August 7, 2018

1. G.R. No. 160756    CREBA vs Romulo

 Issue: Validity of the imposition of minimum corporate income tax (MCIT) on corporations and
creditable withholding tax (CWT) on sales of real properties classified as ordinary assets.
 Ruling: Absent any other valid objection, the assignment of gross income, instead of net income,
as the tax base of the MCIT, taken with the reduction of the tax rate from 32% to 2%, is not
constitutionally objectionable.
o In sum, petitioner failed to support, by any factual or legal basis, its allegation that the
MCIT is arbitrary and confiscatory. The Court cannot strike down a law as
unconstitutional simply because of its yokes. Taxation is necessarily burdensome
because, by its nature, it adversely affects property rights. The party alleging the law’s
unconstitutionality has the burden to demonstrate the supposed violations in
understandable terms.
Nature(?) of Taxation:
 It is a power that is purely legislative
o In other words, the legislature wields the power to define what tax shall be imposed,
why it should be imposed, how much tax shall be imposed, against whom (or what) it
shall be imposed and where it shall be imposed
 power to tax is plenary and unlimited in its range
o in its very nature no limits, so that the principal check against its abuse is to be found
only in the responsibility of the legislature
o Nevertheless, it is circumscribed by constitutional limitations. At the same time, like any
other statute, tax legislation carries a presumption of constitutionality.

G.R. Nos. 147036-37 PKSMMN vs EXECUTIVE SECRETARY

 Issue: Validity of (a) Section 2 of P.D. 755, (b) Article III, Section 5 of P.D.s 961 and 1468, (c) E.O.
312, and (d) E.O. 313 with regard to the Coco Levy Funds
 Ruling: The above sections of the law were declared unconstitutional.
 the coco-levy funds were raised pursuant to law to support a proper governmental purpose.
They were raised with the use of the police and taxing powers of the State for the benefit of the
coconut industry and its farmers in general.
o are in the nature of taxes and can only be used for public purpose
o unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money to boost the
government’s general funds but to provide means for the rehabilitation and stabilization
of a threatened industry, the coconut industry, which is so affected with public interest
as to be within the police power of the State. The funds sought to support the coconut
industry, one of the main economic backbones of the country, and to secure economic
benefits for the coconut farmers and farm workers.
o the coco-levy funds are evidently special funds - were levied for a special purpose and,
therefore, constituted special fund when collected.
 The Court of course grants that there is no hard-and-fast rule for determining what constitutes
public purpose. It is an elastic concept that could be made to fit into modern standards. Public
purpose, for instance, is no longer restricted to traditional government functions like building
roads and school houses or safeguarding public health and safety. Public purpose has been
 construed as including the promotion of social justice. Thus, public funds may be used for
relocating illegal settlers, building low-cost housing for them, and financing both urban and
agrarian reforms that benefit certain poor individuals. Still, these uses relieve volatile iniquities
in society and, therefore, impact on public order and welfare as a whole.

G.R. No. 193007   DIAZ vs. SECRETARY OF FINANCE

 Issue: Validity of imposing VAT on collections of toll fees

 Ruling: VAT on toll fees is valid
Toll fees vs. taxes
 In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any
sense. A tax is imposed under the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures. Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure them a reasonable
margin of income. Although toll fees are charged for the use of public facilities, therefore, they
are not government exactions that can be properly treated as a tax. Taxes may be imposed only
by the government under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.
 NOTE: Distinguish taxes from other exactions:

1. From Toll is a sum of money for the use of something, generally applied to the
TOLL. consideration which is paid for the use of a road, bridge or the like, of a public
nature.

A toll is a demand of proprietorship, is paid for the use of another’s property

and may be imposed by the government or private individuals or entities;
while a tax is a demand of sovereignty, is paid for the support of the
government and may be imposed only by the State.
2. From Penalty is any sanction imposed as a punishment for violation of law or acts
PENALTY deemed injurious. Violation of tax laws may give rise to imposition of penalty.

A penalty is designed to regulate conduct and may be imposed by the

government or private individuals or entities. Tax, on the other hand, is
primarily aimed at raising revenue and may be imposed only by the
government.
3. From Special Assessment is an enforced proportional contribution from owners of
SPECIAL lands for special benefits resulting from public improvements.
ASSESSMEN
T Special Assessment is levied only on land, is not a personal liability of the
person assessed, is based wholly on benefits and is exceptional both as to
time and place. Tax is levied on persons, property, or exercise of privilege,
which may be made a personal liability of the person assessed, is based on
necessity and is of general application.
4. From Permit or License Fee is a charge imposed under the police power for
PERMIT or purposes or regulation.
LICENSE FEE
License fee is imposed for regulation and involves the exercise of police power
 while tax is levied for revenue and involves the exercise of the taxing power.
Failure to pay a license gee makes an act or a business illegal, while failure to
pay a tax does not necessarily make an act or a business illegal.
5. From Debt is generally based on contract, is assignable and may be paid in kind
DEBT. while a tax is based on law, cannot generally be assigned and is generally
payable in money. A person cannot be imprisoned for non-payment of debt
while he can be for non-payment of tax except poll tax.

A tax is considered a debt for purposes of remedies for its enforcement;

6. From Revenue is broader that tax since it refers to all funds or income derived by
REVENUE. the government taxes included. Other sources of revenues are government
services, income from public enterprises and foreign loans.
7. From Custom duties are taxes imposed on goods exported from or imported to a
CUSTOM country. Custom duties are actually taxes but the latter is broader in scope.
DUTIES.

 Administrative feasibility is one of the canons of a sound tax system. It simply means that the
tax system should be capable of being effectively administered and enforced with the least
inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax
imposition invalid "except to the extent that specific constitutional or statutory limitations are
impaired."34 Thus, even if the imposition of VAT on tollway operations may seem burdensome
to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or
the Constitution.
o Here, it remains to be seen how the taxing authority will actually implement the VAT on
tollway operations. Any declaration by the Court that the manner of its implementation
is illegal or unconstitutional would be premature

G.R. No. 189999 ANGELES UNIVERSITY FOUNDATION vs CITY OF ANGELES

 Issue: WON Fees and charges are in the nature of taxes

 Ruling: No
Fees and charges vs taxes
 Building permit fees are not impositions on property but on the activity subject of government
regulation. While it may be argued that the fees relate to particular properties, i.e., buildings
and structures, they are actually imposed on certain activities the owner may conduct either to
build such structures or to repair, alter, renovate or demolish the same.
o ancillary permits such as electrical permit, sanitary permit and zoning clearance must
also be secured and the corresponding fees paid before a building permit may be issued.
And as can be gleaned from the implementing rules and regulations of the National
Building Code, clearances from various government authorities exercising and enforcing
regulatory functions affecting buildings/structures, like local government units, may be
further required before a building permit may be issued.
 As to petitioner’s argument that the building permit fees collected by respondents are in reality
taxes because the primary purpose is to raise revenues for the local government unit, the same
 does not hold water. A charge of a fixed sum which bears no relation at all to the cost of
inspection and regulation may be held to be a tax rather than an exercise of the police power.
o Petitioner failed to demonstrate that the above bases of assessment were arbitrarily
determined or unrelated to the activity being regulated. Neither has petitioner adduced
evidence to show that the rates of building permit fees imposed and collected by the
respondents were unreasonable or in excess of the cost of regulation and inspection
o Note: distinction between a tax and a regulation matters to prove its invalidity. If
exaction is an exercise of police power, then the law must passed the test for validity of
police power. If it is a tax, it must not go beyond its inherent limitations. Regulation is
limited (in this case, fees are based on the NBC) while tax is generally unlimited.
 In distinguishing tax and regulation as a form of police power, the determining factor is the
purpose of the implemented measure. If the purpose is primarily to raise revenue, then it will be
deemed a tax even though the measure results in some form of regulation. On the other hand, if
the purpose is primarily to regulate, then it is deemed a regulation and an exercise of the police
power of the state, even though incidentally, revenue is generated.

August 14, 2021

G.R. Nos. 156556-57  BETOY vs NATIONAL POWER CORPORATION         

 Issue: Constitutionality of Section 34 of the EPIRA

 In Gerochi, this Court ruled that the Universal Charge is not a tax but an exaction in the exercise
of the State's police power. The Universal Charge is imposed to ensure the viability of the
country's electric power industry.
o It is basic that the determination of whether or not a tax is excessive oppressive or
confiscatory is an issue which essentially involves a question of fact and, thus, this Court
is precluded from reviewing the same.

G.R. No. 175356  MANILA MEMORIAL PARK, INC  vs SECRETARY OF DSWD

 Issue: Whether or not RA 9257 which allow business establishments to claim the 20% discount
given to senior citizens as a tax deduction is police power or eminent domain.
o If eminent domain = tax deduction is insufficient as a just compensation
 Tax deduction vs Tax Credit
o Tax Credit - When the law says that the cost of the discount may be claimed as a tax
credit, it means that the amount — when claimed — shall be treated as a reduction
from any tax liability, plain and simple. The option to avail of the tax credit benefit
depends upon the existence of a tax liability, but to limit the benefit to a sales discount
— which is not even identical to the discount privilege that is granted by law — does not
define it at all and serves no useful purpose.
o Tax deduction - It is an amount that is allowed by law to reduce the income prior to the
application of the tax rate to compute the amount of tax which is due.
 Being a tax deduction, the discount does not reduce taxes owed on a peso for
peso basis but merely offers a fractional reduction in taxes owed. Theoretically,
the treatment of the discount as a deduction reduces the net income of the
private establishments concerned.
  The discounts given would have entered the coffers and formed part of the
gross sales of the private establishments, were it not for R.A. No. 9257.
 A tax deduction does not offer full reimbursement of the senior citizen discount.
As such, it would not meet the definition of just compensation.
 As a form of reimbursement, the law provides that business establishments extending the
twenty percent discount to senior citizens may claim the discount as a tax deduction. The law is
a legitimate exercise of police power which, similar to the power of eminent domain, has
general welfare for its object. Police power is not capable of an exact definition, but has been
purposely veiled in general terms to underscore its comprehensiveness to meet all exigencies
and provide enough room for an efficient and flexible response to conditions and circumstances,
thus assuring the greatest benefits.

G.R. No. 210551   FERRER vs BAUTISTA

 Issue: Validity of Socialized Housing Tax and Garbage Fee

 Ruling: SHT is valid taxing power of LGU under Sec 43 RA 7279 (UDHA) while GF is
unconstitutional since its rates imposed is based on classification of payee which is not germane
to its purpose (unreasonable classification)
 It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent
power of taxation. The charter or statute must plainly show an intent to confer that power or
the municipality, cannot assume it. And the power when granted is to be construed in
strictissimi juris. Any doubt or ambiguity arising out of the term used in granting that power
must be resolved against the municipality. Inferences, implications, deductions – all these –
have no place in the interpretation of the taxing power of a municipal corporation.
 LGUs are able to legislate only by virtue of a valid delegation of legislative power from the
national legislature; they are mere agents vested with what is called the power of subordinate
legislation. "Congress enacted the LGC as the implementing law for the delegation to the various
LGUs of the State’s great powers, namely: the police power, the power of eminent domain, and
the power of taxation. The LGC was fashioned to delineate the specific parameters and
limitations to be complied with by each LGU in the exercise of these delegated powers with the
view of making each LGU a fully functioning subdivision of the State subject to the constitutional
and statutory limitations."
o Specifically, with regard to the power of taxation, it is indubitably the most effective
instrument to raise needed revenues in financing and supporting myriad activities of the
LGUs for the delivery of basic services essential to the promotion of the general welfare
and the enhancement of peace, progress, and prosperity of the people
o In recent years, the increasing social challenges of the times expanded the scope of
state activity, and taxation has become a tool to realize social justice and the equitable
distribution of wealth, economic progress and the protection of local industries as well
as public welfare and similar objectives.
 Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes,
fees and other charges pursuant to Article X, Section 5 of the 1987 Constitution
 This paradigm shift results from the realization that genuine development can be achieved only
by strengthening local autonomy and promoting decentralization of governance.
 o The only way to shatter this culture of dependence is to give the LGUs a wider role in
the delivery of basic services, and confer them sufficient powers to generate their own
sources for the purpose.
 Under the now prevailing Constitution , where there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist although Congress may provide statutory
limitations and guidelines.
o The basic rationale for the current rule is to safeguard the viability and self-sufficiency of
local government units by directly granting them general and broad tax powers.
Nevertheless, the fundamental law did not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to ensure that, while the local
government units are being strengthened and made more autonomous , the legislature
must still see to it that (a) the taxpayer will not be over-burdened or saddled with
multiple and unreasonable impositions; (b) each local government unit will have its fair
share of available resources; (c) the resources of the national government will not be
unduly disturbed; and (d) local taxation will be fair, uniform, and just."
 Subject to the provisions of the LGC and consistent with the basic policy of local autonomy,
every LGU is now empowered and authorized to create its own sources of revenue and to levy
taxes, fees, and charges which shall accrue exclusively to the local government unit as well as to
apply its resources and assets for productive, developmental, or welfare purposes, in the
exercise or furtherance of their governmental or proprietary powers and functions.
 The SHT tax is not a pure exercise of taxing power or merely to raise revenue; it is levied with a
regulatory purpose. The levy is primarily in the exercise of the police power for the general
welfare of the entire city. It is greatly imbued with public interest.
 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 over another. It is inherent in the power to tax that a State is
free to select the subjects of taxation. Inequities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation.
 "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."
o the purpose and effect of the imposition determine whether it is a tax or a fee, and
that the lack of any standards for such imposition gives the presumption that the same
is a tax.
 We accordingly say that the designation given by the municipal authorities does not decide
whether the imposition is properly a license tax or a license fee. The determining factors are the
purpose and effect of the imposition as may be apparent from the provisions of the ordinance .
o Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor any
standard set for the applicant to establish, or that he agrees to attain or maintain, but
any and all persons engaged in the business designated, without qualification or
hindrance, may come, and a license on payment of the stipulated sum will issue, to do
business, subject to no prescribed rule of conduct and under no guardian eye, but
according to the unrestrained judgment or fancy of the applicant and licensee, the
presumption is strong that the power of taxation, and not the police power, is being
exercised."

G.R. No. 203754      FDCP vs COLON HERITAGE REALTY CORPORATION

  Issue: Validity of Sec 13 and 14 of RA 9167 which requires that amusement tax (which should
have accrued to the LGUs) be deducted and withheld by the proprietors, operators or lessees of
theaters or cinemas and remitted to the FDCP.
 Ruling: Invalid since it violates local fiscal autonomy
 Fiscal autonomy was defined as "the power [of LGUs] to create their own sources of revenue in
addition to their equitable share in the national taxes released by the national government, as
well as the power to allocate their resources in accordance with their own priorities . It extends
to the preparation of their budgets, and local officials in tum have to work within the constraints
thereof."
o With the adoption of the 1973 Constitution,24 and later the 1987 Constitution,
municipal corporations were granted fiscal autonomy via a general delegation of the
power to tax
o This authority was further strengthened in the 1987 Constitution, through the inclusion
in Section 5, Article X thereof of the condition that " [s]uch taxes, fees, and charges shall
accrue exclusively to local governments."
 Taking the resulting scheme into consideration, it is apparent that what Congress did in this
instance was not to exclude the authority to levy amusement taxes from the taxing power of the
covered LGUs, but to earmark, if not altogether confiscate, the income to be received by the
LGU from the taxpayers in favor of and for transmittal to FDCP, instead of the taxing authority.
This, to Our mind, is in clear contravention of the constitutional command that taxes levied by
LGUs shall accrue exclusively to said LGU and is repugnant to the power of LGUs to apportion
their resources in line with their priorities.
 It is a basic precept that the inherent legislative powers of Congress, broad as they may be, are
limited and confined within the four walls of the Constitution. Accordingly, whenever the
legislature exercises its power to enact, amend, and repeal laws, it should do so without going
beyond the parameters wrought by the organic law.
 In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income
from the amusement taxes levied by the covered LGUs did not and will under no circumstance
accrue to them, not even partially, despite being the taxing authority therefor. Congress,
therefore, clearly overstepped its plenary legislative power, the amendment being violative of
the fundamental law's guarantee on local autonomy, as echoed in Sec. 130(d) of the LGC.
 Moreover, in Pimentel, the Court elucidated that local fiscal autonomy includes the power of
LGUs to allocate their resources in accordance with their own priorities. By earmarking the
income on amusement taxes imposed by the LGUs in favor of FDCP and the producers of graded
films, the legislature appropriated and distributed the LGUs' funds-as though it were legally
within its control-under the guise of setting a limitation on the LGUs' exercise of their delegated
taxing power. This, undoubtedly, is a usurpation of the latter's exclusive prerogative to
apportion their funds, an impermissible intrusion into the LGUs' constitutionally-protected
domain which puts to naught the guarantee of fiscal autonomy to municipal corporations
enshrined in our basic law.

G.R. No. 201398-99      CIR v. AVON PRODUCTS MANUFACTURING, INC

 Facts: Avon claims that from the start up to the end of the administrative process, the
Commissioner ignored all of its protests and submissions to contest the deficiency tax
assessments. The Commissioner issued identical Preliminary Assessment Notice, Final
 Assessment Notices, and Collection Letters without considering Avon's submissions or its partial
payment of the assessments. Avon asserts that it was not accorded a real opportunity to be
heard, making all of the assessments null and void.
 Issue: 1) whether or not the Commissioner of Internal Revenue failed to observe administrative
due process, and consequently, 2) whether or not the assessments are void
 Ruling: Tax assessments issued in violation of the due process rights of a taxpayer are null and
void. While the government has an interest in the swift collection of taxes, the Bureau of
Internal Revenue and its officers and agents cannot be overreaching in their efforts, but must
perform their duties in accordance with law, with their own rules of procedure, and always with
regard to the basic tenets of due process.
o Tax investigation and assessment necessarily demand the observance of due process
because they affect the proprietary rights of specific persons.
 On the Quasi-judicial or administrative adjudicatory power of the Commissioner
o It is the power to hear and determine questions of fact to which the legislative policy is
to apply and to decide in accordance with the standards laid down by the law itself in
enforcing and administering the same law.
o where the power to act in such manner is incidental to or reasonably necessary for the
performance of the executive or administrative duty entrusted to it
o while administrative bodies enjoy a certain procedural leniency, they are nevertheless
obligated to inform themselves of all facts material and relevant to the case, and to
render a decision based on an accurate appreciation of facts.
 To reiterate, due process is a malleable concept anchored on fairness and equity. The due
process requirement before administrative bodies are not as strict compared to judicial
tribunals in that it suffices that a party is given a reasonable opportunity to be heard.
Nevertheless, such "reasonable opportunity" should not be confined to the mere submission of
position papers and/or affidavits and the parties must be given the opportunity to examine the
witnesses against them. The right to a hearing is a right which may be invoked by the parties to
thresh out substantial factual issues. It becomes even more imperative when the rules itself of
the administrative body provides for one. While the absence of a formal hearing does not
necessarily result in the deprivation of due process, it should be acceptable only when the party
does not invoke the said right or waives the same.
 Administrative due process is anchored on fairness and equity in procedure. It is satisfied if the
party is properly notified of the charge against it and is given a fair and reasonable opportunity
to explain or defend itself. Moreover, it demands that the party's defenses be considered by the
administrative body in making its conclusions, and that the party be sufficiently informed of the
reasons for its conclusions.
 taxpayer must first be informed that he is liable for deficiency taxes through the sending of a
PAN. He must be informed of the facts and the law upon which the assessment is made. The law
imposes a substantive, not merely a formal, requirement.
 Compliance with strict procedural requirements must be followed in the collection of taxes
 "[A] waiver of the statute of limitations [is] a derogation of the taxpayer's right to security
against prolonged and unscrupulous investigations [and thus, it] must be carefully and strictly
construed.

September 4, 2021

G.R. Nos. 196596 CIR vs DE LA SALLE UNIVERSITY, INC

  Facts: BIR assessed DLSU the following deficiency taxes: (1) income tax on rental earnings from
restaurants/canteens and bookstores operating within the campus; (2) value-added tax (VAI) on
business income; and (3) documentary stamp tax (DSI) on loans and lease contracts.
o DLSU, a non-stock, non-profit educational institution, principally anchored its petition on
Article XIV, Section 4 (3) of the Constitution, which reads:
o (3) All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from taxes
and duties. xxx.
 Issue: WON DLSU is exempted to pay the above taxes
 Ruling: The income, revenues and assets of non-stock, non-profit educational institutions
proved to have been used actually, directly and exclusively for educational purposes are exempt
from duties and taxes.
 There is a marked distinction between the treatment of non-stock, non-profit educational
institutions and proprietary educational institutions. The tax exemption granted to non-stock,
non-profit educational institutions is conditioned only on the actual, direct and exclusive use of
their revenues and assets for educational purposes. While tax exemptions may also be granted
to proprietary educational institutions, these exemptions may be subject to limitations imposed
by Congress.
o The tax-exemption constitutionally-granted to non-stock, non-profit educational
institutions, is not subject to limitations imposed by law.
o That the Constitution treats non-stock, non-profit educational institutions differently
from proprietary educational institutions cannot be doubted. As discussed, the privilege
granted to the former is conditioned only on the actual, direct and exclusive use of their
revenues and assets for educational purposes. In clear contrast, the tax privilege
granted to the latter may be subject to limitations imposed by law.
o By the Tax Code's clear terms, a proprietary educational institution is entitled only to the
reduced rate of 10% corporate income tax. The reduced rate is applicable only if: (1) the
proprietary educational institution is nonprofit and (2) its gross income from unrelated
trade, business or activity does not exceed 50% of its total gross income.
 Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do
not apply to non-stock, non-profit educational institutions.
 Taxation of revenues versus the taxation of assets
o Revenues consist of the amounts earned by a person or entity from the conduct of
business operations.82 It may refer to the sale of goods, rendition of services, or the
return of an investment. Revenue is a component of the tax base in income tax,83
VAT,84 and local business tax (LBT).
o Assets, on the other hand, are the tangible and intangible properties owned by a person
or entity
o Thus, when a non-stock, non-profit educational institution proves that it uses its
revenues actually, directly, and exclusively for educational purposes, it shall be
exempted from income tax, VAT, and LBT. On the other hand, when it also shows that it
uses its assets in the form of real property for educational purposes, it shall be
exempted from RPT.

G.R. Nos. 202792 LA SALLIAN vs CIR

 Facts: BIR assessed DLSU the following deficiency of income taxes and VAT. BIR alleged that the
petitioner Foundation has already lost its tax-exempt status, malting it liable to deficiency
income tax.
o majority of its revenue-operating activities are generating huge amount of profit that
earned from expensive tuition fees
o based on the amount of CiB the foundation are [sic] not giving sufficient donations
which is the main reasons [sic] for its qualification[s] [sic] for exemption.
o Based on its Cash flows, 70% of foundation's earnings goes to the administrative
purposes and improvement of the school to increase number of its enrollees and
increase further its profit and not to further its charitable purposes.
 Issue: WON Petitioner has lost its tax-exempt status under the 1987 Constitution
 Ruling: Petitioner Foundation has presented adequate legal and factual basis to prove that it
remains as a tax exempt entity under Article XIV, Section 4, Paragraph 3 of the 1987
Constitution.
o a taxpayer shall be granted with this tax exemption after proving that: (1) it falls under
the classification of 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
o Petitioner Foundation has fulfilled both of the abovementioned requirements.
o petitioner Foundation, being a non-stock, non-profit educational institution, is not liable
to the payment of VAT deficiency assessment,
 Petitioner Foundation's primary and secondary purposes in its Amended Articles of
Incorporation clearly provide that it is a non-stock, non-profit educational entity
o no capital divided into shares.47 No part of its income can be distributed as dividends to
its members, trustees and officers.48 The members of the Board of Trustees do not
receive any compensation for the performance of their duties, including attendance in
meetings
 BIR already declared that petitioner Foundation is a non-stock, non-profit educational institution
that is exempt from certain taxes in BIR Ruling No. 176-88 dated August 23, 1988
o The application for a new BIR Ruling is unnecessary considering that the BIR Ruling was
never revoked, and the primary purpose of petitioner Foundation remained the same
 A non-profit institution will not be considered profit driven simply because of generating profits.
 Section 4 (3) does not require that the revenues and income must have also been earned from
educational activities or activities related to the purposes of an educational institution. The
phrase "all revenues" is unqualified by any reference to the source of revenues.63 Thus, so long
as the revenues and income are used actually, directly and exclusively for educational purposes,
then said revenues and income shall be exempt from taxes and duties
o Considering the clear explanation of the nature of the money involved, it is evident that
all of petitioner Foundation's income is actually, directly and exclusively used or
earmarked for promoting its educational purpose.62 To reiterate, respondent never
argued that the income of petitioner Foundation was used in any manner other than for
promoting its purpose as a non-stock, non-profit educational institution, hi fact, there is
not even a single argument or evidence presented to cast a doubt in the proper usage of
petitioner Foundation's income.
 The tax exemption expressly granted by the 1987 Constitution, the supreme law of the land,
cannot be set aside by any statute, especially by a mere technicality in procedure.
 o To reiterate, petitioner Foundation was able to establish that it is a tax exempt entity
under the 1987 Constitution. It has timely filed its Protest to the tax deficiency
assessment. It was also able to actually pay the full amount of the required docket and
legal fees in the amount of P861,178.34, but it was nine (9) days late. Evidently,
petitioner Foundation immediately paid the docket and legal fees upon the CTA's
assessment of the proper amount which showed petitioner's good faith.
 The constitutionally mandated tax privilege granted to non-stock non-profit educational
institutions plays an important role in promoting quality and affordable education in the country
o broader tax privilege to non-stock, non-profit educational institutions as recognition of
their role in assisting the State provide a public good. The tax exemption was seen as
beneficial to students who may otherwise be charged unreasonable tuition fees if not
for the tax exemption extended to all revenues and assets of non-stock, non-profit
educational institutions

G.R. Nos. 214044 UP vs CITY TREASURER OF QUEZON CITY

 Facts: UP was assessed by the City Treasurer of Quezon City for the payment of RPT of a land
currently leased to Ayala Land, Inc. (ALI)
o There is a stipulation in the lease contract between UP and ALI that UP will assume
payment of RPT of the land while ALI assume RPT of improvements during the lease
period.
o RA 9500 or the UP Charter provides the ff exemption:
 SEC. 25. Tax Exemptions. - The provisions of any general or special law to the
contrary notwithstanding:
 (a) All revenues and assets of the University of the Philippines used for
educational purposes or in support thereof shall be exempt from all
taxes and duties;
o LGC provision on exemption from RPT
 Section 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;
 Issue: WON UP, as a chartered academic institution with specific legislated tax exemptions, is
legally liable for the real property tax on the land leased to ALI
 Ruling: Yes. UP is exempt to pay for RPT. UP is a government instrumentality.
o Considering that the subject land and the revenue derived from the lease thereof are
used by UP for educational purposes and in support of its educational purposes, UP
should not be assessed, and should not be made liable for real property tax on the land
subject of this case. Under Republic Act No. 9500, this tax exemption, however, applies
only to "assets of the University of the Philippines," referring to assets owned by UP.
Under the Contract of Lease between UP and ALI, all improvement on the leased land
"shall be owned by, and shall be for the account of the LESSEE [ALI]" during the term of
the lease. The improvements are not "assets" owned by UP; and thus, UP's tax
exemption under Republic Act No. 9500 does not extend to these improvements during
the term of the lease.
 Real property owned by the Republic of the Philippines are exempt from payment of the real
property tax. However, if the beneficial use thereof has been granted for consideration or
 otherwise to a taxable person, the subject real property shall: (1) be listed, valued and assessed
in the name of the beneficial user; and (2) becomes taxable.
 The enactment and passage of Republic Act No. 9500 in 2008 superseded Sections 205(d) and
234(a) of the Local Government Code. Before the passage of Republic Act No. 9500, there was a
need to determine who had beneficial use of UP's property before the property may be
subjected to real property tax. After the passage of Republic Act No. 9500, there is a need to
determine whether UP's property is used for educational purposes or m support thereof before
the property may be subjected to real property tax.
o Republic Act No. 9500 bases UP's tax exemption upon compliance with the condition
that UP's revenues and assets must be used for educational purposes or in support
thereof. There is no longer any need to determine the tax status of the possessor or of
the beneficial user to further ascertain whether UP's revenue or asset is exempt from
tax.
o UP is a government instrumentality, performing the State's constitutional mandate of
promoting quality and accessible education
o All the funds going into the possession of the UP, including any interest accruing from
the deposit of such funds in any banking institution, constitute a "special trust fund," the
disbursement of which should always be aligned with the UP's mission and purpose, and
should always be subject to auditing by the COA
 Section 22 of Republic Act No. 9500, previously quoted above, allows UP to lease and develop its
land subject to certain conditions.
o The Contract of Lease between UP and ALI shows that there is an intent to develop "a
prestigious and dynamic science and technology park, where research and technology-
based collaborative projects between technology and the academe thrive, thereby
becoming a catalyst for the development of the information technology and information
technology-enabled service."35 The development of the subject land is clearly for an
educational purpose, or at the very least, in support of an educational purpose.
 The facts of the present case are not on all fours with the facts in the NPC case
o the NPC assumed in its build-operate-transfer (BOT) contract with Mirant Pagbilao
Corporation (Mirant) ''all real estate taxes and assessments, rates and other charges in
respect of the site, the buildings and improvements thereon and the [power plant].
o NPC has no right to protest the assessment on Mirant because the NPC is neither the
owner nor the possessor or user of the subject machineries
o the contractual stipulation between NPC and Mirant is entirely between them, and
"does not bind third persons who are not privy to the contract
o We declared in the NPC case that it is "essentially wrong to allow the NPC to assume in
its BOT contracts the liability of the other contracting party for taxes that the
government can impose on that other party, and at the same time allow NPC to turn
around and say that no taxes should be collected because the NPC is tax-exempt as a
government-owned and controlled corporation."
 The passage of Republic Act No. 9500 in 2008 obliterated what was essentially wrong in the
lease contract between UP and ALI The legislature established a tax system that allows UP to
validly claim exemption from real property taxes on the land leased to ALI. Republic Act No.
9500 is UP's congressional authority for this particular exemption from real property tax
o Before the passage of Republic Act No. 9500, it was essentially wrong for UP to assume
in its lease contract with ALI the liability of ALI for real property taxes based on its
 beneficial use of the land, and then turn around and tell the City Treasurer that UP is
exempt from paying taxes on the land because it is a government instrumentality.

After Midterms Notes

October 23, 2021

The Philippines adopted the semi-global tax system, which means that:
(a) All taxable incomes, regardless of the nature of income, are added together to arrive at gross income,
and all allowable deductions are deducted from the gross income to arrive at the taxable income;
(b) All incomes subject to final withholding taxes liable to income tax under the schedular tax system,
while all ordinary income as well as income not subject to final withholding tax under the global tax
system;
(c) All taxable incomes are subject to final withholding taxes under the schedular tax system
(d) All taxable incomes from sources within and without the Philippines are liable to income tax

Alain Descartes, a French citizen permanently residing in the Philippines, received several items during
the taxable year. Which among the following is NOT subject to Philippine income taxation?
A. Consultancy fees received for designing a computer program and installing the same in the Shanghai
facility of a Chinese firm.
B. Interests from his deposits in a local bank of foreign currency earned abroad converted to Philippine
pesos.
C. Dividends received from an American corporation which der
which derived 60% of its annual gross receipts from Philippine sources for the past 7 years.
D. Gains derived from the sale of his condominium unit located in The Fort, Taguig City to another
resident alien.

Income from the performance of services is treated as income from within the Philippines, if:
(a) The payment of compensation for the service is made in the Philippines;
(b) The contract calling for the performance of services is signed in the Philippines;
(c) The service is actually performed in the Philippines;
(d) The recipient of service income is a resident of the Philippines.

For income tax purposes, the source of the service income is important for the taxpayer, who is a:
(a) Filipino citizen residing in Makati City
(b) Non-resident Filipino citizen working residing in London, United Kingdom
(c) Japanese citizen who is married to a Filipino citizen and residing in their family home located at Fort
Bonifacio, Taguig City;
(d) Domestic corporation

Pierre de Savigny, a Frenchman, arrived in the Philippines on January 1, 2010 and continued to live and
engage in business in the Philippines. He went on a tour of Southeast Asia from August 1 to November 5,
2010. He returned to the Philippines on November 6, 2010 and stayed until April 15, 2011 when he
returned to France. He earned during his stay in the Philippines a gross income of P3 million from his
investments in the country. For the year 2010, Pierre’s taxable status is that of
(a) A non-resident alien not engaged in trade or business in the Philippines
(b) A non-resident alien engaged in the trade or business in the Philippines
(c) A resident alien not engaged in trade or business in the Philippines
(d) a resident alien engaged in trade or business in the Philippines

A resident corporation is one that is

(a) Organized under the laws of the Philippines that does business in another country;
(b) Organized under the laws of a foreign country that sets up a regional headquarter in the Philippines
doing product promotion and information dissemination
(c) Organized under the laws of the Philippines that engages business in a special economic zone;
(d) Organized under the laws of a foreign country that engages in business in Makati City, Philippines

October 30, 2021

Foster Corporation (FC) is a Singapore-based foreign corporation engaged in construction and

installation projects. In 2010, Global Oil Corporation (GOC), a domestic corporation engaged in the
refinery of petroleum products, awarded an anti-pollution project to Foster Corporation, whereby FC
shall design, supply machinery and equipment, and install an anti-pollution device for GOC’s refinery in
the Philippines, provided that the installation part of the project may be sub-contracted to a local
construction company. Pursuant to the contract, the design and supply contracts were done in
Singapore by FC, while the installation works were sub-contracted by the FC with the Philippine
Construction Corporation (PCC), a domestic corporation. The project with a total cost of P100 Million
was completed in 2011 at the following cost components: (design – P20Million; machinery and
equipment – P50 Million; and installation –P30 Million). Assume that the project was 40% complete in
2010 and 100% complete in 2011, based on the certificates issued by the certificates issued by the
architects and engineers working on the project. GOC paid FC as follows: P60 Million in 2010 and P40
Million in 2011, and FC paid PCC ion foreign currency through a Philippine bank as follows: P10 Million in
2010 and P20 Million in 2011.
a) Is FC liable to Philippines income tax, and if so, how much revenue shall be reported by it in 2010 and
in 2011? Explain your answer. (5%)
Based on Sec 42 of NIRC. 2 components of the project: 1) Design and supply contracts done in Singapore
and 2) Installation works subcontracted. FC is a foreign corporation thus it can only be taxed for income
source within the Philippines with a rate of 25% (CREATE law) of gross income. Sec 42 of NIRC provides
that compensation for labor or personal services performed without the Philippines shall be treated as
income source without the Philippines. Here, the design and supply contracts were done in Singapore,
thus the income from such is treated as income sourced without the Philippines and therefore not
subject to income tax. With regard to the installation works subcontracted by FC with the PCC. Since the
installation was done in the Philippines, it should be treated as income sourced within the Philippines
and therefore subject to Philippine income tax.

Triple Star, a domestic corporation, entered into a Management Service Contract with Single Star, a non-
resident foreign corporation with no property in the Philippines. Under the contract, Single Star shall
provide managerial services for Triple Star’s Hongkong branch. All said services shall be performed in
Hongkong. Is the compensation for the services of Single Star taxable as income from sources within the
Philippines? Explain. (4%)
No. Singles Star is a non-resident foreign corporation and is taxable only for income sourced within the
Philippines. Sec 42 of the NIRC provides that services performed outside the Philippines are treated as
income source from without the Philippines. Since the services is performed in Hong Kong, it is
considered as income sourced from without the Philippines and is not taxable in the Philippines.

I. Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a nonresident citizen.
a) If the goods were produced from Ms. B's factory in the Philippines, is Ms. B's income from the sale to
Ms. C taxable in the Philippines? Explain. (2%)
b) If Ms. B is an alien individual and the goods were produced in her factory in China, is Ms. B's income
from the sale of the goods to Ms. C taxable in the Philippines? Explain. (2%)
a) Income is taxable. The goods was produced and sold in the Philippines. The income is therefore
treated as income sourced from within the Philippines.
b) Sec 42(E) of the NIRC. Income is partly taxable. Income is treated as income derived partly from
sources within and partly from sources within the Philippines

A corporation may change its taxable year to calendar year or fiscal year in filing its annual income tax
return, provided
(a) It seeks prior BIR approval of its proposed change in accounting period
(b) It simultaneously seeks BIR approval of its new accounting period
(c) It should change its accounting period two years prior to changing its taxable year
(d) Its constitution and by-laws authorizes the change

There is no taxable income until such income is recognized. Taxable income is recognized when the –
(a) Taxpayer fails to include the income in his income tax return
(b) Income has been actually received in money or its equivalent
(c) income has been received, either actually or constructively
(d) transaction that is the source of the income is consummated

Income is considered realized for tax purposes when

(a) It is recognized as revenue under accounting standards even if the law does not do so
(b) The taxpayer retires from the business without approval from the BIR
(c) The taxpayer has been paid and has received in cash or near cash the taxable income
(d) The earning process is complete or virtually complete and an exchange has taken place

In 2010, Mr. Platon sent his sister Helen $1 ,000 via a telegraphic transfer through the Bank of PI. The
bank's remittance clerk made a mistake and credited Helen with $1,000,000 which she promptly
withdrew. The bank demanded the return of the mistakenly credited excess, but Helen refused. The BIR
entered the picture and investigated Helen. Would the BIR be correct if it determines that Helen earned
taxable income under these facts? (1%)
(A) No, she had no income because she had no right to the mistakenly credited funds.
(B) Yes, income is income regardless of the source.
(C) No, it was not her fault that the funds in excess of $1,000 were credited to her.
(D) No, the funds in excess of$1,000 were in effect donated to her.
Note: BIR is correct. As long as the payment made by mistake was not yet returned it is still considered as
taxable income regardless of source under the Claim of Right Doctrine.
Income paid or received through mistake may be considered as “income from whatever source derived”
irrespective of the voluntary or involuntary action of the taxpayer in producing income. Moreover, under
the “claim of right doctrine,” the recipient even if he has the obligation to return the same has a voidable
title to the money received through mistake (Gutierrez v. CIR, CTA Case No. 65, August 31, 1955).

November 6, 2021

In 2018, Mr. GCC owns a nightclub and videoke bar, with gross sales/receipts of P2,500,000.00. His cost
of sales and operating expenses are P1,000.000.00 and P600,000.00, respectively, and with non-
operating income of P100,000.00. He wants to avail of the 8% income tax option since he did not keep
receipts of his cost of sales and operating expenses. Is he qualified to avail of the 8% income tax option?
No. He is not qualified. Since Mr GCC is operating a nightclub is therefore subject to percentage tax under
Section 125 of the NIRC. Tax payers subject to such percentage tax is disqualified to avail of the 8% of
the tax rate.

Taxing damages
Taxability of awarded damages in a civil case

On the issue of whether damages awarded in a civil case for murder is part of the taxable income of the
heirs of the decedent, the BIR clarified that, as a general rule, compensatory damages, actual damages,
moral damages, exemplary damages, attorney’s fees, and the cost of the suit, are excluded from gross
income of the awarded party pursuant to Section 32(B)(4) of the Tax Code and Section 63 of RR No. 02-
40. However, consequential damages representing the loss of the victim’s earning capacity are not
excluded from gross income. Such damages are merely replacement of income which would have been
subject to tax if earned.

As to whether the transfer of real property, arising from a court decision in a civil case for annulment of
sale in fraud of creditors with damages, is subject to CGT and DST, the BIR qualified as follows:

The current fair market value (FMV) of the property, which corresponds to the award of compensatory,
actual, moral, and exemplary damages, attorney’s fees, and the cost of the suit, is exempt from CGT and
DST.

On the other hand, the current FMV of the property which corresponds to the amount of consequential
damages representing loss of the victim’s earning capacity, including legal interest of 6%, is subject to
CGT and DST. The legal interest shall be reckoned from the last day of filing of CGT and DST in
accordance with Section 2 of RR No. 9-2012.
(BIR Ruling No. 26-2018 dated 18 January 2018)