (Citations omitted) NATURE: Petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter PONENTE: Paras, J. FACTS: • PAGCOR was originally created by virtue of PD 1067-A in January 1977 and granted a franchise “to establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines." • The Charter was amended as PD 1869 dated July 11, 1983 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law • Petitioners come to the Court questioning the validity of the PAGCOR charter anchoring their petition on the following points:

o It waives the City of Manila’s power to impose taxes and license fees o Such restriction is contrary to the principles of local autonomy o It violates the equal protection clause by legalizing PAGCORconducted gambling but not other forms o It violates the trend away from monopolistic and crony economy

ISSUES: 1. W/N the Charter is void for being unconstitutional?

HELD/RATIO/RULING: 1. NO

• The Charter does not deprive the City of Manila its right to impose taxes and fees for the following reasons: o Thee City of Manila, being a mere Municipal corporation has no inherent right to impose taxes. Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it". Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" 22

o The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" which has the power to "create and abolish municipal corporations" due to its "general legislative powers". Congress, therefore, has the power of control over Local governments. And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. o The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government o Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government o Further, PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. o This doctrine emanates from the supremacy of the National over the local government. Otherwise, mere creatures of the State

can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" • Further, the Charter is not repugnant to local autonomy for the Constitution itself provides that the power of an LGU to create its own sources of wealth is subject to such guidelines as Congress may provide DISPOSITION: Petition DISMISSED. VOTE: Fernan, C.J., Gutierrez, Jr. Cruz, Feliciano, Gancayco, Bidin, Sarmiento, Grino-Aquino, Medialdea, Regalado, Davide, JJ., concur MACEDA V. MACARAIG GR No. 88291 31-May-91 J. Gancayco Topic: V.2.c. Delegation to Administrative Agencies Facts: ñ The National Power Corporation (NPC), created by CA 120 as a public corporation, was given tax exemption by RA 358 in 1949. ñ RA 6395 revised the charter of NPC and provided in detail the exemption of NPC from all taxes (including indirect taxes), duties and other charges by the government. 23

ñ PD 1931 in 1984 removed all tax exemptions enjoyed by GOCCs, including NPC. Under the same law, however, the President or the Finance Minister, upon recommendation by the Fiscal Incentives Review Board (FIRB), may restore or modify the exemption. ñ The tax exemption was revived in 1985, and removed again in 1987 under EO 93 which similarly provided that upon FIRB recommendation the tax exemption can be restored. ñ In the same year, FIRB issued FIRB Resolution No. 17-87 restoring NPC's tax exemption, including exemption from indirect taxes and duties on petroleum products used in its operation. ñ DOJ Secretary Sedfrey Ordoñez subsequently issued Opinion 77 stating that the powers conferred upon the FIRB by EO 93 constitute undue delegation of legislative power and is thus unconstitutional. ñ FIRB Reso No. 17-87 was later approved by then President Cory Aquino through Executive Secretary Catalino Macaraig acting as her alter ego. ñ Senator Ernesto Maceda then asked Exec Sec Macaraig and Finance Secretary Vicente Jayme to hold in abeyance the release of the tax refunds to NPC pending the investigation on the matter of the Senate Blue Ribbon Committee. ñ The Blue Ribbon Committee later recommended that the law granting tax exemption to NPC be nullified.

ñ Maceda then filed a petition with SC for certiorari, prohibition, mandamus with prayer for a writ of preliminary injunction and/or restraining order against the Exec Sec Macaraig, et al. Maceda questioned the FIRB Reso No. 17-87 as an undue delegation of legislative power. He claimed that the FIRB did not merely recommend but categorically restored the tax and duty exemption of the NPC so that the memorandum of Exec Sec Macaraig approving the same is a surplusage. ñ Maceda further argued that even assuming that FIRB Reso No. 17-87 was legally issued, the restoration cannot cover indirect taxes and it cannot create new indirect tax exemption not otherwise granted in the NPC charter as amended by PD No. 938. ISSUE: Whether or not there was undue delegation of power. NO. HELD: ñ Delegation of legislative power has become the rule and its nondelegation the exception. ñ With the increasing complexity of modern life and many technical fields of governmental functions, as in matters pertaining to tax exemptions, specialization even in legislation has become necessary. In many of today's undertakings, the legislature may not have the competence, let alone the interest and the time, to provide the required direct, efficacious, and specific solutions. ñ The legislative authority could not or is not expected to state all the detailed situations wherein the tax exemption privileges of 24

persons or entities would be restored. The task may be assigned to an administrative body like the FIRB

ñ Here, the questioned FIRB Reso No. 17-87 was approved by the Executive Secretary, by authority of the President, on October 15, 1987. ñ While the Justice Secretary, in Opinion No. 77, was of the view that the powers conferred upon the FIRB under EO No. 93 constitute undue delegation of legislative power, this was overruled by the Executive Secretary in a letter to the Finance Secretary. ñ Moreover, all presumptions are indulged in favor of the constitutionality and validity of the statute. Such presumption can be overturned if its invalidity is proved beyond reasonable doubt. Otherwise, a liberal interpretation in favor of constitutionality of legislation should be adopted. ñ The tax exemption is intended not only to insure that the NPC shall continue to generate electricity for the country but more importantly, to assure cheaper rates to be paid by consumers. ñ NPC is a non-profit public corporation created for the general good and welfare of the people. From the very beginning of its corporate existence, NPC enjoyed preferential tax treatment to enable it to pay its debts and obligations. From the changes made in the NPC charter, the intention to strengthen its preferential tax treatment is obvious. OSMEÑA v. ORBOS Narvasa, C.J. 31-Mar-93 25

ñ E.O. No. 93 is complete in itself and constitutes a valid delegation of legislative power to the FIRB. ñ The required "standard" in the delegation of power need not be expressed. As held in Edu vs. Ericta and De la Llana vs. Alba: "The standard may be either express or implied. If the former, the nondelegated objection is easily met. The standard though does not have to be spelled out specifically. It could be implied from the policy and purpose of the act considered as a whole." ñ Examples of “broad standard” upheld in jurisprudence are those of “public interest,” “public welfare,” “promotion of simplicity, economy, and efficiency,” and “national security.” ñ Here, EO 93 clearly set the policy to be the greater national interest. The standards of the delegated power are also clearly provided for. ñ The Executive Secretary, by authority of the President, has the power to modify, alter or reverse the construction of a statute given by a department secretary. ñ Contrary to Maceda's claim that the approval of the President was not required in EO 93 in granting tax exemptions, Section l(f) of the same law states that such tax and duty exemptions extended by the FIRB must be approved by the President.

vs. OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents. FACTS: President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). OPSF was designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. The OPSF was reclassified into a “trust liability account” in virtue of E.O. 1024, and ordered released from the National Treasury to the Ministry of Energy. Said E.O. also authorized the investment of the fund in government securities, with the earnings from such placements accruing to the fund. P.D. 1956 was amended by E.O. 137, expanding the grounds for reimbursement to oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the amount of the underrecovery being left for determination by the Ministry of Finance. Petitioner Osmena alleges that the creation of the trust fund violates Sec. 29(3), Article VI of the Constitution.[1] He argued that

"the monies collected pursuant to…P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channeled to another government objective." Since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created."

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies collected, which form part of the OPSF, should be maintained in a special account of the general fund for the reason that the Constitution so provides, and because they are, supposedly, taxes levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a portion thereof is taken from collections of ad valorem taxes and the increases thereon. ISSUE: WON the creation of the trust fund violates Sec. 29(3), Article VI of the Constitution HELD/RATIO: NO. Petitioner’s argument rests on the assumption that the OPSF is a form of revenue measure drawing from a special tax to be expended for a special purpose. This is not correct. The OPSF was established precisely to protect local consumers from the adverse consequences that such frequent oil price adjustments may have upon the economy. Thus, the OPSF serves as a pocket, as 26

it were, into which a portion of the purchase price of oil and petroleum products paid by consumers as well as some tax revenues are inputted and from which amounts are drawn from time to time to reimburse oil companies, when appropriate situations arise, for increases in, as well as underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism through which the domestic consumer prices of oil and petroleum products are stabilized, instead of fluctuating every so often, and oil companies are allowed to recover those portions of their costs which they would not otherwise recover given the level of domestic prices existing at any given time. To the extent that some tax revenues are also put into it, the OPSF is in effect a device through which the domestic prices of petroleum products are subsidized in part. It appears to the Court that the establishment and maintenance of the OPSF is well within that pervasive and nonwaivable power and responsibility of the government to secure the physical and economic survival and well-being of the community, that comprehensive sovereign authority we designate as the police power of the State. The stabilization, and subsidy of domestic prices of petroleum products and fuel oil — clearly critical in importance considering, among other things, the continuing high level of dependence of the country on imported crude oil — are appropriately regarded as public purposes. In Gaston v. Republic Planters Bank, this Court upheld the legality of the sugar stabilization fees. The stabilization fees collected are in the nature of a tax, which is within the power of the State to impose for the promotion of the sugar industry. The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory

purpose, to provide a means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State. The fact that the State has taken possession of moneys pursuant to law is sufficient to constitute them state funds, even though they are held for a special purpose. Having been levied for a special purpose, the revenues collected are to be treated as a special fund, to be, in the language of the statute, "administered in trust" for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance if any, is to be transferred to the general funds of the Government. Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. Petition is GRANTED insofar as it prays for the nullification of the reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects. [1] (3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purposes only. If the purpose for which a special fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the general funds of the Government.

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TITLE: CIR V. CA AND FORTUNE TOBACCO AUTHOR: Gil Aquino FACTS

copy of RMC 37-93. CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. ISSUE W/N it was necessary for BIR to follow the legal requirements when it issued its RMC

Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune changed the names of 'Hope' to 'Hope Luxury 'and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category.

DISPOSITION YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers which publication, filing, and prior hearing. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. BUT when, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, the agency must accord, at least to those directly affected, a chance to be heard, before that new issuance is given the force and effect of law. RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654 which subjects mentioned brands to 55% the BIR not simply interpreted the law; verily, it legislated under its quasilegislative authority. The due observance of the requirements of 28

A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654 was enacted – 55% for locally manufactured foreign brand while 45% for locally manufactured brands. 2 days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR saying since there is no showing who the real owner/s are of Champion, Hope and More, it follows that the same shall be considered locally manufactured foreign brand for purposes of determining the ad valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco addressed to no one in particular. Then Fortune Tobacco received, by ordinary mail, a certified xerox

notice, of hearing, and of publication should not have been then ignored.

ILOILO BOTTLERS, INC., plaintiff-appellee, vCITY OF ILOILO, defendant-appellant. CORTES, J.: FACTS

Section 1-A—For purposes of this Ordinance, all deliveries and/or dispatches emanating or made at the plant and all goods or stocks taken out of the plant for distribution, sale or exchange irrespective (of) where it would take place shall be covered by the operation of this Ordinance. ISSUE WON Iloilo Bottlers, Inc. which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks. DISPOSITION Yes, the company is liable for taxes The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of: distribution of soft-drinks manufacture of soft-drinks, and bottling of softdrinks within the territorial jurisdiction of the City of Iloilo. There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no longer manufactured/bottled its softdrinks within Iloilo City. The resolution of this case therefore hinges on whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred 29

Iloilo Bottlers however subsequently transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is outside the jurisdiction of the City of Iloilo and it stopped paying the municipal license tax IN 1972, Iloilo Bottlers, Inc. prayed for the recovery of the sum of P3,329.20, which amount allegedly constituted payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended, that the company paid under protest. Section l. — Any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola, pepsi cola, truorange, seven-up and other soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED, HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles.

its bottling plant to Pavia, so as to be within the purview of the ordinance. To determine WON it is involved in selling, its system must be looked into. first system: the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office.--not selling/ dealing second system: sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. ---selling In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore

much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling them. As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to declare the company liable under the tax ordinance. With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the parties. TITLE: SMITH V CIR AUTHOR: FACTS: Donald Smith is a citizen of the United States and works as Controller of Coastal Subic Bay Terminal Inc,(CSBTI) a business entity located within the Subic Special Economic Zone (SSEZ), as created by Republic Act 7227, and was issued by the Subic Bay Metropolitan Authority(SBMA) a Certificate of Registration and Tax Exemption. On April 15, 1999, Smith filed his annual income tax return and paid P1,533,660.70 in compensation income taxes for the income he derived from his employment with CSBTI.

(c) THE PROVISION OF EXISTING LAWS, RULES AND REGULATIONS TO THE CONTRARY NOTWITHSTANDING, NO TAXES, LOCAL AND 30

NATIONAL, SHALL BE IMPOSED WITHIN THE SUBIC SPECIAL ECONOMIC ZONE. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%)each to the local government units affected by the declaration of the zone in proportion to their population area, and other factors. In addition, there is hereby established a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to the base areas. IN CASE OF CONFLICT BETWEEN NATIONAL AND LOCAL LAWS WITH RESPECT TO TAX EXEMPTION PRIVILEGES IN THE SUBIC SPECIAL ECONOMIC ZONE, THE SAME SHALL BE RESOLVED IN FAVOR OF THE LATTER. ISSUE : Whether or not aliens working within the Subic Special Economic Zone are subject to Philippine income taxes on income earned from such employment DISPOSITION Yes. The phrase NO TAXES, LOCAL AND NATIONAL, SHALL BE IMPOSED WITHIN THE SUBIC SPECIAL ECONOMIC ZONE must be read together with its subsequent phrases in order to realize the effect contemplated by the legislature. The whole paragraph belies his assertion that the SSEZ is indeed a tax-free territory. The term

"in lieu of paying taxes" as used in the law does not constitute an absolute exemption from taxation. While spared from national and local taxes, businesses and enterprises within the SSEZ are subjected to the said tax base on gross income. No matter what legal jargon is used, the said taxes are in fact taxes imposed on businesses or enterprises operating within the SSEZ. Thus, it is incorrect to say that SSEZ is actually a tax-free territory. Individual aliens employed within the Subic Special Economic Zone (SSEZ) are not exempt from the awesome power of Philippine taxation especially so that they sourced out their earnings from within the Philippines. The secured area of SSEZ, is in reality part of the territorial jurisdiction of the Philippines.

TAÑADA, ET AL., V. ANGARA, ET AL., G.R. No. 118295, May 2, 1997 Ponente: Panganiban, J. Facts: On April 15, 1994, the Philippine Government represented by its Secretary of the Department of Trade and Industry signed the Final Act binding the Philippine Government to submit to its respective competent authorities the WTO (World Trade Organization) Agreements to seek approval for such. On December 14, 1994, Resolution No. 97 was adopted by the Philippine Senate to ratify the WTO Agreement. ISSUE: Whether the provisions of the WTO Agreement and its annexes limit, restrict, or impair the exercise of legislative power by 31

Congress, especially its taxation power (when WTO fixes tariff rates). NO. HELD: While sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to limitations and restrictions voluntarily agreed to by the Philippines as a member of the family of nations. One of the oldest and most fundamental rules in international law is pacta sunt servanda — international agreements must be performed in good faith. “A treaty engagement is not a mere moral obligation but creates a legally binding obligation on the parties xxx. A state which has contracted valid international obligations is bound to make in its legislation such modifications as may be necessary to ensure the fulfillment of the obligations undertaken. By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their state power in exchange for greater benefits granted by or derived from a convention or pact. After all, states, like individuals live with coequals, and in pursuit of mutuality covenanted objectives and benefits, they also commonly agree to limit the exercise of their otherwise absolute rights. The sovereignty of a state therefore cannot in fact and in reality be considered absolute. Certain restrictions enter into the picture: (1) limitations imposed by the very nature of membership in the family of nations and (2) limitations imposed by treaty stipulations.

Dispositive: The Court DISMISSED the petition. It sustained the concurrence of the Philippine Senate of the President’s ratification of the Agreement establishing the WTO. Manila International Airport Authority v Court of Appeals Tine Cengca Facts: MIAA operates NAIA by virtue of Executive Order 903Revised Charter of MIAA MIAA negotiated with Paranaque City for the payment of real estate taxes but MIAA eventually received their Final Notice of Real Estate Tax Delinquency showing that it has a deficit of Php 624,506,725.42 Paranaque City levied on the properties of MIAA

OGCC issued Opinion No. 147 stating that Local Government Code requires proof for an entity before it can claim exemption from real estate taxes and for MIAA it is Section 21 of the Charter MIAA filed prohibition suit against Paranaque to prevent it from selling at auction their properties as well as to exempt MIAA from real estate taxes but it was dismissed for being filed out of time MIAA was able to procure TRO 3 hours before the scheduled auction sale

32

MIAA: Paranaque cannot foreclose on lands and buildings because this is government property. Since these are inalienable, it is not subject to real property tax o Taxing state properties will not be favorable because the tax debtor is also the tax creditor Paranaque: Local Government Code has removed the exemptions to GOCCs Issue: WON airport lands and buildings are exempted from real estate taxes. Disposition: Yes MIAA/ airport land and buildings are exempt from real estate taxes o MIAA is not a GOCC, it is an instrumentality of the government § It has no capital stocks divided into shares § MIAA has no members § It will not qualify as a non stock corporation because non stock corporations is required not to distribute any part of its income to its members officers but MIAA is required to remit 20% of its income to National Treasury § MIAA is a public utility and it is not organized for charitable, religious, educational, professional, cultural, recreational, fraternal,

literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers § MIAA exercises powers of eminent domain, police power, power to levy fees and powers of a corporation § Government instrumentalities fall under Section 133 (o) of Local Government Code – local government cannot tax national government o Imposition of tax to local government to national government should be construed strictly, tax is never presumed it has to explicitly stated o Tax exemption is strictly construed against taxpayer claiming exemption o when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality o no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations o Real properties of MIAA are government properties § Airport lands and buildings are public dominion because they are used for international and domestic transportation 33

§ Article 420 (public dominion) ports – includes both airport and seaports § Charging of fees to the public does not determine whether it is public dominion or not § Air lands and buildings are outside the commerce of man § Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy o MIAA is just a trustee of the government o Transfer of lands and buildings to MIAA is a means for reorganization o Real property owned by the republic is not taxable (LGC 234) PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY v. COURT OF APPEALS, OFFICE OF THE PRESIDENT, DEPARTMENT OF FINANCE and the CITY OF ILOILO (2007) PONENTE:YNARES-SANTIAGO FACTS: 1. Tax: Real Estate Taxes

b. 3.

Leased portions of the IFPC to private firms and individuals. Iloilo Fishing Port Complex (IFPC)

a. Reclaimed 21-hectares parcel of land , consists of breakwater, landing, quay, refrigeration building, market hall, municipal shed, administration building, water & fuel oil supply system and other port related facilities and machineries. (built by the Ministry of Public Works) b. c. Owned by the Republic of the Philippines Operated and governed by the Authority

4. May 1988: City of Iloilo assessed the entire IFPC for real property taxes. Taxes remained unpaid and the City of Iloilo scheduled the sale of the IFPC at public auction. 5. The Authority files an injunction case and claims tax exemption. Iloilo City Assessor's Office denied the claim for Tax Exemption. 6. Department of Finance: The Authority should pay the City of Iloilo real estate taxes because it enjoys the beneficial use of the IFPC; however, the IFPC cannot be auctioned to satisfy the amount of the unpaid real property taxes since the IFPC is the property of the Republic. Property of the Authority should be sold at public auction. 7. Office of the President: Affirms Department of Finance decision. 34

a. Created by PD 977, EO 292 attached it to the Department of Agriculture

8. CA: affirms Office of the President decision, but IFPC may be sold at public auction to satisfy tax delinquencies. ISSUE: WON the Authority is liable to pay Real Property Taxes to the City of Iloilo? (YES and NO, City should tax only property leased to private parties) a. Is the Authority a GOCC or an instrumentality of the national government (ING)? (ING) b. WON the IFPC is a property of public dominion? (YES – therefore, cannot be sold at auction) DISPOSITION: 1. MIAA v. CA: Exempt from local taxes except for Real Property Taxes on property it leased to private parties. a. GOCC: organized as a stock or non-stock corporation (not exempt from taxes i. Stock: Has capital stock divided into shares, has stockholders or voting shares and authorized to distribute dividends to its stockholders. ii. b. Non-Stock: has members

1. 2. 3.

Has capital stock, but it is not divided into shares No stockholders or voters No members.

4. Exercises the general corporate powers conferred by laws upon private corporations and GOCCs. ii. Definition: An agency of the national government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter.13 When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate power iii. Exempt from local taxes pursuant to Sec 133(o) of Local Government Code. · EXCEPTION: Real Property taxes - when an instrumentality of the national government grants to a taxable person the beneficial use of a real property owned by the Republic, said instrumentality becomes liable to pay real property tax. (Sec 234(a))[1] Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with respect to the portions leased to private persons. 35

Instrumentality of the national government (ING) i. The Authority was cited as an ING in MIAA v. CA.

2. In case the Authority fails to pay the real property taxes on the portions leased to private parties, said portions cannot be sold at public auction to satisfy the tax delinquency because the IFPC is property of public dominion. a. Chavez v. Public Estates Authority

[2] ARTICLE 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. City of Baguio v. De Leon 31-Oct-68 Facts: The City Attorney filed a complaint against for paying P300 in assessments, it being shown that he was engaged in property rental and deriving income therefrom. The latter assailed the validity of the ordinance arguing that it is ultra vires for violating the requirement of uniformity. Issue: WON there was a violation of uniformity in taxation through the ordinance. NO Ratio: On its face, the ordinance cannot be assailed as violative of the constitutional requirement of uniformity. To satisfy the requirement 36

i. Reclaimed lands are lands of the public domain and cannot without Congressional fiat, be subject of a sale, public or private. ii. The port built by the State is a property of the public dominion and cannot be sold at public auction. (Art 420 of NCC)[2] PETITION GRANTED. Real property tax assessments declared VOID except those pertaining to portions leased to private parties. City of Iloilo TO REFRAIN FROM LEVYING on the IFPC to satisfy payment of tax delinquencies.

CASE DIGEST by LILIAN DY

[1] SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.

the statute or ordinance in question need "applies equally to all persons, firms and corporations placed in similar situation" (Uy Matias v. Cebu). Lutz v. Araneta: "Inequalities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation." There is thus nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof.

2. The City of Butuan enacted Ordinance No. 110, subsequently amended by Ordinance No. 122, which imposes a tax of P0.10 per case of 24 bottles of Pepsi-Cola: · To be paid by any agent and/or consignee of any dealer engaged in selling liquors, imported or local, in the City · Tax based and computed from the cargo manifest or bill of lading or any other record showing the number of cases of soft drinks, liquors or all other soft drinks or carbonated drinks received within the month · Applicable to soft drinks, liquors or carbonated drinks "received outside" but "sold within" the City 3. Pepsi-Cola paid under protest a total of P14,177.03. It then filed a complaint for the recovery of such amount on the ground that Ordinance No. 110 as amended is illegal, that the tax imposed is excessive and unconstitutional. 4. CFI dismissed complaint.

The violation of uniformity is out of place, it being widely recognized that there is nothing inherently obnoxious in the requirement that license fees or taxes be exacted with respect to the same occupation, calling or activity by both the state and the political subdivisions thereof TITLE: Pepsi-Cola Bottling v. City of Butuan AUTHOR: Chief Justice Concepcion

5. Pepsi-Cola appealed to the SC. It maintains that the ordinance is null and void because: (1) It partakes of the nature of an import tax (2) It amounts to double taxation

1. Pepsi-Cola has a warehouse in Butuan City where Pepsi softdrinks, bottled in Cebu City, are shipped and stored for distribution and sale in the said city and all municipalities of Agusan.

(3) It is excessive, oppressive and confiscatory (4) It is highly unjust and discriminatory 37

(5) Sec. 2 of Republic Act No. 2264, upon the authority of which it was enacted, is anunconstitutional delegation of legislative powers ISSUE: WoN the disputed ordinance is null and void? YES DISPOSITION: Appealed decision REVERSED. Ordinance 110 as amended ANNULLED. City of Butuan to REFUND amount paid under protest. 1. Contentions #2, 3, and 5 are devoid of merit.

4. Classification of objects of taxation, to be valid, must be reasonable and this requirement is not deemed satisfied unless: · It is based upon substantial distinctions which make real differences · These are germane to the purpose of the legislation or ordinance · The classification applies, not only to present conditions, but, also, to future conditions substantially identical to those of the present; and · The classification applies equally to all those who belong to the same class IN THE CASE AT BAR, these conditions are not fully met (RELEVANT) ABRA VALLEY COLLEGE, INC. V. AQUINO (G.R. No. L-39086 June 15, 1988) PARAS, J.: By: Ernesto Herrera III

2. The tax partakes of the nature of an import duty, which is beyond the City's authority to impose by express provision of law: · Merchants engaged in the sale of soft drink or carbonated drinks, are not subject to the tax, unless they are agents and/or consignees of another dealer, who, in the very nature of things, must be one engaged in business outside the City · The tax shall be based and computed from the cargo manifest or bill of lading ... showing the number of cases not sold but received by the taxpayer 3. Tax is invalid as it is discriminatory, hence, violative of the uniformity required by the Constitution and the law therefor, since only sales by "agents or consignees" of outside dealers would be subject to the tax. Sales by local dealers, not acting for or on behalf of other merchants, regardless of the volume of their sales, and even if the same exceeded those made by said agents or consignees of producers or merchants established outside the City of Butuan, would be exempt from the disputed tax. (RELEVANT)

Facts:

38

Abra Valley Junior College (Abra Valley) is an educational institution duly incorporated with the SEC. In 1972, a Notice of Seizure and a Notice of Sale was issued against it by the Municipal Treasurer for non-payment of realty tax. The public sale was consummated. Abra Valley assailed the validity of the said public sale in the CFI, which upheld the validity of the said sale.

(this was raised for the first time in appeal, not in the stipulation of facts in the CFI level) Held: Section 22(3) Article VI, of the 1935 Philippine Constitution, expressly grants exemption from realty taxes for "Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used exclusively for religious, charitable or educational purposes...” YMCA of Manila vs. Collector of lnternal Revenue: Even if YMCA keeps a lodging and a boarding house and maintains a restaurant for its members, still these do not constitute business in the ordinary acceptance of the word, but an institution used exclusively for religious, charitable and educational purposes, and as such, it is entitled to be exempted from taxation. Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte: The exemption from payment of land tax in favor of the convent includes, not only the land actually occupied by the building but also the adjacent garden devoted to the incidental use of the parish priest. The lot which is not used for commercial purposes but serves solely as a sort of lodging place, also qualifies for exemption because this constitutes incidental use in religious functions. The exemption in favor of property used exclusively for charitable or educational purposes is 'not limited to property actually indispensable' therefore, but extends to facilities which are incidental to and reasonably necessary for the accomplishment of said purposes. 39

The CFI found that the main building of Abra Valley, the one which houses the secondary and tertiary levels, are also being used as the residence of the Director, including his family (2nd floor). · Issue: WON the main building is being used exclusively for educational purposes, hence exempt from payment of real property tax? Abra Valley: The primary use of the lot and building for educational purposes, and not the incidental use thereof, determines the exemption from property taxes. Respondents: The college lot and building are used: (1) as the permanent residence of the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the in-laws and grandchildren; and (2) for commercial purposes because the ground floor of the college building is being used and rented by a commercial establishment, the Northern Marketing Corporation

Apostolic Prefect v. City Treasurer of Baguio: The test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. However, reasonable emphasis has always been made that exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes. Otherwise stated, the use of the school building or lot for commercial purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of the second floor of the main building in the case at bar for residential purposes of the Director and his family, may find justification under the concept of incidental use, which is complimentary to the main or primary purpose— educational, the lease of the first floor thereof to the Northern Marketing Corporation cannot by any stretch of the imagination be considered incidental to the purpose of education. The trial court correctly concluded that the school building as well as the lot where it is built should be taxed, not because the second floor of the same is being used by the Director and his family for residential purposes, but because the first floor thereof is being used for commercial purposes. However, since only a portion is used for purposes of commerce, it is only fair that half of the assessed tax be returned to the school involved. TITLE: Lung Center of the Philippines v Quezon City AUTHOR: Kirby Hipolito Facts:

1. Lung Center of the Philippines is a non-stock and non-profit entity within the context of 1973 and 1987 constitutions established by virtue of PD No. 1823. A. A big space in the ground floor of the hospital-- canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics. B. A big portion on the right side of the hospital--- leased to Elliptical Orchids and Garden Center. 3. The City Assessor of Quezon City assessed both its land and hospital building for real property taxes. 4. The Lung Center of the Philippines filed a claim for exemption on its averment that it is a charitable institution with a minimum of 60% of its hospital beds exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. 5. City Assessor denied claim. 6. Lung Center petitioned for the reversal of the resolution of the City Assessor with the Local Board of Assessment Appeals of Quezon City, which denied the same. 7. On appeal, the Central Board of Assessment Appeals of Quezon City affirmed the local board’s decision, finding that Lung Center of the Philippines is not a charitable institution and that its properties were not actually, directly and exclusively used for charitable purposes. 40

8 PRESENT PETITION: Lung Center is a charitable institution under Section 28(3), Article VI of the Constitution, notwithstanding that it accepts paying patients and rents out portions of the hospital building to private individuals and enterprises.

them, whether paying or non-paying, other portions thereof are being leased to private individuals and enterprises. 3. Exclusive is defined as possessed and enjoyed to the exclusion of others, debarred from participation or enjoyment. If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. DISPOSITIVE: Petition partially granted TITLE: Osmena v Orbos AUTHOR: Narvasa, CJ FACTS: October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF) designed to reimburse oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustments and from increases in the world market prices of crude oil. Subsequently, the OPSF was reclassified into a "trust liability account,". President Corazon C. Aquino promulgated E. O. 137 expanding the grounds for reimbursement to oil companies for possible cost under recovery incurred as a result of the reduction of domestic prices of petroleum products. The petitioner Osmena alleged that the OPSF as of March 31, 1991 showed a "Terminal Fund Balance deficit" of some P12.877 billion and to abate the worsening deficit, "the Energy Regulatory 41

ISSUE: Is the Lung Center of the Philippines exempt from real property tax? PARTLY NO, Those portions of its real property that are leased to private entities are not exempt from actually, direct and exclusively used for charitable purpose. RATIO: 1. The Lung Center of the Philippines is a charitable institution. To determine whether an enterprise is a charitable institution or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, that character of the services rendered, the indefiniteness of the beneficiaries and the use and occupation of the properties. 2. However, under the Constitution, in order to be entitled to exemption from real property tax, there must be clear and unequivocal proof that (1) it is a charitable institution and (2)its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. While portions of the hospital are used for treatment of patients and the dispensation of medical services to

Board issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products. He also argued that the monies collected pursuant to P.D. 1956, as amended, must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund' to be used only for the purpose indicated, and not channeled to another government objective." He further points out that since "a 'special fund' consists of monies collected through the taxing power of a State, such amounts belong to the State, although the use thereof is limited to the special purpose/objective for which it was created." ISSUE Whether or not the funds collected under PD 1956 is an exercise of the power of taxation DISPOSITION No. While the funds collected may be referred to as taxes, they are exacted in the exercise of the POLICE POWER OF THE STATE. Moreover, that the OPSF is a special fund is plain from the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to the scrutiny and review of the COA. The Court is satisfied that these measures comply with the constitutional description of a "special fund." Indeed, the practice is not without precedent.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax." The Court is cited to this requirement by the petitioner on the premise that what is involved here is the power of taxation; but as already discussed, this is not the case. What is here involved is not so much the power of taxation as police power. Although the provision authorizing the ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be overlooked that the overriding consideration is to enable the delegate to act with expediency in carrying out the objectives of the law which are embraced by the police power of the State. Gaston v. Republic Planter’s Bank Date: March 15, 1988 Ponente: Melencio-Herrera, J. Facts: The shares are currently held by Philsucom / Sugar Regulatory Admin. The Solgen countered that the stabilization fees are considered government funds and that the transfer of shares to from Philsucom to the sugar producers would be irregular Issues: What is the nature of the P1.00 stabilization fees collected from sugar producers? Are they funds held in trust for them, or are they public funds? Are theshares in the bank (paid using these fees)

42

owned by the government Philsucom or privately by the different sugar planters from whom such fees were collected?

Held: PUBLIC FUNDS. While it is true that the collected fees were used to buy shares in RPB, it did not collect said fees for the account of sugar producers. The stabilization fees were charged on sugar produced and milled which ACCRUED TO PHILSUCOM, under PD 338. Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in trust by the Commission." However, while the element of an intent to create a trust is present, a resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued because the presumptive intention of the parties is not reasonably ascertainable from the language of the statute itself.

No implied trust in favor of the sugar producers either can be deduced from the imposition of the levy. "The essential Idea of an implied trust involves a certain antagonism between the cestui que trust and the trustee even when the trust has not arisen out of fraud nor out of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the sugar producers. It must be categorically demonstrated that the very administrative agency which is the source of such regulation would place a burden on itself The fees collected ARE IN THE NATURE OF A TAX., which is within the power of the state to impose FOR THE PROMOTION OF THE SUGAR INDUSTRY. They constitute sugar liens. The collections accrue to a SPECIAL FUNDS. It is levied not purely for taxation, but for regulation, to provide means TO STABILIZE THE SUGAR INDUSTRY. The levy is primarily an exercise of police powers. The fact that the State has taken money pursuant to law is sufficient to constitute them as STATE FUNDS, even though held for a special purpose. Having been levied for a special purpose, the revenues are treated as a special fund, administered in trust for the purpose intended. Once the purpose has been fulfilled or abandoned, the balance will be transferred to the general funds of gov’t. It is a special fund since the funds are deposited in PNB, not in the National Treasury. The sugar planters are NOT BENEFICIAL OWNERS. The money is collected from them only because they it is also they who are to be benefited from the expenditure of funds 43

The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general rule, it arises where, and only where such may be reasonably presumed to be the intention of the parties, as determined from the facts and circumstances existing at the time of the transaction out of which it is sought to be established (89 C.J.S. 947).

derived from it. The investing of the funds in RPB is not alien to the purpose since the Bank is a commodity bank for sugar, conceived for the sugar industry’ growth and development Revenues derived from taxes cannot be used purely for private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the ENTIRE SUGAR INDUSTRY, and all its components, stabilization of domestic and foreign markets, since the sugar industry is of vital importance to the country’s economy and national interest Title: Tan v. Del Rosario Author: Mohammadsali, Al-azree Facts: · R.A. 7496, the Simplified Net Income Taxation (SNIT) Act, was passed, amending certain provisions of the NIRC. Two petitions were filed; one challenging the constitutionality of said law and the other assailing Sec. 6 of Revenue Regulation 2-93 (IIR of the law). · It was contended that the law violates the following constitutional provisions: 1) Art. VI, Sec. 26 (1) [one title, one subject]; 2) Art. VI, Sec. 28 [rule on taxation: uniform, equitable and progressive]; and 3) Art. III, Sec. 1 [due process and equal protection clauses]. SNIT was said to differentiate taxation among single proprietorship, professionals, corporations and partnerships. · The revenue regulation was assailed for having been issued in excess of the allowed authority, because it allegedly altered the law.

Issue: WON the assailed law is violative of due process? WON the revenue regulation altered the law? Disposition No. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. No such contravention obtains in this case. The classification of SNIT is actually observed in the law it amended, the NIRC. The Court went on to discuss the uniformity of taxation, pointing out its similarity to the concept of equal protection, and its validity. Classification is valid: 1) where there are substantial standards; 2) such classification is germane to the legislative intent; 3) application to present and future conditions; 4) equal application to same class. Tested by the foregoing, the Court found that there is valid classification of taxpayers. Noteworthy, too, is the fact that SNIT is an amendatory law to the NIRC, which has already provided a valid classification of taxpayers. No. A close reading of the regulation would reveal that it has actually affirmed the amendatory nature of the law. It has clarified the rule on taxation of partnerships and individuals. Sison v Ancheta P: Fernando,C J. Facts: 44

In this petition for declaratory relief, petitioner alleges that Batas Pambansa Blg. 135, Sec. 1, imposing a tax on taxable compensation income, separate and distinct from taxable net income, violates the equal protection clause of the Constitution as he “would be unduly discriminated against by the imposition of higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which are imposed upon fixed income or salaried individual taxpayers.” Petitioner also claims that the imposition is a violation of due process forbeing arbitrary and capricious. Petitioner also claims that the provisions in question violate the Constitutional provision on the uniformity of taxes.

where the assailed tax measure is beyond the jurisdiction of the state, or is not for a public purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject to attack on due process grounds.” Disposition: Petition is DISMISSED AMERICAN BIBLE SOCIETY (ABS) vs. CITY OF MANILA (1957, Felix) Topic: Religious Freedom provision indirectly affecting Taxation

Issues (relevant to subject heading “Due Process”): Is Sec. 1 of BP 135 violative of due process? Held/Ratio: No. “It is undoubted that the due process clause may be invoked where a taxing statute is so arbitrary that it finds no support in the Constitution. An obvious example is where it can be shown to amount to the confiscation of property. That would be a clear abuse of power. It then becomes the duty of this Court to say that such an arbitrary act amounted to the exercise of an authority not conferred. That properly calls for the application of the Holmes dictum (“The power to tax is not the power to destroy while this Court sits,” as cited earlier in the case). It has also been held that

FACTS: In the course of its ministry, ABS's Philippine agency has been distributing and selling bibles and/or gospel portions thereof throughout the Philippines and translating the same into several Philippine dialects. ABS paid under protest the said permit and license fees (P5,821), then filed a complaint praying that judgment be rendered declaring the said Municipal Ordinances illegal and unconstitutional, and that the City of Manila be ordered to refund ABS. Manila’s defense was that said ordinances were enacted by the Municipal Board of the City of Manila by virtue of the power granted to it by Revised Charter of the City of Manila, and praying for dismissal. ABS arguments: Ordinances Nos. 2529 and 3000 are unconstitutional and illegal in so far as its society is concerned, because they provide for religious censorship and restrain the free exercise and enjoyment of its religious profession, to wit: the 45

distribution and sale of bibles and other religious literature to the people of the Philippines. It has been in existence in the Philippines since 1899, and that it was never required to pay any municipal license fee or tax before the war, nor does the ABS in the US (parent company) pay any license fee or sales tax for the sale of bible therein. ABS also tried to establish that it never made any profit from the sale of its bibles, which are disposed of for as low as 1/3 of the cost. City of Manila arguments: Admissions of ABS’s lone witness who testified on cross-examination that bibles are sold here at a higher price, show that ABS's contention that it never makes any profit from the sale of its bible, is untenable. Lower Court: dismissed the case. CA: Certified the case SC. ISSUE: Whether said ordinances are inapplicable, invalid or unconstitutional if applied to the alleged business of distribution and sale of bibles to the people of the Philippines by a religious corporation like the American Bible Society. HELD: Ordinance No. 2529 is not applicable to ABS and City of Manila is powerless to license or tax the business of ABS involved herein for it would impair ABS's right to the free exercise and enjoyment of its religious profession and worship, as well as its rights of dissemination of religious beliefs. Ordinance No. 3000 is also inapplicable to said business, trade or occupation of the ABS.

RATIO: Ordinance No. 3000 of the City of Manila requires businesses, trades or occupations, except those upon which the City is not empowered to license or to tax, to secure a permit from the Mayor and a license from the city treasurer. Therefore, the necessity of the permit is made to depend upon the power of the City to license or tax said business, trade or occupation. Ordinance No. 2529 prescribes quarterly payment of license fees based on gross sales to the City Treasurer for engaging in any of the businesses or occupations, including retail "dealers in general merchandise". The Constitution provides that: No law shall be made respecting an establishment of religion, or prohibiting the free exercise thereof, and the free exercise and enjoyment of religious profession and worship, without discrimination or preference, shall forever be allowed. No religion test shall be required for the exercise of civil or political rights. The constitutional guaranty of the free exercise and enjoyment of religious profession and worship carries with it the right to disseminate religious information. Any restraints of such right can only be justified like other restraints of freedom of expression on the grounds that there is a clear and present danger of any substantive evil which the State has the right to prevent". In the case at bar the license fee herein involved is imposed upon appellant for its distribution and sale of bibles and other religious literature. 46

The power to tax the exercise of a privilege is the power to control or suppress its enjoyment. . . . Those who can tax the exercise of this religious practice can make its exercise so costly as to deprive it of the resources necessary for its maintenance. Those who can tax the privilege of engaging in this form of missionary evangelism can close all its doors to all those who do not have a full purse. The power to impose a license tax on the exercise of a privilege granted by the Bill of Rights is indeed as potent as the power of censorship which this Court has repeatedly struck down. . . . It is not a nominal fee imposed as a regulatory measure to defray the expenses of policing the activities in question. It is in no way apportioned. It is flat license tax levied and collected as a condition to the pursuit of activities whose enjoyment is guaranteed by the constitutional liberties of press and religion and inevitably tends to suppress their exercise. That is almost uniformly recognized as the inherent vice and evil of this flat license tax." 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 this cannot mean that ABS was engaged in the business or occupation of selling said "merchandise" for profit. Therefore, Ordinance No. 2529 cannot be applied to ABS, for in doing so it would impair its free exercise and enjoyment of its religious profession and worship as well as its rights of dissemination of religious beliefs. As Ordinance No. 2529 of the City of Manila is not applicable to ABS and the City of Manila is powerless to license or tax the business of ABS, Ordinance No. 3000 is also inapplicable to ABS.

Digest by Agee Romero ARTURO M. TOLENTINO vs. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE Author: Joel (edited a digest I found) G.R. No. 115455 October 30, 1995 Mendoza, J. Doctrine: Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense. Facts: These are motions seeking reconsideration of our decision dismissing the petitions filed in these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several petitioners in these cases. CREBA (Chamber of Real Estate and Builders Association, Inc), one of the petitioners, asserts that R.A. No. 7716 impairs the obligations of contracts. It is claimed that the application of the tax to existing contracts of the sale of real property by installment or on deferred 47

payment basis would result in substantial increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it is pointed out, is something that the buyer did not anticipate at the time he entered into the contract. Issue/Held:

Disposition: motions for reconsideration are denied with finality PHILIPPINE ACETYLENE CO v. COMMISSIONER OF INTERNAL REVENUE GR No. L-19707 17-Aug-67

Ratio: In a previous case, this Court has held: “Authorities from numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of the Constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the possible exercise of the rightful authority of the government and no obligation of contract can extend to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935))

J. Castro

Topic: VII. B.2. Indirect Tax (paid by persons who can shift the burden upon someone else) Facts: ñ Philippine Acetylene Co. is engaged in the manufacture and sale of oxygen and acetylene gases. ñ It sold its products to the National Power Corporation (NAPOCOR) and the Voice of America (VOA), an agency of the US Government. ñ The sales to the NPC amounted to P145,866.70, while those to the VOA amounted to P1,683.00. ñ The Commissioner of Internal Revenue assessed deficiency sales tax and surcharges against the Phil. Acetylene, demanding from the company the payment of P12,910.60 as deficiency sales tax and surcharge, pursuant to Sec. 186 and Sec 183 of the National Internal Revenue Code which involves the payment of percentage taxes. 48

ñ Phil. Acetylene denied liability for the payment of tax on the ground that both NAPOCOR and VOA are exempt from taxes. ñ Phil. Acetylene argued that as NPC enjoys a tax exemption by virtue of an act of Congress, the immunity would be impaired by the imposition of a tax on sales made to the company because while the tax is paid by the manufacturer or producer and ultimately shifted by the latter to the former. To strengthen its claim, it cited a 1954 opinion of the Justice Secretary which ruled that NPC is exempt from payment of all taxes "whether direct or indirect."

amount is billed as tax to the purchaser. The method of listing the price and the tax separately and defining taxable gross receipts as the amount received less the amount of the tax added, merely avoids payment by the seller of a tax on the amount of the tax. The effect is still the same, namely, that the purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all and the amount added because of the tax is paid to get the goods and for nothing else. ñ But the tax burden may not even be shifted to the purchaser at all. A decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer be contended that a sales tax is a tax on the purchaser.

ñ CIR denied Phil. Acetylene’s motion for reconsideration of the assessment and affirmed that the company is liable for the tax on sales to both NPC and VOA, pursuant to the NIRC. ñ CTA similarly denied Phil. Acetylene's appeal. Issue: Whether or not Phil. Acetylene is exempt from the tax. NO. Held: ñ Sales tax are paid by the manufacturer or producer who must make a true and complete return of the amount of his, her or its gross monthly sales, receipts or earnings or gross value of output actually removed from the factory or mill, warehouse and to pay the tax due thereon. ñ It may indeed be that the economic burden of the tax finally falls on the purchaser; when it does the tax becomes a part of the price which the purchaser must pay. It does not matter that an additional

ñ Here, the tax on the sale of articles or goods in Sec. 186 of the Code is a tax on the manufacturer and not on the buyer with the result that Phil. Acetylene, the manufacturer or producer of oxygen and acetylene gases sold to NPC, cannot claim exemption from the payment of sales tax simply because its buyer — the NPC — is exempt from the payment of all taxes.

ñ The sales to the VOA are subject to the payment of percentage taxes under Sec. 186 of the Code. Only sales made "for exclusive use in the construction, maintenance, operation or defense of the bases," in a word, only sales to the quartermaster, are exempt under article V from taxation. Sales of goods to any other party even if it be an agency of the United States, such as the VOA, or even to 49

the quartermaster but for a different purpose, are not free from the payment of the tax.

the Phils. The sum of P250k was appropriated out of the funds in the Philippine Treasury for the purpose of organizing the NPC main source of funds for the NPC was the flotation of bonds in the capital markets C.A. No. 344 was enacted increasing to P550k the funds needed for the initial operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first construction of any hydraulic power project was to be decided by the NPC Board. The provision on tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted. R.A. No. 357 was enacted authorizing the President to guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC loans. He was also authorized to contract on behalf of the NPC with the International Bank for Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate objectives and for the reconstruction and development of the economy It was expressly stated that: Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges, contributions and restrictions of the Republic of the Philippines, its provinces, cities and municipalities. R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. As to the pertinent tax exemption provision, the law stated as follows:To facilitate payment of its indebtedness, the National Power Corporation shall be 50

ñ Philippine Acetylene is thus liable for P12,910.60

Sales to NPC P145,866.70 Sales to VOA P 1,683.00 Total sales subject to tax P147,549.70 7% sales tax due thereon P 10,328.48 Add: 25% surcharge P 2,582.12

Total amount due and collectible P 12,910.60 MACEDA vs.HON. CATALINO MACARAIG Tumlos, Gina

Facts: C.A. No. 120 was enacted creating the National Power Corporation to develop hydraulic power from all water sources in

exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities and municipalities R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD, the President was authorized to negotiate, contract and guarantee loans with the Export-Import Bank of of Washigton, D.C. or any other international financial institution. R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real estate taxes: To facilitate payment of its indebtedness, the National Power Corporation shall be exempt from all taxes, except real property tax, and from all duties, fees, imposts, charges, and restrictions of the Republic of the Philippines, its provinces, cities, and municipalities

by any authority, branch, division or political subdivision thereof which facts shall be stated upon the face of said bonds. . . As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Sec 8(), states as follows: The loans, credits and indebtedness contracted under this subSec and the payment of the principal, interest and other charges thereon, as well as the importation of machinery, equipment, materials and supplies by the Corporation, paid from the proceeds of any loan, credit or indebtedeness incurred under this Act, shall also be exempt from all taxes, fees, imposts, other charges and restrictions, including import restrictions, by the Republic of the Philippines, or any of its agencies and political subdivisions. 25

R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was authorized to incur to US$100m from the US$50m ceiling in R.A. No. 357. The tax provision related to the repayment of these loans was not amended nor deleted. R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120, as amended As to the issuance of bonds by the NPC, Paragraph No. 3 of Sec 8(a), states as follows: The bonds issued under the authority of this subSec shall be exempt from the payment of all taxes by the Republic of the Philippines, or

A new Section was added to the charter, now known as Sec 13, R.A. No. 6395, which declares the non-profit character and tax exemptions of NPC as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Sec one of this Act, the Corporation is hereby declared exempt: (a) From the payment of all taxes, duties, fees, imposts, charges costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of 51

the Philippines, its provinces, cities, and municipalities and other Gov’t agencies and instrumentalities; (b) From all income taxes, franchise taxes and realty taxes to be paid to the National Gov’t, its provinces, cities, municipalities and other Gov’t agencies and instrumentalities; (c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects; and (d) From all taxes, duties, fees, imposts and all other charges its provinces, cities, municipalities and other Gov’t agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power. P.D. No. 40 was issued declaring that the electrification of the entire country was one of the primary concerns of the country. P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to P2 Billion, 29 its total domestic indebtedness was pegged at a maximum of P3 Billion at any one time, and the NPC was authorized to borrow a total of US$1 Billion in foreign loans. The relevant tax exemption provision for these foreign loans states:

The loans, credits and indebtedness contracted under this subSec and the payment of the principal, interest and other charges thereon, as well as the importation of machinery, equipment, materials, supplies and services, by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions, including import restrictions previously and presently imposed, and to be imposed by the Republic of the Philippines, or any of its agencies and political subdivisions. Sec 13(a) and 13(d) of R.A. No 6395 were amended to read as follows: (a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to the Republic of the Philippines, its provinces, cities, municipalities and other Gov’t agencies and instrumentalities including the taxes, duties, fees, imposts and other charges provided for under the Tariff and Customs Code of the Philippines, R.A. Numbered Nineteen Hundred Thirty-Seven, as amended, and as further amended by Presidential Decree No. 34 dated October 27, 1972, and Presidential Decree No. 69, dated November 24, 1972, and costs and service fees in any court or administrative proceedings in which it may be a party; (d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the Philippines, its provinces, cities, municipalities and other Gov’t agencies and instrumentalities, on all petroleum products used by the 52

Corporation in the generation, transmission, utilization and sale of electric power. P.D. No. 758 was issued directing that P200M would be appropriated annually to cover the unpaid subscription of the Gov’t in the NPC authorized capital stock, which amount would be taken from taxes accruing to the General Funds of the Gov’t, proceeds from loans, issuance of bonds, treasury bills or notes to be issued by the Secretary of Finance PD. No. 938 was issued which stated:

total foreign loan ceiling was raised to US$4 Billion 41 and Sec 13 of R.A. No. 6395, was amended to read as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay to its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Sec one of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. 42 On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931 and EO No. 93 (S'86). P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to imports as follows: Sec. 1. All importations of any Gov’t agency, including GOCCs which are exempt from the payment of customs duties and internal revenue taxes, shall be subject to the prior approval of an InterAgency Committee

(I)n view of the accelerated expansion programs for generation and transmission facilities which includes nuclear power generation, the present capitalization of National Power Corporation (NPC) and the ceilings for domestic and foreign borrowings are deemed insufficient; (I)n the application of the tax exemption provisions of the Revised Charter, the non-profit character of NPC has not been fully utilized because of restrictive interpretation of the taxing agencies of the Gov’t on said provisions; (I)n order to effect the accelerated expansion program and attain the declared objective of total electrification of the country, further amendments of certain Secs of R.A. No. 6395, as amended by Presidential Decrees Nos. 380, 395 and 758, have become imperative; Thus NPC's capital stock was raised to P8 Billion, 39 the total domestic indebtedness ceiling was increased to P12 Billion, 40 the

Sec. 3. The Committee shall have the power to regulate and control the tax-free importation of Gov’t agencies in accordance with the conditions set forth in Sec 1 hereof and the regulations to be promulgated to implement the provisions of this Decree. Provided, however, That any Gov’t agency or GOCC, or any local manufacturer 53

or business firm adversely affected by any decision or ruling of the Inter-Agency Committee may file an appeal with the Office of the President within ten days from the date of notice thereof. . . . . P.D. 1177 was issued as it was:. . . declared the policy of the State to formulate and implement a National Budget that is an instrument of national development, reflective of national objectives, strategies and plans. the law decreed that

and since there was a. . . need for GOCCs and all other units of Gov’t enjoying tax privileges to share in the requirements of development, fiscal or otherwise, by paying the duties, taxes and other charges due from them. 47 it was decreed that:

all units of Gov’t, including GOCCs, shall pay income taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that organizations otherwise exempted by law from the payment of such taxes/duties may ask for a subsidy from the General Fund in the exact amount of taxes/duties due: provided, further, that a procedure shall be established by the Secretary of Finance and the Commissioner of the Budget, whereby such subsidies shall automatically be considered as both revenue and expenditure of the General Fund. 44 The law also declared that —[A]ll laws, decrees, EOs, rules and regulations or parts thereof which are inconsistent with the provisions of the Decree are hereby repealed and/or modified accordingly On July 11, 1984, most likely due to the economic morass the Gov’t found itself in after the Aquino assassination, P.D. No. 1931 was issued to reiterate that:WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant of tax privileges to any GOCC and all other units of Gov’t; 46

Sec. 1. The provisions of special on general law to the contrary notwithstanding, all exemptions from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor of GOCCs including their subsidiaries, are hereby withdrawn. Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the recommendation of the Fiscal Incentives Review Board created under Presidential Decree No. 776, is hereby empowered to restore, partially or totally, the exemptions withdrawn by Sec 1 above, any applicable tax and duty, taking into account, among others, any or all of the following: 1) The effect on the relative price levels; 2) The relative contribution of the corporation to the revenue generation effort;

3) The nature of the activity in which the corporation is engaged in; or 4) In general the greater national interest to be served.

54

Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws, decrees, EOs, administrative orders, rules, regulations or parts thereof which are inconsistent with this Decree are hereby repealed, amended or modified accordingly. E.O. No. 93 (S'86) was issued with a view to correct presidential restoration or grant of tax exemption to other Gov’t and private entities without benefit of review by the Fiscal Incentives Review Board. Since it was decided that: [A]ssistance to Gov’t and private entities may be better provided where necessary by explicit subsidy and budgetary support rather than tax and duty exemption privileges if only to improve the fiscal monitoring aspects of Gov’t operations. It was thus ordered that:

(ii) the Export Processing Zone Authority (iii) the Philippine Veterans Investment Development Corporation Industrial Authorit d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of Instructions No. 1416; e) those conferred under the four basic codes namely: (i) the Tariff and Customs Code, as amended; (ii) the National Internal Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv) the Real Property Tax Code, as amended; f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board. Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as amended, is hereby authorized to: a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

Sec. 1. The Provisions of any general or special law to the contrary notwithstanding, all tax and duty incentives granted to Gov’t and private entities are hereby withdrawn, except: a) those covered by the non-impairment clause of the Constitution;

b) those conferred by effective internation agreement to which the Gov’t of the Republic of the Philippines is a signatory;

c) those enjoyed by enterprises registered with: (i) the Board of Investmen

b) revise the scope and coverage of tax and/or duty exemption that may be restored; c) impose conditions for the restoration of tax and/or duty exemption; 55

d) prescribe the date of period of effectivity of the restoration of tax and/or duty exemption; e) formulate and submit to the President for approval, a complete system for the grant of subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and duty exemptions or preferential treatment in taxation, indicating the source of funding therefor, eligible beneficiaries and the terms and conditions for the grant thereof taking into consideration the international commitment of the Philippines and the necessary precautions such that the grant of subsidies does not become the basis for countervailing action. Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review Board shall take into account any or all of the following considerations: a) the effect on relative price levels; b) relative contribution of the beneficiary to the revenue generation effort; c) nature of the activity the beneficiary is engaged; and d) in general, the greater national interest to be served. Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent with this EO are hereby repealed or modified accordingly.

E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations, to be issued by the Ministry of Finance Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all forms of taxes etc.," in its Sec 10, amending Sec 13, R.A. No. 6395, as amended by P.D. No. 380, does not expressly include "indirect taxes."His point is not welltaken. Classifications or kinds of Taxes:

a. Direct Tax — the where the person supposed to pay the tax really pays it. WITHOUT transferring the burden to someone else. b. Indirect Tax — that where the tax is imposed upon goods BEFORE reaching the consumer who ultimately pays for it, not as a tax, but as a part of the purchase price. Issues: Held: What kind of tax exemption privileges did NPC have? For what periods in time were these privileges being enjoyed? If there are taxes to be paid, who shall pay for these taxes?

-

NPC is exempt from all taxes, direct and indirect 56

NPC had its tax exemption privileges restored from June 11, 1984 up to the present private respondents-oil companies have to absorb the taxes they add to the bunker fuel oil they sell to NPC. Ratio: A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to be completely tax exempt from all forms of taxes — direct and indirect. NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations upon its creation by virtue of C.A. No. 120. When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained were to be completely tax exempt. After the NPC was authorized to borrow from other sources of funds, it was again specifically exempted from all types of taxes. Even when the ceilings for domestic and foreign borrowings were periodically increased, the tax exemption privileges of the NPC were maintained. NPC's tax exemption from real estate taxes was, however, specifically withdrawn by R.A. No. 987. The exemption was restored by R.A. No. 6395.

Sec 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions allowed NPC. Its Sec 13(d) is the starting point of this bone of contention among the parties. [T]he Corporation is hereby declared exempt: (d) From all taxes, duties, fees, imposts and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other Gov’t agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power. P.D. No. 380 added phrase "directly or indirectly" to said Sec 13(d), which now reads as follows: (d) From all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the Philippines, its provinces, cities, municipalities and other Gov’t agencies and instrumentalities, on all petroleum products used by the Corporation in the generation, transmission, utilization and sale of electric power Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph as follows: The Corporation shall be non-profit and shall devote all its returns from its capital investment as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Sec one of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of ALL FORMS OF taxes, duties, fees, imposts as 57

well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings. Petitioner reminds Us that Presidential Decree Nos. 380 and 938 were issued by one man, acting as such the Executive and Legislative. Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his fault were. It should be noted that Sec 13, R.A. No. 6395, provided for tax exemptions for the following items: 13(a) : court or administrative proceedings; 13(b) : income, franchise, realty taxes; 13(c) : import of foreign goods required for its operations and projects; 13(d) : petroleum products used in generation of electric power. P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,", included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax exemptions. This is the only conclusion one can arrive at if he has read all the NPC laws in the order of enactment President Marcos must have considered all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up 55 with a very simple Sec 13, R.A. No. 6395, as amended by P.D. No. 938.

One common theme in all these laws is that the NPC must be enable to pay its indebtedness which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and U$4 Billion in total foreign loans. NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved. By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to pay the Gov’t share in its capital stock P.D. No. 758 was issued mandating that P200 Million would be appropriated annually to cover the said unpaid subscription of the Gov’t in PC's authorized capital stock. And significantly one of the sources of this annual appropriation of P200 million is TAX MONEY accruing to the General Fund of the Gov’t. It does not stand to reason then that former President Marcos would order P200 Million to be taken partially or totally from tax money to be used to pay the Gov’t subscription in the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the other. The above conclusion that then President Marcos lumped up Secs 13 (b), 13 (c) and (d) into the phrase "All FORMS OF" is supported by the fact that he didn’t do the same for the tax exemption provision for the foreign loans to be incurred. The tax exemption on foreign loans found in Sec 8(b), R.A. No. 6395, reads as follows:The loans, credits and indebtedness contracted under this subSec and the payment of the principal, interest and other charges thereon, as well as the importation of 58

machinery, equipment, materials and supplies by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all taxes, fees, imposts, other charges and restrictions, including import restrictions, by the Republic of the Philippines, or any of its agencies and political subdivisions. 57 The same was amended by P.D. No. 380 as follows: The loans, credits and indebtedness contracted this subSec and the payment of the principal, interest and other charges thereon, as well as the importation of machinery, equipment, materials, supplies and services, by the Corporation, paid from the proceeds of any loan, credit or indebtedness incurred under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts, other charges and restrictions, including import restrictions previously and presently imposed, and to be imposed by the Republic of the Philippines, or any of its agencies and political subdivisions. P.D. No. 938 did not amend the same and so the tax exemption provision in Sec 8 (b), R.A. No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular Sec 8 (b) had to do only with loans and machinery imported, paid for from the proceeds of these foreign loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is — with the express mention of "direct and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes, fees, imposts, other charges . . . to be

imposed" in the future — surely, an indication that the lawmakers wanted the NPC to be exempt from ALL FORMS of taxes — direct and indirect. 5 years on into the now discredited New Society, the Gov’t decided to rationalize gov’t receipts and expenditures by formulating and implementing a National Budget. 60 The NPC had to be shed off its tax exemption status privileges under P.D. No. 1177. It was, however, allowed to ask for a subsidy from the General Fund in the exact amount of taxes due. much earlier, P.D. No. 882 had already repealed NPC's taxfree importation privileges. It allowed, however, NPC to appeal said repeal with the Office of the President and to avail of tax-free importation privilege It is presumed that the NPC was allowed to continue its taxfree importations. This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of NPC's tax exemption privileges by P.D. No. 1177 only in his Common Reply/Comment to private Respondents' "Opposition" and "Comment" to MR, 4 months AFTER the MR was filed A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474, the basis of the petition at bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax exemption privileges.

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Applying by analogy Pulido vs. Pablo, the court declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption privileges was not seasonably invoked by the petitioner. Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption privileges as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax privileges of any GOCC, NPC included, was reiterated in the 4th whereas clause of P.D. No. 1931's preamble. The subsidy provided for in Sec 23, P.D. No. 1177, being inconsistent with Sec 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives Revenue Board was tasked with recommending the partial or total restoration of tax exemptions withdrawn by Sec 1, P.D. No. 1931. The records before Us do not indicate WON NPC asked for the subsidy contemplated in Sec 23, P.D. No. 1177. Considering, however, that under Sec 16 of P.D. No. 1177, NPC had to submit to the Office of the President its request for the P200 million mandated by P.D. No. 758 to be appropriated annually by the Gov’t to cover its unpaid subscription to the NPC authorized capital stock and that under Sec 22, of the same P.D. No. NPC had to likewise submit to the Office of the President its internal operating budget for review due to capital inputs of the Gov’t and to the national gov’t's guarantee of the domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177. There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly found themselves having to pay

taxes. It will be noted that Sec 23, P.D. No. 1177, mandated that the Secretary of Finance and the Commissioner of the Budget had to establish the necessary procedure to accomplish the tax payment/tax subsidy scheme of the Gov’t. In effect, NPC, did not put any cash to pay any tax as it got from the General Fund the amounts necessary to pay different revenue collectors for the taxes it had to pay. The NPC tax privileges withdrawn by Sec 1. P.D. No. 1931, were, therefore, the same NPC tax exemption privileges withdrawn by Sec 23, P.D. No. 1177. NPC could no longer obtain a subsidy for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 which were both legal and valid Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather infamous Amendment No. 6 70 as there was no showing that President Marcos' encroachment on legislative prerogatives was justified Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the Interim Batasang Pambansa failed or was unable to act adequately on any matter for any reason that in his (Marcos') judgment required immediate action, but also when there existed a grave emergency or a threat or thereof

60

It must be remembered that said PD was issued only around 9 months after the Philippines unilaterally declared a moratorium on its foreign debt payments as a result of the economic crisis Philippines was then trying to reschedule its debt payments. One of the big borrowers was the NPC which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant on its back. From all indications, it must have been this grave emergency of a debt rescheduling which compelled Marcos to issue P.D. No. 1931 The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be passed without the concurrence of a majority of all the members of the Batasang Pambansa" does not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President Marcos under His Amendment No. 6 power.

approvals were given by then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice" might have occurred when the Minister of Finance approved his own recommendation as Chairman of the Fiscal Incentives Review Board In the case of the tax exemption restoration of NPC, there is no other comparable entity whose rights would be violated if NPC's tax exemption privileges were to be restored NPC was not asking to be granted tax exemption privileges for the first time. It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate procedural due process.

Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President Cory Aquino. Its Sec 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The same was granted under FIRB Resolution No. 17-87 which restored NPC's tax exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93

FIRB Resolution No. 17-87 was approved by President Aquino, the view has been expressed that President Aquino, at least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the legislature, the power delegated to her thereunder. When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and Legislative powers. Thus, there was no power delegated to her, rather it was she who was delegating her power. 61

FIRB Resolution No. 17-87 was approved by the President. 79 There is no indication whether or not similar

She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not subdelegating her power. And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the policy to be carried out and it fixed the standard to which the delegate had to conform in the performance of his functions

taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect taxes.

NPC had its tax exemption privileges restored from June 11, 1984 up to the present. As to who pays the tax, private respondents-oil companies have to absorb the taxes they add to the bunker fuel oil they sell to NPC the Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce to the user or consumer of the goods sold. Because, however, the NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted from absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the

If NPC nonetheless purchases such oil from the oil companies — because to do so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil from overseas — NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably represents the tax already paid by the oil company-vendor to the BIR. It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 by virtue of which the ad valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. EO NO. 195 Sec. 1. Paragraph (b) of Sec 128 of the National Internal Revenue Code, as amended, is hereby amended to read as follows:

Par. (b) — For products subject to ad valorem tax only: PRODUCT AD VALOREM TAX RATE 4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or less the same generating power 0%

62

oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going to bear the economic burden of the ad valorem taxes. What this Court will now dispose of are petitioner's complaints that some indirect tax money has been illegally refunded by the BIR to the NPC and that more claims for refunds by the NPC are being processed for payment by the BIR. After P.D. No. 1931 was issued on June 11, 1984 withdrawing the tax exemptions of all GOCCs — NPC included, it was only on May 8, 1985 when the BIR issues its letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies pursuant to FIRB Resolution No. 10-85. Since the tax exemption restoration was retroactive to June 11, 1984 there was a need. therefore, to recover said amount as Caltex had already paid the BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the period above indicated and had billed NPC correspondingly Inasmuch as NPC filled its claim for P58M on Sept 11, 1985, 95 the Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption. Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for P410M which represents specific and ad valorem taxes paid by the oil companies to the BIR from June 11, 1984 to the early part of 1986.

A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when the alleged claim for a P410M tax refund was filed. It is only stated In paragraph No. 2 of the Deed of Assignment executed by and between NPC and Caltex as follows: That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal Revenue amounting to P442,887,716.16. P58.020,110.79 of which is due to Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.) Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR from refunding said amount because of Our ruling that NPC has both direct and indirect tax exemption privileges. Neither can We order the BIR to refund said amount to NPC as there is no pending petition for review on certiorari of a suit for its collection before Us. At any rate, at this point in time, NPC can no longer file any suit to collect said amount EVEN IF lt has previously filed a claim with the BIR because it is time-barred under Sec 230 of the National Internal Revenue Code of 1977. as amended, which states:In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or penalty REGARDLESS of any supervening cause that may arise afterpayment. ... The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by NPC for the amount of P410M 63

had been made on said date. it is clear that more than two (2) years had already elapsed from said date. At the same time, We should note that there is no legal obstacle to the BIR granting, even without a suit by NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim had been made seasonably, and assuming the amounts covered had actually been paid previously by the oil companies to the BIR. the Motion for Reconsideration of petitioner is hereby DENIED for lack of merit

TITLE: CIR v. JOHN GOTAMCO AND SONS, INC. AUTHOR: Gil Aquino

When the WHO decided to construct a building for its office, it informed the bidders that building to be constructed belonged to an organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies."* John Gotamco and Sons, Inc. won the bid.* CIR gave an Opinion that the 3% contractors tax was exempt but CIR reversed his opinion and stated that "as the 3%contractor's tax is not a direct nor an indirect tax on the WHO,but a tax that is primarily due from the contractor, the same is not covered by . . . the Host Agreement."* CIR demanded from Gotamco the 3% tax plus surcharge* CIR alleges that Host Agreement void. Even if valid, contractor’s tax is not indirect tax in view of the Agreeement.* Gotamco appealed to the CTA. CTA decided in favour of Gotamco.

FACTS ISSUE The World Health Organization entered into a Host Agreement between the Philippine government. Section 11 of that Agreement provides, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. It is understood, however, that Organization will not claim exemption from taxes which are, in fact, no more than charges for public utility services; . . .

W/N Gotamco should pay the 3% contractor's tax under Section 191 of NIRC on the gross receipts it realized from the construction of the WHO office?

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DISPOSITION

imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it. It is the clear intention of the Agreement to exempt the WHO from "indirect" taxation. TITLE: CIR v. JOHN GOTAMCO AND SONS, INC. AUTHOR: Gil Aquino FACTS

NO, contractor’s tax is indirect tax coming within purview of the Host Agreement. As to the Agreement, it is valid since less formal types of international agreements may be entered into by the Chief Executive and become binding without the concurrence of the legislative body. The Agreement comes within this category; it is a valid and binding international agreement even without the concurrence of the Philippine Senate.

In context, direct taxes are those that are demanded from the very person who it is intended or desired, should pay them; whileindirect taxes are those that are demanded in the first instance from oneperson in the expectation and intention that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co.) The contractor's taxis of course payable by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor and I certainly cannot be said that 'this tax has no bearing upon the World Health Organization. Phil. Acetylene not applicable since the Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not

The World Health Organization entered into a Host Agreement between the Philippine government. Section 11 of that Agreement provides, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. It is understood, however, that Organization will not claim exemption from taxes which are, in fact, no more than charges for public utility services; . . . When the WHO decided to construct a building for its office, it informed the bidders that building to be constructed belonged to an organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies."* John Gotamco and Sons, Inc. won the bid.* CIR gave an Opinion that the 3% contractors tax was exempt but CIR reversed his opinion and stated that "as the 3%contractor's tax is not a direct nor an indirect tax on the WHO,but a tax that is primarily due from the contractor, the same is not covered by . . . the Host Agreement."* CIR 65

demanded from Gotamco the 3% tax plus surcharge* CIR alleges that Host Agreement void. Even if valid, contractor’s tax is not indirect tax in view of the Agreeement.* Gotamco appealed to the CTA. CTA decided in favour of Gotamco. ISSUE W/N Gotamco should pay the 3% contractor's tax under Section 191 of NIRC on the gross receipts it realized from the construction of the WHO office? DISPOSITION NO, contractor’s tax is indirect tax coming within purview of the Host Agreement. As to the Agreement, it is valid since less formal types of international agreements may be entered into by the Chief Executive and become binding without the concurrence of the legislative body. The Agreement comes within this category; it is a valid and binding international agreement even without the concurrence of the Philippine Senate. In context, direct taxes are those that are demanded from the very person who it is intended or desired, should pay them; whileindirect taxes are those that are demanded in the first instance from oneperson in the expectation and intention that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co.) The contractor's taxis of course payable by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, although it is payable by the

petitioner, the latter can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor and I certainly cannot be said that 'this tax has no bearing upon the World Health Organization. Phil. Acetylene not applicable since the Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it. It is the clear intention of the Agreement to exempt the WHO from "indirect" taxation. CIR v PLDT FACTS CIR seeks the review and reversal of CA decision affirming CTA decision for tax refund/credit instituted by respondent (PLDT) in connection with its importation in 1992 to 1994 of equipment, machineries and spare parts. PLDT sought a confirmatory ruling on its tax exemption privilege under Section 12 of R.A. 7082, which reads:

Sec. 12. The grantee … shall be liable to pay the same taxes on their real estate, buildings, and personal property, exclusive of this franchise, as other persons or corporations are now or hereafter may be required by law to pay. In addition thereto, the grantee, … shall pay a franchise tax equivalent to three percent (3%) of all gross receipts of the telephone or other telecommunications businesses transacted under this franchise by the grantee, its successors or 66

assigns, and the said percentage shall be in lieu of all taxes on this franchise or earnings thereof: Provided, That the grantee … shall continue to be liable for income taxes payable under Title II of the National Internal Revenue Code pursuant to Sec. 2 of Executive Order No. 72 unless the latter enactment is amended or repealed, in which case the amendment or repeal shall be applicable thereto. (Emphasis supplied).

aforementioned enumerated taxes for which PLDT is expressly made liable.

xxx

xxx

xxx

In view thereof, this Office … hereby holds that PLDT, is exempt from VAT on its importation of equipment, machineries and spare parts … needed in its franchise operations. Responding, the BIR issued on April 19, 1994 Ruling No. UN140-94,[3] pertinently reading, as follows: Armed with the foregoing BIR ruling, PLDT filed a claim[4] for tax credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been paying “in connection with its importation of various equipment, machineries and spare parts needed for its operations”. With its claim not having been acted upon by the BIR, and obviously to forestall the running of the prescriptive period therefor, PLDT filed with the CTA a petition for review to which the CTA granted.

PLDT shall be subject only to the following taxes, to wit:

7. The 3% franchise tax on gross receipts which shall be in lieu of all taxes on its franchise or earnings thereof.

The “in lieu of all taxes” provision under Section 12 of RA 7082 clearly exempts PLDT from all taxes including the 10% value-added tax (VAT) prescribed by Section 101 (a) of the same Code on its importations of equipment, machineries and spare parts necessary in the conduct of its business covered by the franchise, except the

ISSUE: WON PLDT is EXEMPT FROM THE PAYMENT OF VALUEADDED TAXES, COMPENSATING TAXES, ADVANCE SALES TAXES AND 67

OTHER BIR TAXES ON ITS IMPORTATIONS, BY VIRTUE OF THE PROVISION IN ITS FRANCHISE THAT THE 3% FRANCHISE TAX ON ITS GROSS RECEIPTS SHALL BE IN LIEU OF ALL TAXES ON ITS FRANCHISE OR EARNINGS THEREOF.

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of taxation, taxes may be classified into either direct tax or indirect tax.

Hence, the need to address the main issue tendered herein. Court of Appeals: the “in lieu of all taxes” clause found in Section 12 of PLDT’s franchise (R.A. 7082) covers all taxes, whether direct or indirect; and that said section states, in no uncertain terms, that PLDT’s payment of the 3% franchise tax on all its gross receipts from businesses transacted by it under its franchise is in lieu of all taxes on the franchise or earnings thereof. I In fine, the appellate court, agreeing with PLDT, posits the view that the word “all” encompasses any and all taxes collectible under the National Internal Revenue Code (NIRC), save those specifically mentioned in PLDT’s franchise, such as income and real property taxes. BIR Commissioner: submits that the exempting “in lieu of all taxes” clause covers direct taxes only, adding that for indirect taxes to be included in the exemption, the intention to include must be specific and unmistakable.

In context, direct taxes are those that are exacted from the very person who, it is intended or desired, should pay them;[19] they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in.[20] On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the expectation and intention that he can shift the burden to someone else.[21] Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered. PLDT, is effectively claiming exemption from taxes not falling under the category of direct taxes. The claim covers VAT, advance sales tax and compensating tax. Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods for sale or of raw materials to be processed into merchandise can shift the tax or, to borrow from Philippine Acetylene Co, Inc. vs. Commissioner of Internal 68

Revenue,[26] lay the “economic burden of the tax”, on the purchaser, by subsequently adding the tax to the selling price of the imported article or finished product.

not taxes on its franchise or earnings. PLDT has not shown its eligibility for the desired exemption. None should be granted.

Compensating tax also partakes of the nature of an excise tax payable by all persons who import articles, whether in the course of business or not.[27] The rationale for compensating tax is to place, for tax purposes, persons purchasing from merchants in the Philippines on a more or less equal basis with those who buy directly from foreign countries.[28] It bears to stress that the liability for the payment of the indirect taxes lies only with the seller of the goods or services, not in the buyer thereof. Thus, one cannot invoke one’s exemption privilege to avoid the passing on or the shifting of the VAT to him by the manufacturers/suppliers of the goods he purchased.

The use of the phrase “all forms” of taxes demonstrate the intention of the law to give NPC all the tax exemptions it has been enjoying before. …. xxx xxx xxx

As a final consideration, the Court takes particular stock, as the CTA earlier did, of PLDT’s allegation that the Bureau of Customs assessed the company for advance sales tax and compensating tax for importations entered between October 1, 1992 and May 31, 1994 when the value-added tax system already replaced, if not totally eliminated, advance sales and compensating taxes.[40] Indeed, pursuant to Executive Order No. 273[41] which took effect on January 1, 1988, a multi-stage value-added tax was put into place to replace the tax on original and subsequent sales tax.[42] It stands to reason then, as urged by PLDT, that compensating tax and advance sales tax were no longer collectible internal revenue taxes under the NILRC when the Bureau of Customs made the assessments in question and collected the corresponding tax. Stated a bit differently, PLDT was no longer under legal obligation to pay compensating tax and advance sales tax on its importation from 1992 to 1994.

Section 12 of RA 7082 does NOT grant PLDT blanket exemption from payment of indirect taxes, which, in the ultimate analysis, are

Given the above perspective, the amount PLDT paid in the concept of advance sales tax and compensating tax on the 1992 to 1994 importations were, in context, erroneous tax payments and would theoretically be refundable. It should be emphasized, however, that, such importations were, when made, already subject to VAT. 69

California’s inheritance taxes due on said shares have been duly paid. The CIR now claims that the same shares of stocks are also subject to inheritance tax here in the Philippines. WHEREFORE, the petition is partially GRANTED. The Decision of the Court of Appeals in CA-G.R. No. 47895 dated September 17, 1999 is MODIFIED. The Commissioner of Internal Revenue is ORDERED to issue a Tax Credit Certificate or to refund to PLDT only the of P94,673,422.00 advance sales tax and compensating tax erroneously collected by the Bureau of Customs from October 1, 1992 to May 31, 1994, less the VAT which may have been due on the importations in question, but have otherwise remained uncollected. May inheritance taxes be imposed on the said shares? HELD: Yes. Originally the settled law in the US is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has been relaxed due to (1) the recognition of the inherent power of each government to taxpersons, properties and rights within its jurisdiction and enjoying thus, the protection of its laws; and (2) upon the principle that as to intangibles, a single location in space is hardly possible considering the multiple, distinct relationships which may be entered into with respect thereto. It is the identity or association of intangibles with the person of their owner at his domicile which gives jurisdiction to tax. But when the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or property within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains. In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the Benguet 70

TITLE: Wells Fargo Bank v CIR AUTHOR: Moran, J FACTS: Birdie Lillian Eye, died on September 16, 1932 at Los Angeles, California, the place of her alleged last residence and domicile. Among the properties she left was her one half conjugal shares in 70,000 shares of stock in Benguet Consolidated Mining Company, an anonymous partnership organized and existing under the laws of the Philippines, with its principal office in Manila. She left a will which was duly admitted to probate in California where her estate was administered and settled. Petitioner Wells Fargo Bank is the trustee of the trust created by the will. The Federal and State of

Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of stock held in trust for the true owner thereof. In other words, the owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld. Alcan Packaging Starpack Corporation v The Treasurer of the City of Manila Tine Cengca Facts: Alcan Packaging from 4th quarter of 1999 to third quarter of 2001paid business taxes (Php 4,527, 594.76) based on Section 21 of Manila Revenue Code

Alcan: Section 14 is tax for the manufacturers of goods while 21 is tax on businesses and articles of commerce subject to excise, value added and percentage taxes under NIRC in short, both taxes are local taxes imposed on same activity by only one public authority and enforced within the same taxing jurisdiction for the purpose of raising revenues for the city which become due at the same period = double taxation City Treasurer denied that there was double taxation

RTC ruled that there was no double taxation. Section 21 was manufacturer’s tax while section 14 is end user tax The publication of the ordinances that amended Sections 14 and 21 complied with the necessary publication rule Issue: WON there was double taxation? Ruling: Yes there was double taxation. Section 151 and 143 of the Local Government Code: SEC. 151. Scope of Taxing Powers. - Except as otherwise provided in this Code, the city may levy the taxes, fees, and charges which the province or municipality may impose: Provided, however, That the taxes, fees and charges levied and collected by highly urbanized and independent component cities shall accrue to them and distributed in accordance with the provisions of this Code. 71

City Treasurer continued collecting under Section 21 and the amended rates so Alcan Packaging applied for refund of Php 4,527,494.76 and 728,845.62

The rates of taxes that the city may levy may exceed the maximum rates allowed for the province or municipality by not more than fifty percent (50%) except the rates of professional and amusement taxes. SEC. 143. Tax on Business. - The municipality may impose taxes on the following businesses: (a) On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers and compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce of whatever kind or nature, in accordance with the following schedule: XXX XXX XXX (h) On any business, not otherwise specified in the preceding paragraphs, which the sanggunian concerned may deem proper to tax: Provided, That on any business subject to the excise, value-added or percentage tax under the National Internal Revenue Code, as amended, the rate of tax shall not exceed two percent (2%) of gross sales or receipts of the preceding calendar year. The sanggunian concerned may prescribe a schedule of graduated taxes but in no case to exceed the rates prescribed herein. Section 14 and 21: Section 14. - Tax on Manufacturers, Assemblers and other Processors. - There is hereby imposed a graduated tax on manufacturers, assemblers, repackers, processors, brewers,

distillers, rectifiers and compounders of liquors, distilled spirits, and wines and manufacturers of any article of commerce of whatever kind or nature, in accordance with the following schedule: x x x Section 21. - Tax on Business Subject to the Excise, Value added or Percentage Taxes Under the NIRC. - On any of the following businesses and articles of commerce subject to the excise, valueadded or percentage taxes under the National Internal Revenue Code hereinafter the NIRC, as amended, a tax of fifty percent (50%) of one percent (1 %) per annum on the gross sa les or receipts of the preceding calendar year is hereby imposed: A) On persons who sell goods and services in the course of trade or business; and those who import goods whether for business or otherwise, as provided for in sections 100 to 103 of the NIRC as administered and determined by the Bureau of Internal Revenue pursuant to pertinent provisions of said code. The presence of “not otherwise specified in the preceding paragraphs” means that local government can only collect either 14 or 21 and not both EUSEBIO VILLANUEVA, ET AL., v. CITY OF ILOILO (1968) PONENTE LEGAL DOCTRINE: 1. In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same 72

property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax." 2. The same tax may be imposed by the national government as well as by the local government. 3. 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. FACTS: 1. The City of Iloilo enacted Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating Tenement Houses" 2. The Villanuevas, owners of tenement houses and apartments (they usually leased out units to businessmen – residential on the 2nd floor, shop or business space on the ground floor) in Iloilo, as well as other provinces, challenge the validity and constitutionality of the Ordinance.[1] a. Ordinance is invalid for being enacted beyond the powers of the Municipal Council of the City of Iloilo City. (SC - NO) b. Unconstitutional for being violative of the rule as to the uniformity of taxation, deprivation of equal protection (SC - NO) c. Ordinance constitutes double taxation

i. Real Estate tax – makes ordinance ultra vires as it imposes a levy in excess of the one per centum real estate tax allowable under Sec 38 of the Iloilo City Charter, Com. Act 158 ii. Government 3. Lower Court: Ordinance Illegal Income tax already taxed by National

a. RA 2264 (Local Autonomy Act) does not empower cities to impose apartment tax (SC: NO) b. Ordinance is oppressive and unreasonable because it penalizes owners who fail to pay the tax with imprisonment. (Constitution: No person shall be imprisoned for a debt or non-payment of a poll tax) – SC: Tenement tax is not a debt or a poll tax. (SC – NO) c. It constitutes not only double taxation, but treble at that because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance. d. It violates the rule of uniformity of taxation. (SC: NO – taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority – doesn’t matter if other cities do not impose the tax.) ISSUE(S) Does the municipal tax imposed on tenement owners constitute double taxation? (NO) 73

a.

Is the tenement tax a real estate tax? (NO)

b. May both the State and a political subdivision (local government) both exact license fees or taxes with respect to the same occupation, calling or activity? (YES) DISPOSITION a. Title of Ordinance: Municipal License Tax on Persons Engaged in the Business of Operating Tenement Houses. It is not a real estate tax. Real Estate Taxes are: · · Direct tax on ownership of lands and buildings/improvements Payable regardless of whether the property is used or not

b. It is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. It is a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege. Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore constitute a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding houses The imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." While it is true that the Villanuevas are taxable under the NIRC as real estate dealers, and still taxable under the Ordinance, the argument against double taxation may not be invoked. The same tax may be imposed by the National Government as well as by the Local Government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof.

· Usually single or indivisible, although land and building/improvements are assessed separately. · Fixed proportion of assessed value of property taxed, requires intervention of assessors · Collected or payable at appointed times

· Constitutes a superior lien and is enforceable against the property subject to such taxation AND NOT by imprisonment of the owner The tax imposed by the Ordinance in question does not possess any of the aforestated attributes.

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It is well-settled that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. (ex. State may collect ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling) COMPLAINT DISMISSED. JUDGMENT OF TRIAL COURT REVERSED. Case Digest by Lilian Dy [1] The Villanuevas also challenged a previous Ordinance (1946) by Iloilo City imposing taxes on operators of tenement houses. The SC had previously ruled in 1959 that this Ordinance was ultra vires as the Ordinance did not specifically include tenement houses in its enumeration of taxable business (Tenement Houses are not considered hotels, motels, boarding houses, etc.) CIR v. Solidbank Corp. 25-Nov-03 Facts: The Court of Tax Appeals (CTA) held in Asian Ban Corp. v Commissioner, that the 20% FWT should not form part of its taxable gross receipts for purposes of computing the tax. Solidbank, relying on the strength of this decision, filed with the BIR a letter-request for the refund or tax credit. It also filed a petition for review with the CTA where the it ordered the refund.

The CA ruling, however, stated that the 20% FWT did not form part of the taxable gross receipts because the FWT was not actually received by the bank but was directly remitted to the government. The Commissioner claims that although the FWT was not actually received by Solidbank, the fact that the amount redounded to the bank’s benefit makes it part of the taxable gross receipts in computing the Gross Receipts Tax. Solidbank says the CA ruling is correct. Issue: WON there was double taxation. Ratio: The two taxes, subject of this litigation, are different from each other. The basis of their imposition may be thesame, but their natures are different, thus leading us to a final point. Double taxation means taxing the same property twice when it should be taxed only once; that is, “x x x 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 “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and they must be of the same kind or character.

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TITLE: Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc. AUTHOR: Justice Gonzaga-Reyes

4. Commissioner did not act on said claim. SC Johnson filed a petition for review before CTA. 5. 6. CTA ruled in favour of SC Johnson. CA affirmed in toto. CIR filed petition for review before SC. Contentions of CIR:

1. SC Johnson, a domestic corporation, entered into a license agreement with SC Johnson and Son, USA, a non-resident foreign corporation based in the US, wherein SC Johnson was granted the right to use the trademark, patents and technology owned by the latter including the right to manufacture, package and distribute the products covered by the agreement and secure assistance in management, marketing and production from SC Johnson and Son, USA. The agreement was duly registered with the Technology Transfer Board of the Bureau of Patents, Trade Marks and Technology Transfer. 2. For the use of the trademark or technology, SC Johnson was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25% withholding tax on royalty payments which the former paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443. 3. SC Johnson filed with the International Tax Affairs Division (ITAD) of the BIR a claim for refund of overpaid withholding tax on royalties (amounting to P963,266) arguing that the preferential tax rate of 10% should apply to the it pursuant to the “most-favored nation” clause of the RP-US Tax Treaty in relation to the RP-West Germany Tax Treaty.

7. 8.

· “Most favored nation” clause not applicable. The lowest rate of the Philippine tax at 10% may be imposed on royalties derived by a resident of the United States from sources within the Philippines only if the circumstances of the resident of the United States are similar to those of the resident of West Germany. Since the RP-US Tax Treaty contains no "matching credit" provision as that provided under Article 24 of the RP-West Germany Tax Treaty, the tax on royalties under the RP-US Tax Treaty is not paid under similar circumstances as those obtaining in the RP-West Germany Tax Treaty. · Even assuming that the phrase "paid under similar circumstances" refers to the payment of royalties, and not taxes, still, the "most favored nation" clause cannot be invoked for the reason that when a tax treaty contemplates circumstances attendant to the payment of a tax, or royalty remittances for that matter, these must necessarily refer to circumstances that are taxrelated.

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· Since SC Johnson's invocation of the "most favored nation" clause is in the nature of a claim for exemption from the application of the regular tax rate of 25% for royalties, the provisions of the treaty must be construed strictly against it. ISSUE: WoN SC Johnson is entitled to the “most favored nation” tax rate of 10%? NO DISPOSITION: Petition GRANTED. CA SET ASIDE. 1. The RP-US Tax Treaty is just one of a number of bilateral treaties which the Philippines has entered into for the avoidance of double taxation. The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. Tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. The apparent rationale for doing away with double taxation is of encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies. Foreign investments will only thrive in a fairly predictable and reasonable international investment climate and the protection against double taxation is crucial in creating such a climate. (RELEVANT) 2. In order to eliminate double taxation, a tax treaty resorts to several methods.

· First, it sets out the respective rights to tax of the state of source or situs and of the state of residence with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be imposed by the state of source is limited. · Second method applies whenever the state of source is given a full or limited right to tax together with the state of residence. In this case, the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation. There are two methods of relief — the exemption method and the credit method. ØExemption Method - the income or capital which is taxable in the state of source or situs is exempted in the state of residence, although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayer's remaining income or capital ØCredit Method - although the income or capital which is taxed in the state of source is still taxable in the state of residence, the tax paid in the former is credited against the tax levied in the latter (RELEVANT) · The RP-US and the RP-West Germany Tax Treaties do not contain similar provisions on tax crediting. Article 24 of the RPGermany Tax Treaty expressly allows crediting against German income and corporation tax of 20% of the gross amount of royalties 77

paid under the law of the Philippines. On the other hand, Article 23 of the RP-US Tax Treaty, which is the counterpart provision with respect to relief for double taxation, does not provide for similar crediting of 20% of the gross amount of royalties paid.

On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for reconveyance of the lot. Issue:

HENCE, SC Johnson is not entitled to the 10% preferential rate. (RELEVANT) Delpher Trades Corp. V. IAC (157 SCRA 349 January 26, 1988) GUTIERREZ, JR., J Facts: Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (now Valenzuela). On April 3, 1974, they leased to Construction Components International Inc. the property and providing for a right of first refusal should it decide to buy the said property. Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of Delfin and Pelagia. In 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the Pachecos conveyed to the latter the leased property together with another parcel of land also located in Malinta Estate, Valenzuela for 2,500 shares of stock of defendant corporation with a total value of P1.5M.

WON the Deed of Exchange of the properties executed by the Pachecos and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced Hydro Phil’s right of first refusal over the leased property included in the “deed of exchange”? NO Held: By their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. The transaction merely involves a change in the nature of the ownership of properties from unincorporated to incorporated. Ownership over the properties remains the same and at the same time, not subject the properties to taxes on succession. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract. TITLE: Yutivo v CTA Author: Kirby Hipolito 78

Facts: 1. Yutivo Sons Hardware Co, a domestic corporation incorporated in 1916 under Philippine laws, was engaged in the importation and sale of hardware supplies and equipment.

8. After reinvestigation, a second assessment was made, sustaining the validity of the first assessment. 9. Yutivo contested the second assessment, alleging that there is no valid ground to disregard the corporate personality of SM and to hold that it is an adjunct of petitioner.

3. On June 13, 1946, the Southern Motors Inc,(SM) was organized to engage in the business of selling cars, trucks and spare parts. One of the subscribers of stocks during its incorporation was Yu Khe Thai, Yu Khe Siong and Hu Kho Jin, who are sons of Yu Tiong Yee, one of Yutivo’s founders. 4. After SM’s incorporation and until the withdrawal of GM from the Philippines, the cars and trucks purchased by Yutivo from GM were sold by Yutivo to SM which the latter sold to the public. 5. Yutivo was appointed importer for Visayas and Mindanao by the US manufacturer of cars and trucks sold by GM. Yutivo paid the sales tax prescribed on the basis of selling price to SM. SM paid no sales tax on its sales to the public. 6. An assessment of PhP 1.8 million was made upon Yutivo for deficiency sales tax plus surcharge. The Collector of Internal Revenue, contends that the taxable sales were the retail sales by SM to the public and not the sales at wholesale made by Yutivo to the latter inasmuch as SM and Yutivo were one and the same corporation, the former being a subsidiary of the latter. 7. Yutivo: Disputed the assessment.

ISSUES: 1. Whether or not the corporate personality of SM could be disregarded for the purposes of taxation? Yes. 2. WON there was fraud on the part of Yutivo and SM? No, therefore no tax evasion. RATIO: 1. General Rule: A corporation is an entity separate and distinct from its stockholders and from other corporations to which it may be connected. However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or, in the case of two corporations, merge them into one. When the corporation is a mere alter ego or business conduit of a person, it may be disregarded.

2. SC ruled that CTA was not justified in finding that SM was organized to defraud the Government. SM was organized in June 79

1946, from that date until June 30, 1947, GM was the importer of the cars and trucks sold to Yutivo, which in turn was sold to SM. GM, as importer was the one solely liable for sales taxes. Neither Yutivo nor SM was subject to the sales taxes. Yutivo’s liability arose only until July 1, 1947 when it became the importer. Hence, there was no tax to evade. 3. It should be stated that the intention to minimize taxes, when used in the context of fraud, must be proved to exist by clear and convincing evidence amounting to more than mere preponderance, and cannot be justified by a mere speculation. This is because fraud is never lightly to be presumed. Fraud is never imputed and the courts never sustain findings of fraud upon circumstances which, at the most, create only suspicion. 4. TAX EVASION vs TAX AVOIDANCE: Tax evasion" is a term that connotes fraud thru the use of pretenses and forbidden devices to lessen or defeat taxes. The transactions between Yutivo and SM, however, have always been in the open, embodied in private and public documents, constantly subject to inspection by the tax authorities. But the attempt to avoid tax does not necessarily establish fraud. It is a settled principle that a taxpayer may diminish his liability by any means which the law permits (tax avoidance). 5. However, SC agreed with the respondent court that SM was actually owned and controlled by Yutivo. Indications that Yutivo treated SM merely as its department or adjunct: a. The founders of the corporation are closely related to each other by blood and affinity.

b. The object and purpose of the business is the same; both are engaged in sale of vehicles, spare parts, hardware supplies and equipment. c. The accounting system maintained by Yutivo shows that it maintained high degree of control over SM accounts. d. Several correspondences have reference to Yutivo as the head office of SM. SM may even freely use forms or stationery of Yutivo. e. All cash collections of SM’s branches are remitted directly to Yutivo. f. The controlling majority of the Board of Directors of Yutivo is also the controlling majority of SM. g. The principal officers of both corporations are identical. Both corporations have a common comptroller in the person of Simeon Sy, who is a brother-in-law of Yutivo’s president, Yu Khe Thai. h. Yutivo, financed principally the business of SM and actually extended all the credit to the latter not only in the form of starting capital but also in the form of credits extended for the cars and vehicles allegedly sold by Yutivo to SM. 6. Southern Motors being but a mere instrumentality, or adjunct of Yutivo, the Court of Tax Appeals correctly disregarded the technical defense of separate corporate entity in order to arrive at the true tax liability of Yutivo. But there is no basis for the imposition of the 50% fraud surcharge. 7. Where to impose the tax? 80

Gross selling price or gross value in money. These terms, do not include the amount of the sales tax, if invoiced separately. 'Gross selling price' or gross value in money' of the articles sold, bartered, exchanged, transferred as the term is used in the aforecited sections (of the National Internal Revenue Code, is the total amount of money or its equivalent which the purchaser pays to the vendor to receive or get the goods. However, if a manufacturer, producer, or importer, in fixing the gross selling price of an article sold by him has included an amount intended to cover the sales tax in the gross selling price of the articles, the sales tax shall be based on the gross selling price less the amount intended to cover the tax, if the same is billed to the purchaser as a separate item. DISPOSITIVE: CTA decision modified in that petitioner shall be ordered to pay to respondent the sum of P820,549.91, plus 25% surcharge thereon for late payment. REPUBLIC v. GONZALES Regala, J. 30-Apr-65 BLAS GONZALES, defendant-appellant. FACTS: Since 1946, defendant Blas Gonzales, has been a private concessionaire (manufacturer of furniture) in the US Military Base in Angeles City. Gonzales filed his income tax returns (ITRs) for the years 1946 and 1947, declaring the following:

Taxable year

Declarations Net Income P9,352.84 Tax Liability P111.17 P1,395.95

Total Sales 1946 1947 Total P80,459.75

P1,707,355.57 P16,829.10 P1,787,848.32

Upon investigation, the BIR discovered the following underdeclarations in Gonzales’ ITRs: (a) P412,072.18 – For both years, Gonzales was paid P2,199,920.50 for furniture sold, in contrast to the P1,787,848.32 declared as total sales for the two tax years; and (b) P124,510.43 – Gonzales’ 1946 profit and loss statement disclosed this amount as “local sales” (sales to persons other than the US Army), but was unreported in Gonzales’ ITRs. Accordingly, the BIR assessed Gonzales the total sum of P340,179.84 as deficiency tax including 50% surcharge. This amount was further reduced to P144,076.33 after reinvestigation.

Gonzales failed to pay. BIR instituted the present suit. Gonzales moved to dismiss grounded on prescription and lack of jurisdiction, but was denied. CFI Manila ruled in favor of BIR, ordering Gonzales to pay BIR the deficiency income taxes plus surcharge and interest. CFI also found Gonzales guilty of fraud for underdeclaring his income. 81

Gonzales appealed, contending that as a concessionaire in an American Air Base, he is not subject to Philippine tax laws pursuant to the US-RP Military Bases Agreement.

ISSUES: 1. WON Gonzales was guilty of fraud

2. WON Gonzales is not subject to Philippine tax laws pursuant to the US-RP Military Bases Agreement

NO. In Naguiat v. J. A. Araneta (G.R. No. L-11594, December 22, 1958), which interpreted the US-RP Agreement, the Court held that the income tax, which is certainly not on the right to establish agencies or on the merchandise or services sold or dispensed thereby, but on the owner or operator of such agencies, is logically excluded. The payment by the latter of the income tax is perfectly content with and would not frustrate the obvious objective of the agreement, namely, to enable the members of the US Military Forces and authorized civilian personnel and their families to procure merchandise or services within the bases at reduced prices. In dealing particularly with CIR v. Estate of Benigno Toda

HELD/RATIO: 1. YES. The failure of Gonzales to declare for taxation purposes his true and actual income derived from his furniture business at the Clark Field Air Base for two consecutive years is an indication of his fraudulent intent to cheat the Government of its due taxes. In Eugenio v. CTA (G. R. No. L-10507, May 30, 1958), it was held that “the substantial undeclaration of income in the income tax returns of the appellant for four consecutive years, coupled with his intentional overstatement of deductions made the imposition of the fraud penalty proper.” Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case.

Facts: CIC authorized Benigno P. Toda, Jr., President and owner of 99.991% of its issued and outstanding capital stock, to sell the Cibeles Building and the two parcels of land on which the building stands for an amount of not less than P90million. 30 August 1989, Toda purportedly sold the property for P100million to Altonaga, who, in turn, sold the same property on the same day to Royal Match Inc. (RMI) for P200 million. These two transactions were evidenced by Deeds of Absolute Sale notarized on the same day by the same notary public.

On 16 April 1990, CIC filed its corporate annual income tax return for the year 1989, declaring, among other things, its gain from the 82

sale of real property in the amount of P75,728.021. After crediting withholding taxes of P254,497.00, it paid P26,341,207 for its net taxable income of P75,987,725. On 12 July 1990, Toda sold his entire shares of stocks in CICto Le Hun T. Choa for P12.5 million, as evidenced by a Deedof Sale of Shares of Stocks. Issue: WON this is a case of tax evasion or tax avoidance. TAX EVASION! Held/Ratio: Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. It should be used by the taxpayer in good faith and at arms length. Tax evasion is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being "evil," in "bad faith," "willfull," or "deliberate and not accidental"; (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case.

That Altonaga was a mere conduit finds support in the admission of respondent .Estate that the sale to him was part of the tax planning scheme of CIC. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. It is tainted with fraud. Here, it is obvious that the objective of the sale to Altonaga was to reduce the amount of tax to be paid. The transfer from him to RMI would result to 5% individual capital gains tax, instead of 35% corporate income tax. Altonaga’s sole purpose of acquiring and transferring title of the properties on the same day was to create a tax shelter. Altonaga never controlled the property and did not enjoy the normal benefits and burdens of ownership. The sale to him was merely a tax ploy, a sham, and without business purpose and economic substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the end in view of reducing the consequent income tax liability. In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes tax evasion. CIR v. John Gotamco Facts:

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The World Health Organization (WHO), an international organization exempt from all direct and indirect taxes under its Host Agreement with the Philippine Government concluded on July 22, 1951, decided to have a building constructed to house its offices in the Philippines. Pursuant to this, it entered into an additional agreement with the Philippines government, and part of the agreement granted the WHO permission to “import into the country materials and fixtures required for the construction free from all duties and taxes” and stipulated that the WHO was “not to utilize any portion of the international reserves of the Government.” The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February 10, 1958 for the stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00. In May 1958, the BIR released an opinion that the receipts of Gotamco derived from the construction of the WHO office building was exempt under the 1951 Host Agreement. In June of that year, however, the BIR reversed its opinion and claimed that the 3% contractor's tax was in the nature of an excise tax, which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. The BIR claimed that the contractor’s tax “is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor,” and was thus not exempted. On January 2, 1960, the WHO issued a certification reiterating the prior opinion of the BIR in exempting the construction from any tax,

and asserted that their construction contract with Gotamco should be exempted. Nevertheless, the BIR sent Gotamco a demand letter on January 17, 1961 for P 16,970.40, representing the 3% contractor's tax plus surcharges. On appeal, the Court of Tax Appeals rendered a decision reversing the CIR decision and ruled in favor of Gotamco.

Issues (relevant to tax): Is the contractor’s tax an excise tax payable by the contractor alone, and not a direct/indirect tax on the WHO? Held/Ratio: No, the contractor’s tax is not an excise tax. Although the contractor’s tax is paid by the contractor, it is a burden that can be shifted to WHO as a matter of business practice. An indirect tax is defined as a tax demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. This is exactly how the contractor’s tax operates. Being thus exempt from direct and indirect taxes under the Host Agreement, the construction contract should thus be exempt from taxes. The petitioner’s reliance on Philippine Acetylene Company versus Commissioner of Internal Revenue, et al. is misplaced. In that case, the tax in question was a sales tax, which by law must be paid specifically by the manufacturer or the producer. Even if the 84

manufacturer or producer adds the value of the tax to the sale price, such addition does not convert the sales tax into a “tax on the purchaser.” It is therefore not analogous to a contractor’s tax. Disposition: Petition is DISMISSED, decision appealed from is AFFIRMED

Philex filed a motion for reconsideration which denied. However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994. ISSUE: Whether or not the granted VAT input credit/refund should, ipso jure, off-set its excise tax liabilities since both had already become "due and demandable, as well as fully liquidated" In short, whether or not legal compensation can properly take place. HELD: No. RATIO: In several instances prior to the instant case, SC has already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity In Francia v. Intermediate Appellate Court, it was held that taxes cannot be subject to set-off or compensation, thus: We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that 85

PHILEX MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE (1998, Romero) Topic: Compensation & Set-Off FACTS: BIR demanded Philex to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as follows: BIR found no merit in Philex's position. Since these pending claims have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter. Philex raised the issue to the Court of Tax Appeals. CTA: ordered Philex to pay its tax liabilities, ruling that "taxes cannot be subject to set-off on compensation since claim for taxes is not a debt or contract." CA: affirmed CTA.

the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit, which reiterated that: . . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually 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. Further, Philex's reliance on Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein it was ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet been approved by the Commissioner, is no longer with any support in statutory law. The premise of that ruling was anchored on Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex. DISPOSITIVE: Petition is DISMISSED. CA is AFFIRMED. Digest by Agee Romero PASCUAL v. SECRETARY OF PUBLIC WORKS

AUTHOR: JOEL (edited a digest I found) THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees. FACTS: Petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted an action for declaratory relief, praying that an item in Republic Act 920 (An Act Appropriating Funds for Public Works) be declared null and void. RA 920 contained an item of P85,000 “for the construction, reconstruction, repair, extension and improvement” of Pasig feeder road terminals. Pascual alleged that said feeder roads were nothing but projected and planned subdivision roads within the Antonio Subdivision. Respondent Jose Zulueta, a member of the Senate of the Philippines, is the owner of Antonio Subdivision. Pascual alleged that the appropriation in question was clearly for a private, not a public purpose. The construction of said roads, would have the effect of relieving Zulueta of the burden of constructing his subdivision streets or roads at his own expenses, and would “greatly enhance or increase the value of the subdivision” of Zulueta. Over five months after the effectivity of the Act, the property was allegedly donated to the Government for the purpose of legalizing the appropriation in question. Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to 86

section 1683 of the Revised Administrative Code…The other respondents, in turn, maintained that petitioner could not assail the appropriation in question because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause him a direct injury." Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29, 1953, holding that, since public interest is involved in this case, the Provincial Governor of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities" to question the constitutionality of the disputed item of Republic Act No. 920 ISSUE: WON the provincial governor of Rizal has personality to sue HELD/RATIO: YES. Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds, upon the theory that "the expenditure of public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the request of a taxpayer. Although there are some decisions to the contrary, the prevailing view in the United States is stated in the American Jurisprudence as follows:

In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute, the general rule is that not only persons individually affected, but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.) However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation to its government. Indeed, under the composite system of government existing in the U.S., the states of the Union are integral part of the Federation from an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same was made by representatives of each state of the Union, not of the people of the U.S., except insofar as the former represented the people of the respective States, and the people of each State has, independently of that of the others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes have become binding upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective states of the Union of which they are citizens. The peculiar nature of the relation between said people and the Federal Government of the U.S. is reflected in the election of its President, who is chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner as the 87

legislature thereof may direct (Article II, section 2, of the Federal Constitution). The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers of each state and the government thereof, except that the authority of the Republic of the Philippines over the people of the Philippines is more fully direct than that of the states of the Union, insofar as the simple and unitary type of our national government is not subject to limitations analogous to those imposed by the Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in the interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating local or state public funds — which has been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) — has greater application in the Philippines than that adopted with respect to acts of Congress of the United States appropriating federal funds. Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to question the constitutionality of an appropriation for backpay of members of Congress. However, in Rodriguez vs.

Treasurer of the Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same. Moreover, the reason that impelled this Court to take such position in said two (2) cases — the importance of the issues therein raised — is present in the case at bar. Again, like the petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political subdivision, and, the taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines. Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action in contesting the appropriation and donation in question; that this action should not have been dismissed by the lower court; and that the writ of preliminary injunction should have been maintained. COMMISSIONER OF INTERNAL REVENUE v. YMCA G.R. No. 124043 14-Oct-98 J. Panganiban Topic: IX.B.Tax Exemption and Exclusion Facts: ñ 88

The Young Men's Christian Association is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. ñ YMCA earned income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and from parking fees collected from non-members. ñ CIR issued an assessment to YMCA for deficiency taxes with regard to their rental income. ñ YMCA formally protested the assessment, invoking Article XIV, Section 4, par. 3 of the Constitution, claiming that it “is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income.” ñ CIR denied the claims of YMCA. Issue: Whether or not the income derived from rentals of real property owned by YMCA is subject to income tax. YES. Held: ñ Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict in interpretation in construing tax exemptions. ñ Thus, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it

is based. The claimed exemption “must expressly be granted in a statute stated in a language too clear to be mistaken.” ñ Under the NIRC, income of whatever kind and character of nonstock non-profit organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax. ñ YMCA's rental income, derived from the lease of its properties, real or personal, is thus not exempt from income taxation, even if such income is exclusively used for the accomplishment of its objectives as a non-profit organization. Verba legis non est recedendum. The law does not make a distinction. ñ Art. VI, Section 28 of the Constitution provides: xxx 3. Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation. xxx ñ What is exempted by Article VI, Section 28, par. 3 of the Constitution is not the institution itself; the exemption pertains only to property taxes.

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ñ Thus, for the YMCA to be granted the exemption it claims under the above provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. Unfortunately for YMCA,it did not submit evidence to prove that it met the said requisites. ñ YMCA's claim is also expressly disallowed under Sec. 27 of the NIRC stating that the income of exempt organizations from any of their properties, real or personal, shall be subject to the tax imposed by the Code.

tax granted to MIAA under Sec 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA paid some of the real estate tax already due. 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years 1992 to 2001. TAX DECLARATION GRAND TOTAL Parañaque issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of Parañaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency OGCC pointed out that Sec 206 of the LGC requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Sec 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. MIAA filed with the CA an original petition for prohibition and injunction, with prayer for preliminary injunction or TRO from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings CA dismissed the petition because MIAA filed it beyond the 60-day reglementary period. Hence, MIAA filed the present petition

ñ YMCA is thus exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock,non-profit educational institution is insufficient to justify its exemption from the payment of income tax. MIAA vs. CA Tumlos, Gina Facts: Petitioner operates theNAIA Complex under EO No. 903, issued on 21 July 1983 by then President Marcos. Subsequently, EO Nos. 9091 and 2982 amended the MIAA Charter. 21 March 1997, OGCC issued Opinion No. 061 in which it saidthat the LGC of 1991 withdrew the exemption from real estate

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City of Parañaque posted notices of auction sale.The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m A day before the public auction, MIAA filed an Urgent ExParte and Reiteratory Motion for the Issuance of a TRO to restrain respondents from auctioning the Airport Lands and Buildings. this Court issued a TRO effective immediately. Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction. 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO. MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it can’t claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local Gov’ts. MIAA also points out that Sec 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Sec 234 of the LGC because the Airport Lands and Buildings are owned by the Republic MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public

advantage, since in such a case the tax debtor is also the tax creditor. Respondents invoke Sec 193 of the LGC, which expressly withdrew the tax exemption privileges of "Gov’t-owned andcontrolled corporations" upon the effectivity of the LGC Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt Issue: WON Airport Lands and Buildings of MIAA are exempt from real estate tax Held: Yes Ratio: MIAA is not a GOCC but an instrumentality and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic and thus exempt from real estate tax. GOCC must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares.MIAA is also not a nonstock corporation because it has no members 91

Non-stock corporations cannot distribute any part of their income to their members. Sec 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury. Sec 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational etc." MIAA is not organized for any of these purposes. MIAA is a Gov’t instrumentality vested with corporate powers to perform efficiently its Gov’tal functions. MIAA is like any other Gov’t instrumentality, the only difference is that MIAA is vested with corporate powers. Sec 2(10) of the Admin Code defines a Gov’t "instrumentality" as: Sec2 (10) Instrumentality refers to any agency of the National Gov’t, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. When the law vests in a Gov’t instrumentality corporate powers, the instrumentality does not become a corporation. Unless the Gov’t instrumentality is organized as a stock or non-stock corporation, it remains a Gov’t instrumentality exercising not only Gov’tal but also corporate powers. Thus, MIAA exercises the Gov’tal powers of eminent domain,12 police authority13 and the levying of fees and charges

A Gov’t instrumentality like MIAA falls under Sec 133(o) of the LGC, which states: SEC. 133. Common Limitations on the Taxing Powers of Local Gov’t Units. – Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (o) Taxes, fees or charges of any kind on the National Gov’t, its agencies and instrumentalities and local Gov’t units The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. ARTICLE 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State.The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The Airport Lands and Buildings of MIAA are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State

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The Airport Lands and Buildings are devoted to public use and thus are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man: xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale Before MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public use the Airport Lands and Buildings MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President can sign such deed of conveyance

MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even stock since MIAA is not a stock corporation. The purpose was to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and Buildings. Sec 234(a) of the LGC exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Sec 234(a) provides: SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; This exemption should be read in relation with Sec 133(o) of the same Code, which prohibits local Gov’ts from imposing "*t+axes, fees or charges of any kind on the National Gov’t, its agencies and instrumentalities x x x." MIAA, as a Gov’t instrumentality, is not a taxable person under Sec 133(o) of the LGC. However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, 93

MIAA has granted the beneficial use of such land area for a consideration to a taxable person and therefore such land area is subject to real estate tax. The minority states that MIAA is indisputably a juridical person and that since the LGC withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. The argument is fatally flawed Sec 193 of the LGC expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Sec 133(o) of the LGC expressly provides otherwise, specifically prohibiting local Gov’ts from imposing any kind of tax on national Gov’t instrumentalities. By express mandate of the LGC, local Gov’ts cannot impose any kind of tax on national Gov’t instrumentalities like the MIAA. The taxing powers of local Gov’ts do not extend to the national Gov’t, its agencies and instrumentalities, "*u+nless otherwise provided in this Code" as stated in the saving clause of Sec 133 The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities specifically enumerated as exempt in Sec 193.The minority's theory directly contradicts and completely negates Sec 133(o) of the LGC. It will make the national Gov’t, which itself is a juridical person, subject to tax by local Gov’ts since the national Gov’t is not included in the enumeration of exempt entities in Sec 193. Under this theory, local Gov’ts can impose any kind of local tax, and not only real estate tax, on the national Gov’t.

The minority's theory violates Sec 133(o) of the LGC which expressly prohibits local Gov’ts from imposing any kind of tax on national Gov’t instrumentalities. Sec 133(o) does not distinguish between national Gov’t instrumentalities with or without juridical personalities. Sec 133(o) applies to all natl Gov’t instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national Gov’t instrumentality under Sec 133(o) of the LGC. Sec 133 of the LGC starts with the saving clause "[u]nless otherwise provided in this Code." This means that unless the LGC grants an express authorization, local Gov’ts have no power to tax the national Gov’t, its agencies and instrumentalities. The minority also argues that since Sec 133 precedes Sec 193 and 234 of the LGC, the later provisions prevail over Sec 133. Thus, the minority asserts: x x x Moreover, sequentially Sec 133 antecedes Sec 193 and 234. Following an accepted rule of construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Sec 133(o) of the LGC being qualified by Secs 193 and 234 of the same law. (Emphasis supplied) The minority assumes that there is an irreconcilable conflict between Sec 133 on one hand, and Secs 193 and 234 on the other. 94

there is no conflict whatsoever between Secs 133 and 193 because Sec 193 expres- sly admits its subordination to other provisions of the Code when Sec 193 states "[u]nless otherwise provided in this Code." By its own words, Sec 193 admits the superiority of other provisions of the LGC that limit the exercise of the taxing power in Sec 193. Second, Sec 133 is entitled "Common Limitations on the Taxing Powers of Local Gov’t Units." Sec 133 limits the grant to local Gov’ts of the power to tax, and not merely the exercise of a delegated power to tax. Since Sec 133 prescribes the "common limitations" on the taxing powers of local Gov’ts, Sec 133 logically prevails over Sec 193 which grants local Gov’ts such taxing powers. The minority also claims that the definition in the Admin Code of the phrase "GOCC" is not controlling. The minority then concludes that reliance on the Admin Code definition is "flawed." True, Sec 2 of the Admin Code recognizes that a statute may require a different meaning than that defined in the Admin Code . However, this does not automatically mean that the definition in the Admin Code doesn’t apply to the LGC. Sec 2 of the Admin Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the definition in Sec 2 of the Admin Code shall apply.

Thus, unless there is specific language in the LGC defining the phrase "GOCC" differently from the definition in the Admin Code , the definition in the Admin Code prevails. The inescapable conclusion is that the Admin Code definition of the phrase "GOCC" applies to the LGC. The minority also contends that the phrase "Gov’t-owned or controlled corp" should apply only to corps organized under the Corp Code, the general incorporation law, and not to corps created by special charters. The contention of the minority is seriously flawed. First, the Admin Code definition of the phrase "GOCC" does not distinguish between one incorporated under the Corp Code or under a special charter Second, Congress has created through special charters several Gov’t-owned corporations organized as stock corporations. Prime examples are the LBP and DBP these Gov’t-owned corporations organized under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not GOCCs because they are not registered with the SEC would remove them from the reach of Sec 234 of the LGC, thus exempting them from real estate tax. Third, the GOCC created through special charters are those that meet the two conditions prescribed in Sec 16, Art XII of the Consti. The first condition is that the GOCC must be established for 95

the common good. The second condition is that the GOCC must meet the test of economic viability. In contrast, Gov’t instrumentalities vested with corporate powers and performing Gov’tal or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good. These instrumentalities are not the "GOCCs" referred to in Sec 16, Art XII of the 1987 Consti. The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place. The fact that MIAA is endowed with corporate powers does not make MIAA a GOCC. Without a change in its capital structure, MIAA remains a Gov’t instrumentality under Sec 2(10) of the Admin Code To summarize, MIAA is not a GOCC under Sec 2(13) of the Introductory Provisions of the Admin Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a GOCC under Sec 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a Gov’t instrumentality vested with corporate powers and performing essential public services pursuant to Sec 2(10) of the Introductory Provisions of the Admin Code . As a Gov’t instrumentality, MIAA is not subject to any kind of tax by local Gov’ts under Sec 133(o) of the LGC. The exception to the exemption in Sec 234(a) does not apply to MIAA because MIAA

is not a taxable entity under the LGC. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity. Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State Airport Lands and Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Sec 234(a) of the LGC. TITLE: CIR v. ROH AUTO PRODUCTS AUTHOR: Gil Aquino FACTS EO41 was promulgated declaring a one-time tax amnestyon unpaid income taxes, later amended to include estate anddonor's taxes and taxes on business, for the taxable years1981 to 1985.Availing itself of the amnesty, R.O.H. Auto Products filed,tax amnesty returnms and paid the amnesty taxes due.Prior to this availment, CIR assessed the ROH deficiencyincome and business taxes in an aggregate amount of P1,410,157.71.ROH wrote back to state that since it had been able toavail itself of the tax amnesty, the deficiency tax notice 96

shouldforthwith be cancelled and withdrawn.The request was denied by the Commissioner on theground that Revenue Memorandum Order No. 4-87, dated 09February 1987, implementing Executive Order No. 41, hadconstrued the amnesty coverage to include only assessmentsissued by the Bureau of Internal Revenue after thepromulgation of the executive order on 22 August 1986 and notto assessments theretofore made. ISSUE W/N ROH is covered by the tax amnesty. W/N the CIR’s position correct. DISPOSITION YES and NO. The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to the mandate of the law which the regulation ought to implement. The authority of the Secretary of Finance, in conjunction with the CIR, to promulgate rules and regulations for the enforcement of internal revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is that all such issuances must not override, but must

remain consistent and in harmony with, the law they seek to apply and implement. Administrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law. If, as the Commissioner argues, EO 41 had not been intended to include 1981-1985 tax liabilities already assessed prior to 22 August 1986, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion is unavoidable, and it is that the executive order has been designed to be in the nature of a general grant of tax amnesty subject only to the cases specifically excepted by it TITLE: CIR V. CA AND FORTUNE TOBACCO AUTHOR: Gil Aquino FACTS Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune changed the names of 'Hope' to 'Hope Luxury 'and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654 was enacted – 55% for locally manufactured foreign brand while 45% for locally manufactured brands. 2 days before the effectivity of RA 7654, Revenue 97

Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR saying since there is no showing who the real owner/s are of Champion, Hope and More, it follows that the same shall be considered locally manufactured foreign brand for purposes of determining the ad valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco addressed to no one in particular. Then Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.

RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654 which subjects mentioned brands to 55% the BIR not simply interpreted the law; verily, it legislated under its quasilegislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. CIR V FORTUNE Facts: Fortune Tobacco Corporation (FORTUNE)s engaged in the manufacture of different brands of cigarettes for which separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes were issued. In 1987, the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. Fortune changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted to the BIR that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local brand.

ISSUE W/N it was necessary for BIR to follow the legal requirements when it issued its RMC DISPOSITION YES. CIR may not disregard legal requirements in the exercise of its quasi-legislative powers which publication, filing, and prior hearing. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. BUT when, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, the agency must accord, at least to those directly affected, a chance to be heard, before that new issuance is given the force and effect of law.

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RA 7654 was enacted by Congress on June 10, 1993 and it amended partly Sec. 142 (c) of the NIRC to read as follows:

Sec. 142. Cigars and Cigarettes. —

xxx xxx xxx

Prior to RA 7654, Fortune’s three brands were considered local brands subjected to an ad valorem tax of 20 to 45%. Applying the amendment and nothing else. However, on July 1, 1993, Commissioner of Internal Revenue issued Revenue Memorandum Circular37-93 which reclassified the 3 brands as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax. The reclassification took effect about a month after the enactment and two (2) days before the effectivity of RA 7654 In effect, the memo circular subjected the 3 brands to the provisions of Sec 142 (c) (1) NIRC imposing upon these brands a rate of 55% instead of just 20 to 45% under Sec 142 (c) (2)NIRC. There was no notice and hearing. CIR argued that the memo circular was merely an interpretative ruling of the BIR which did not require notice and hearing. Issue: WON RMC 37-93 was valid and enforceable DECISION: No; lack of notice and hearing violated due process required for promulgated rules. Moreover, it infringed on uniformity of taxation / equal protection since other local cigarettes bearing foreign brands had not been included within the scope of the memo circular. Ratio:

(c) Cigarettes packed by machine. — There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher: (1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack. (2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack.

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1. Contrary to CIR’s contention, the memo was not a mere interpretative rule but a legislative rule in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof. Promulgated legislative rules must be published 2. On the other hand, interpretative rules only provide guidelines to the law which the administrative agency is in charge of enforcing. 3. BIR, in reclassifying the 3 brands and raising their applicable tax rate, did not simply interpret RA 7654 but legislated under its quasilegislative authority.

applied prospectively. BLC filed an appeal to CA, which was denied. Hence, the present petition. BLC argues that RR 19-86 is legislative rather than interpretative in character and hence, should retroact to the date of effectivity of the law it seeks to interpret. Ratio: A legislative rule is in the matter of subordinate legislation, designed to implement a primary legislation by providing the details thereof. An interpretative rule, on the other hand, is designed to provide guidelines to the law which the administrative agency is in charge of enforcing. Sec 1 of RR 19-86 plainly states that it was promulgated pursuant to Sec 277 of the NIRC. Sec 277 (now Section 244) is an express grant of authority to the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the NIRC. In Paper Industries Corporation of the Philippines v. CA, the Court recognized that the application of Sec 277 calls for none other than the exercise of quasi-legislative or rule-making authority. Verily, it cannot be disputed that RR 19-86 was issued pursuant to the rule-making power of the Secretary of Finance, thus making it legislative, and not interpretative as alleged by BLC. The principle is well entrenched that statutes, including administrative rules and regulations, operate prospectively only, unless the legislative intent to the contrary is manifest by express terms or by necessary implication. In the present case, there is no indication that the revenue regulation may operate retroactively. In fact, there is an express provision stating that it “shall take effect on 100

BPI LEASING CORPORATION vs. CA, CTA, CIR 41G SCRA 4 2003 Ponente: Azcuna, J. Facts: BLC, a corporation engaged in the business of leasing properties. For 1986, BLC paid the CIR P1.1M in “contractor’s percentage tax” imposed by Sec 205 NIRC. Subsequently, in Nov, CIR issued Revenue Regulation (RR) 19-86, providing that companies registered under RA 5980, such as BLC, are not liable for “contractor’s percentage tax” under Sec 205 but are, instead, subject to “gross receipts tax” under Section 260 (now Section 122) of the NIRC. Since BLC had earlier paid the aforementioned “contractor’s percentage tax,” it re-computed its tax liabilities under the “gross receipts tax” and arrived at the amount of P361,924.44. In April 1988, BLC filed a claim for a refund with the CIR and a petition for review with the CTA. CTA dismissed the petition and denied BLC’s claim of refund, holding that RR 19-86 may only be

January 1, 1987,” and that it “shall be applicable to all leases written on or after the said date.” Thus, BLC is not in a position to invoke the provisions of RR 19-86 for lease rentals it received prior to January 1, 1987. CIR v Mega Merchandising Corp Tine Cengca Facts PD 392 which amended Tax Code provided that all importation of paraffin wax must be subject to 7% advance sales tax on landed costs plus 25% mark up

Commissioner Misael Vera replied that only was used as high pressure lubricant and micro cristallin are covered MMC now wanted to refund Php 321,436.79 (difference between the sales tax and the specific tax 28 January 1977: Commissioner Plana denied the request for refund because the law did not make any such distinction and MMC filed Motion for Reconsideration 11 January 1978 Commissioner Plana granted the tax refund

BIR subsequently investigated the volume of paraffin wax that arrived in the country after 28 January 1977 and sent their letter of assessment to the MMC to the effect that they have to pay Php 275,652.00 MMC protested over the Php 275,652.00 assessment but it was denied by the Commissioner using as basis the grant of the tax refund Commissioner appealed to the CTA which ruled in favor of MMC rendering the new tax assessment wrong Issue WON MMC is liable for the specific tax over the imported crude paraffin wax. Disposition Yes. 101

Section 142. Specific tax on manufactured oils and other fuels.—On refined and manufactured mineral oils and other motor fuels, there shall be collected the following taxes: xxx xxx xxx (i) centavos Greases, waxes and petroleum, per kilogram, thirty-five

Starting 14 February 1974, the new specific tax was implemented over and above the 7% sales tax MMC paid Php 177,750.00 tax

MMC inquired with Commissioner of Internal Revenue if imported crude wax is included in the new specific tax

The grant of the refund was not intended to revoke his 1977 opinion that crude paraffin tax is covered by the specific tax because the law did not make any such distinction. The tax refund granted was covered by the opinion rendered by Commissioner Vera meaning the assessments before 28 January 1977 while the subject assessment (Php 275,652.00) was made after 28 January 1977. COMMISSIONER OF INTERNAL REVENUE v. BURROUGHS LIMITED AND THE COURT OF TAX APPEALS PONENTE : PARAS LEGAL DOCTRINE: Memorandum Circular No. 8-82 cannot be given retroactive effect in light of Section 327 of the NIRC.[1]

Branch Profit Remittance tax should be 15% of Amount Actually Remitted. (based on Ruling of Acting Commissioner of Internal Revenue) 3. CTA: grants tax credit

4. CIR: Burroughs no longer entitled to refund because Memorandum Circular No. 8-82 dated 17 March 1982 had revoked and/or repealed the BIR ruling of 21 Jan 1980.

ISSUE(S) WON Memorandum Circular No. 8-82 (MC 8-82) dated 17 March 1982 can be given retroactive effect? (NO)

FACTS: Amount Applied for: Php 7,647,058.00 Php 1,147,048.70

DISPOSITION 1. 21 Jan 1980: BIR ruling by Acting Commissioner of Internal Revenue of NIRC Sec 24 (b)(2) (ii)[2]: · Tax Base upon which 15% branch profits remittance tax shall be imposed on Branch profits actually remitted and not on the total branch profits out of which the remittance is to be made.

15% Branch Profit Remittance Tax:

Amount Actually Remitted:

Php 6,499,999.30

2. 24 Decemeber 1980: Burroughs claims a tax refund/credit of Php 172,058.90.

2. Applicable Ruling is Revenue Ruling of 21 Jan 1980 because Burroughs paid the branch profit remittance tax on 14 Mar 1979. MC No. 8-82 cannot be given retroactive effect in light of Sec 327 of NIRC. 102

3. The retroactive application of MC No. 8-82 would prejudice Burroughs as it would be deprived of the substantial amount of 172T++. Burroughs also does not fall under any of the enumerated exceptions where retroactivity would apply. Case Digest by Lilian Dy

[1] Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152) [2] Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ... (2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ... 103

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