Francis Louise C.

Nisolada

TOPIC INHERENT LIMITATIONS OF TAXATION

:

1. National Power Corporation (NAPOCOR) vs. The Province of Albay, Albay

Governor Romeo R. Salalima, and Albay Provincial Treasurer Abundio M.
Nuñez
G.R No. 87479, June 4, 1990

Doctrine:

Tax exemptions are strictly construed against the claimant. These tax exemptions
must be explicitly stated in the law and must not be presumed. It is important that
the Government cannot simply exempt a taxpayer from paying taxes since taxes
are said to be the lifeblood of the Government. Without it, public services and
projects will not be funded.

Facts:

In March 1989, the Provincial Government of Albay issued a notice pertinent to a

public auction of the properties that were owned by NAPOCOR and Philippine
Geothermal Inc. These properties that included buildings and machineries, were
intended to be sold to pay an outstanding property taxes amounting to Php.
214,845,184.76. NAPOCOR then contested that they must be exempted from
paying taxes by virtue of a Resolution issued by the Fiscal Incentives Review
Board. However, the Provincial Government of Albay countered this argument by
asserting that the taxes that were accumulated between June 11, 1984 up to
March 10, 1987 are taxable, due to the absence of any tax exemption during this
period.

Issue:

Whether or not NAPOCOR liable for taxes during the period between June 11,
1984, and March 10, 1987?

Ruling:

Yes. NAPOCOR is liable for taxes during this period. Supreme Court held that
NAPOCOR are bound to pay taxes during the time that the exemption was not
yet in effect. Further, these exemptions cannot be applied retroactively unless it
is well stipulated in the law. Since the tax exemption that were vested upon them
did not cover the said taxable period, NAPOCOR must be liable for the taxes that
were incurred beforehand.

TOPIC TAXATION IS FOR PUBLIC PURPOSE

:

2. Planters Products, Inc. (PPI) vs. Fertiphil Corporation

G.R. No. 166006, March 14, 2008

Doctrine:

Taxes must be imposed to serve the general welfare of the people and must not
favor any individual. Any unauthorized use of the power of taxation in favoring a
certain individual or entity shall be rendered unconstitutional.
 Facts:

The parties in this case are both private companies that shares the same
industry of importation and distribution of fertilizer and agricultural products.
Sometime in 1985, former President Ferdinand Marcos issued LOI No. 1465 that
imposed a ten (10) peso levy for every bag of fertilizer that shall be sold in the
Philippines. This particular LOI aimed to benefit PPI financially. Fertiphil adhered
to this LOI and paid a total of Php. 6,689,144. After the 1986 EDSA Revolution,
the scheme was ceased and Fertiphil now demanded for the refund of the said
amount, assailing the constitutionality of LOI No. 1465.

Issue:

Whether or not LOI No. 1465 is constitutional.

Ruling:

LOI No. 1465 was unconstitutional. Fertiphil argued that the scheme was
oppressive and only benefited PPI, which is in fact a private company. Even if the
government argued that the LOI was a valid exercise of police power to fortify
and benefit the fertilizer industry, the Supreme Court ruled that the levy was a tax
since its primary purpose was to generate revenue. Further, the Court stressed in
its decision that the power of taxation must be used for public purposes alone
and not to favor any individual entity.

TOPIC TAXATION IS TERRITORIAL

:

3. Atlas Consolidated Mining and Development Corporation vs.

Commissioner of Internal Revenue
G.R. Nos. 141104 & 148763, June 8, 2007

Doctrine:

Sales that were generated within the Export Processing Zones (EPZs) are
regarded to as export sales and therefore must be subjected to 0% VAT in light
with the Destination Principle and Cross Border Doctrine.

Facts:

Atlas Consolidated Mining and Development Corporation (ADMDC) filed a return

of VAT Payments for the first quarter of 1992. They also then applied for a tax
refund amounting to Php. 26,030,460.00 that was paid as a VAT on capital goods
and zero-rated sales. Further, they claimed that their transaction with an EPZA
registered enterprise, Philippine Smelting and Refining Corporation qualified for
zero-rating under the Philippine tax laws. BIR countered this by arguing that in
order to be exempted from tax, the total exported products must amount to at
least 70%.

Issue:

Are sales to enterprises inside Export Processing Zones considered export sales
and thus automatically subject to 0% VAT?

Ruling:
 Yes. EPZs are regarded to as foreign territories for taxation purposes pursuant to
the Cross Border Doctrine. With this, any transaction such as sales to enterprises
within these zones are considered to be an export sale and therefore must
qualify for 0% VAT. Supreme Court then ruled in favor of ADMDC asserting that
sales to enterprises inside Export Processing Zones qualify as zero-rated export
sales and that Revenue Regulations No. 2-88 should not apply to them.

TOPIC TAXATION IS SUBJECT TO INTERNATIONAL COMITY

:

4. CBK Power Co., Ltd. vs. CIR

G.R. No. 192283, January 14, 2015

Doctrine:

The due obligation to comply with a tax treaty shall reign supreme over any
administrative regulations. The Government cannot impose any other
requirements that are not found in the treat with respect to the international law
principle of pacta sunt servanda.

Facts:

CBK Power Company Ltd. is a BOI-registered company engaged in hydroelectric

power generation. The company obtained a loan from foreign banks subject to
withholding taxes at rates of 15% and 20%. However, CBK invoked the tax treaty
between the Philippines and the country of origin of the banks and claimed that
the withholding tax rate must only be at 10%. CBK then filed for a refund with the
BIR for the excess taxes. CIR then contented that they are not qualified to be
granted with the tax reduction due to the absence of ITAD ruling in their favor.

Issue:

Is the additional requirement being imposed by the BIR to CBK valid?

Ruling:

No, it is not. The Supreme Court held that tax treaties shall have the force of law
in the Philippines upholding the doctrine of pacta sunt servanda. The issuance of
BIR shall not override tax treaties and deprive taxpayers of the benefits of these
treaty by reason of non-compliance of administrative requirements.

TOPIC NON-DELAGABILITY OF THE POWER OF TAXATION

:

5. Abakada Guro Party List vs. Executive Secretary Eduardo Ermita, et al.
G.R. No. 168056, En Banc, September 1, 2005

Doctrine:

Well established is the fact that the power to tax cannot be delegated. However,
the Congress may qualify the implementation of a tax law to supplement a
specific circumstance. With this, it is known that this power is primarily lodged in
the Executive Department.

Facts:
 The petitioners in this case assailed the constitutionality of the delegation of the
power of taxation to the President and by allowing the executive to increase the
VAT rate. Further, they also contested the provisions pertaining to input tax
credits, final withholding tax and the general imposition of VAT claiming that it
violates due process, equal protection and the principle of progressive taxation
as enshrined in our Constitution.

Issue:

Is the delegation of the power of taxation to the president constitutional?

Ruling:

Yes. The Supreme Court held that it is constitutional. The delegation of legislative
power was not abridged since the increasing of the VAT rate was merely a
ministerial duty of the President. Further, the Court asserted that the legislative
process was properly followed and it did not violate the principle of progressive
taxation.

TOPIC GOVERNMENT IS EXEMPT FROM TAXATION

:

6. City of Lapu-Lapu vs. Philippine Economic Zone Authority

G.R. No. 187583, November 26, 2014

Doctrine:

Government agencies and instrumentalities including those who are created by

law, are exempt from real property taxation.

Facts:

The City of Lapu-Lapu and the Province of Bataan demanded payment for
property taxes from the Philippine Economic Zone Authority (PEZA) amounting to
Php 110,549,032.55. PEZA countered arguing that they are a government
instrumentality, hence, they must be exempted from the payment of real property
tax.

Issue:

Is the PEZA exempted from paying taxes?

Ruling:

Yes, PEZA is exempted. The Supreme Court held that PEZA is an attached
agency of the Department of Trade and Industry and considered as a
government instrumentality. Further, the properties owned by the PEZA are
properties owned by the Philippines; therefore, it is exempted from real property
taxes.

TOPIC CONSTITUTIONAL LIMITATIONS; UNIFORMITY AND EQUALITY

: CLAUSE

7. Philippine Amusement and Gaming Corporation (PAGCOR) vs. Bureau of

Internal Revenue (BIR)
G.R. No. 215427, December 10, 2014
 Doctrine:

Taxation is a legislative power. With this, Congress has the power to impose or to
remove tax exemptions from any taxpayer and such act is not violative of the
equal protection clause as enshrined in our Constitution.

Facts:

Philippine Amusement and Gaming Corporation (PAGCOR) is a government-

owned and controlled corporation that is tasked to regulate and gambling
establishments in the Philippines. When the NIRC was enacted, PAGCOR was
removed from the list of GOCCs that were exempted to pay income tax.
PAGCOR assailed the constitutionality of this, hence, this petition.

Issue:

Is PAGCOR subject to income tax?

Ruling:

Yes. The Supreme Court held that the NIRC is constitutional and the exclusion of
PAGCOR from the list shall subject them to pay income taxes. The principle of
equal protection was not violated because their removal was based from
substantial distinction which the petitioner failed to comply.

8. British American Tobacco vs. Secretary of Finance and Commissioner of

BIR
G.R No. 1635835, April 15, 2009

Doctrine:

Our 1987 Constitution allows indirect taxes as long as it serves its purpose to
maintain and develop a progressive tax system. The Supreme Court also gives
freedom to the Congress to handle our tax system provided there is a rational
basis for the enacted tax laws.

Facts:

British American Tobacco (BAT) challenged certain provisions of the National

Internal Revenue Code (NIRC), as amended by Republic Act No. 9334, which
imposed a "classification freeze" on cigarette taxation. Under Section 145 of the
NIRC, the tax classification of cigarette brands as of 1996 was "frozen", meaning
that existing brands continued to be taxed based on their 1996 net retail price,
while new brands introduced afterward were taxed based on their current market
price. BAT argued that this discriminatory tax structure created an unfair
advantage for older brands while placing new brands like Lucky Strike at a higher
tax rate, making it difficult for them to compete. BAT filed a petition before the
Regional Trial Court (RTC) of Makati, seeking to declare the provision
unconstitutional. The RTC ruled in favor of the government, prompting BAT to
appeal to the Supreme Court.

Issue:

Does the "classification freeze" provision violate the principles of equal protection
and uniformity in taxation?

Ruling:
 The Supreme Court partially granted the petition, affirming with modifications the
RTC ruling. It held that the classification freeze does not violate the principles of
equal protection or uniform taxation. Applying the rational basis test, the Court
found that the law was justified by administrative efficiency and the need for
revenue stability. Additionally, it determined that the tax classification was uniform
within each category and that the differential treatment between old and new
brands was not arbitrary.

9. Pepsi-Cola Bottling Co. of the Philippines vs. City of Butuan et al.

G.R. No. L-22814, August 28, 1968

Doctrine:

Uniformity of taxation is not equitable to absolute uniformity and equality. Local

governments are also delegated with the power to tax their local constituents
provided that the taxpayers are classified accordingly. The local government can
classify taxpayers on a multi-tiered scheme provided that it shall not be
discriminatory or shall favor a certain individual or entity in light with the principle
of uniformity and equality of taxation as lodged in our constitution.

Facts:

Pepsi-Cola Bottling Company challenged the validity of Municipal Ordinance No.

110, as amended by Ordinance No. 122, which imposed a tax on soft drinks
bottled in Cebu and distributed in Butuan. Pepsi paid the taxes under protest
(P14,177.03) and filed a case, arguing that the ordinance was illegal,
discriminatory, and an unconstitutional delegation of legislative powers. The trial
court ruled against Pepsi, prompting an appeal to the Supreme Court.

Issue:

Whether the ordinances constitute an unconstitutional delegation of legislative

power.

Ruling:

The Supreme Court invalidated the ordinances, ruling that the tax resembled an
import duty, which the local government had no authority to impose. Additionally,
the ordinance was discriminatory as it targeted consignees or agents of outside
bottlers while exempting local dealers, thereby violating the principle of uniformity
in taxation. However, the Court rejected Pepsi’s arguments on double taxation
and excessiveness, clarifying that double taxation is not prohibited unless
expressly barred by law and that the tax amount of P0.10 per case was not
excessive, oppressive, or confiscatory.

TOPIC NON-IMPAIRMENT OF CONTRACT CLAUSE

:

10. J. Casanovas vs. JNO. S. Hord

G.R. No. 3473, March 22, 1907

Doctrine:
 Agreements such as contracts must not be impaired by any tax laws. If a law
shall impose additional burdens or requirements that shall impair or delay the
effectivity of the contract, it shall be rendered unconstitutional.

Facts:

In January 1897, the Spanish Government granted J. Casanovas certain mining

concessions in the Province of Ambos Camarines under the provisions of the
royal decree of May 14, 1867. After the Philippines came under American rule,
the Collector of Internal Revenue subjected these mining concessions to taxation
under Section 134 of Act 1189, which imposed an annual and ad valorem tax on
all valid mining concessions granted before April 11, 1899. JNO S. Hord, the
Commissioner of Internal Revenue, imposed these taxes on Casanovas, who
paid them under protest.

Issue:

Is Section 134 of Act 1189 valid, or does it impair the obligations of contracts
granted by the Spanish Government?

Ruling:

The Supreme Court held that Section 134 was invalid as applied to Casanovas'
mining concessions. The mining grants given by the Spanish Government
constituted contracts between the parties. The imposition of new taxes impaired
the obligations of these contracts, violating the non-impairment of contracts
clause. Furthermore, the provision conflicted with Section 60 of the Act of
Congress of July 1, 1902, which only allowed the cancellation of such
concessions for procedural illegality or failure to meet retention conditions—not
through the imposition of new taxes. Since neither ground was present, the tax
was deemed unconstitutional.

TOPIC DUE PROCESS CLAUSE

:

11. Philippine Bank of Communications (PBCom) vs. CIR

G.R. No. 112024, January 28, 1999

Doctrine:

Memorandum Circulars, regulations or issuances by the Bureau of Internal

Revenue must not supersede any law. Due process must always be observed in
taxation and administrative processes must be conformity with the prescribed
period stipulated in the law.

Facts:

PBCom settled its tax liabilities for the first two quarters of 1985 using tax credit
memos. However, due to incurred losses, it declared no tax payable for the year
in its Annual Income Tax Return. Despite this, PBCom’s lessees withheld and
remitted taxes on rental income to the Bureau of Internal Revenue (BIR). In
1987, PBCom sought a tax credit for its overpayments, followed by a refund
claim in 1988.
 The Court of Tax Appeals (CTA) denied PBCom’s claim for a 1985 tax refund,
ruling that it was filed beyond the two-year prescriptive period under the National
Internal Revenue Code (NIRC). The CTA also denied PBCom’s 1986 refund
claim, concluding that the company had already availed itself of an automatic tax
credit for the succeeding year. The Court of Appeals (CA) affirmed these rulings,
prompting PBCom to elevate the case to the Supreme Court.

PBCom argued that Revenue Memorandum Circular (RMC) No. 7-85, which
allowed a ten-year prescriptive period based on the Civil Code, should apply
instead of the two-year limit under the NIRC.

Issue:

Whether the denial of PBCom’s refund claim violated due process, given its
reliance on RMC 7-85, which allowed a longer prescriptive period.

Ruling:

The Supreme Court ruled that there was no violation of due process because
PBCom’s refund claim was filed beyond the two-year prescriptive period set by
the Tax Code, which prevails over conflicting administrative circulars. Due
process in tax cases does not require judicial proceedings, as long as taxpayers
are given an opportunity to assert their claims within the legal timeframe.
Additionally, tax refunds and credits are alternative remedies, not cumulative
rights—since PBCom chose an automatic tax credit, it waived its right to a
refund.

12. CIR vs. Metro Star Superama, Inc.

G.R. No. 185371, December 8, 2010, 637 SCRA 633

Doctrine:

Taxpayers must be properly notified of their tax assessments. As provided under

the law, before the BIR could issue a formal tax assessment, they must first issue
a Preliminary Assessment Notice (PAN) to give an opportunity to respond or to
contest such assessment. This is to uphold the right of the taxpayer to due
process as enshrined in our Constitution.

Facts:

Metro Star Superama, Inc. (Metro Star) was assessed deficiency value-added
tax (VAT) and income tax by the Bureau of Internal Revenue (BIR). The
Commissioner of Internal Revenue (CIR) issued a Preliminary Assessment
Notice (PAN) and later a Formal Assessment Notice (FAN) against Metro Star.
However, Metro Star contested the assessments, arguing that it was not properly
notified and that the BIR failed to comply with due process requirements in
issuing the assessments.

The Court of Tax Appeals (CTA) ruled in favor of Metro Star, invalidating the
assessments due to lack of due process, particularly the failure of the CIR to
properly issue a PAN before the FAN. The Court of Appeals (CA) affirmed the
CTA decision. The CIR then appealed to the Supreme Court.

Issue:

Whether the deficiency tax assessment issued against Metro Star is valid despite
the alleged violation of due process requirements.
 Ruling:

The Supreme Court ruled in favor of Metro Star and declared the assessment
invalid due to the BIR’s failure to observe due process. The Court emphasized
that the issuance of a Preliminary Assessment Notice (PAN) is a mandatory
requirement before issuing a Formal Assessment Notice (FAN) under Section
228 of the National Internal Revenue Code (NIRC) and Revenue Regulations No.
12-99. The absence of a PAN deprived Metro Star of its right to due process,
making the assessment void.

TOPIC TAX EXEMPTIONS ON RELIGIOUS, EDUCATIONAL AND CHARITABLE

: ORGANIZATIONS FROM PROPERTY TAX

13. CIR v. YMCA

G.R. No. 124043, October 14, 1998, 298 SCRA 83

Doctrine:

The tax exemption for religious, educational, and charitable institutions is not
always absolute. For these entities to be exempted, the property that they are
using must be actually, directly and exclusively used for religious, educational
and charitable purposes. If the property will be used for any purpose aside from
any of these three, the property shall be subjected for tax.

Facts:

The Young Men’s Christian Association (YMCA) is a non-stock, non-profit

organization engaged in religious, educational, and charitable activities. It owns
real properties, including a building leased to various commercial establishments.
The Bureau of Internal Revenue (BIR) assessed YMCA for real property taxes,
arguing that the leased portions of its property were being used for commercial
purposes, making them taxable.

YMCA countered that as a religious, educational, and charitable institution, it was

exempt from property taxes under Article VI, Section 28(3) of the 1987
Constitution, which provides tax exemption for properties “actually, directly, and
exclusively used for religious, charitable, or educational purposes.”

The Court of Tax Appeals (CTA) and the Court of Appeals (CA) ruled in favor of
YMCA, declaring the entire property exempt from taxation. The Commissioner of
Internal Revenue (CIR) then elevated the case to the Supreme Court.

Issue:

Whether YMCA is entitled to property tax exemption for its leased properties.

Ruling:

The Supreme Court ruled against YMCA and held that the portions of the
property being leased are subject to tax. While the Constitution grants property
tax exemption to religious, educational, and charitable institutions, such
exemption applies only if the property is used exclusively for their stated
purposes. Since YMCA leased portions of its property for commercial use (e.g.,
 stores, restaurants, and banks), those areas were no longer being used
exclusively for charitable or educational purposes, making them taxable.
However, the Court clarified that the portions of the property actually used for
YMCA’s religious, educational, and charitable activities remain exempt from
taxation.

14. Lladoc vs. CIR

G.R. No. L-19201, June 16, 1965

Doctrine:

Religious institutions are not absolutely exempted from paying taxes. The
property must be actually, directly and exclusively used for religious purposes.
Further, it was established in this case that donor’s tax is not a property tax,
hence it must be subject to tax.

Facts:

Rev. Fr. Jose Lladoc, as judicial administrator of the estate of the late Vicente S.
Lladoc, sought a refund of donor’s gift tax paid on a donation made by the
deceased to the Catholic Church of Palo, Leyte. The donation was intended for
religious purposes, and Fr. Lladoc argued that it should be exempt from donor’s
tax under the constitutional provision that religious institutions are exempt from
taxation. The Commissioner of Internal Revenue (CIR) denied the claim,
asserting that the tax in question was a donor’s tax, which is different from
property tax or income tax and is not covered by constitutional tax exemptions.

Issue:

Is the donation to a religious institution exempt from donor’s tax under the
constitutional provision exempting religious institutions from taxation?

Ruling:

The Supreme Court ruled against Fr. Lladoc, holding that the tax exemption
granted under Article VI, Section 28(3) of the Constitution applies only to property
taxes and does not extend to donor’s tax. The donor’s tax is an excise tax on the
privilege of transferring property and is not a tax on the property itself. Thus,
donations to religious institutions are not automatically exempt from donor’s tax,
unless there is a specific exemption under the law. Since the National Internal
Revenue Code (NIRC) does not provide a donor’s tax exemption for religious
institutions, the donation remains taxable.

15. Lung Center of the Philippines vs. Quezon City

G.R. No. 144104, June 29, 2004, 433 SCRA 119

Doctrine:

Properties that are used by charitable institutions for commercial purposes are
not taxable. If the charitable institution is generating profit out of lease rentals,
this income shall be subject to tax.

Facts:
 The Lung Center of the Philippines (LCP), a government-owned and controlled
corporation (GOCC), owns a hospital and real property in Quezon City. Quezon
City assessed real property tax on the LCP’s hospital building and the land it
occupies. The LCP contested the assessment, arguing that it was exempt from
property tax as a charitable institution under Article VI, Section 28(3) of the 1987
Constitution. However, the Quezon City government contended that while LCP is
a government institution, it derives income from leasing portions of its property to
commercial establishments, such as canteens and parking lots, which should be
subject to tax.

Issue:

Is the Lung Center of the Philippines exempt from real property tax under the
constitutional provision exempting charitable institutions from taxation?

Ruling:

The Supreme Court held that only the portions of the property actually and
directly used for charitable purposes are exempt from real property tax. The
Court ruled that LCP is a charitable institution, but its tax exemption is not
absolute. The tax exemption under the Constitution applies only to property
taxes, and only to portions exclusively used for charitable purposes. Portions
leased to commercial entities are taxable. Since LCP rents out parts of its
property to businesses, those income-generating areas are subject to real
property tax. Exemptions must be strictly construed. Tax exemptions for
charitable institutions are strictly applied only to the property or parts thereof
actually, directly, and exclusively used for charitable purposes.

TOPIC FREE EXERCISE OF RELIGIOUS PROFESSION AND WORSHIP

:

16. American Bible Society vs. City of Manila

G.R. No. L-9637, April 30, 1957

Doctrine:

No law shall be passed to impair religious practices through the imposition of

financial burdens to religious organizations since it abridges their constitutional
right of free exercise of religion.

Facts:

The American Bible Society (ABS), a religious organization, was engaged in the
printing, importation, and distribution of Bibles and other religious materials. The
City of Manila imposed a license fee under Ordinance No. 2529, arguing that
ABS was engaged in business since it sold Bibles. ABS challenged the fee,
claiming it violated the constitutional guarantee of religious freedom under
Section 1(7), Article III of the 1935 Constitution, which protects the free exercise
of religious profession and worship.

Issue:

Does the imposition of a municipal license fee on the American Bible Society
violate the constitutional guarantee of religious freedom?

Ruling:
 The Supreme Court ruled in favor of the American Bible Society (ABS), declaring
the license fee unconstitutional as applied to religious organizations. It
emphasized that religious freedom includes the dissemination of religious beliefs,
and the printing and distribution of Bibles are essential to the practice and
propagation of faith, making them an integral part of religious worship.
Furthermore, the Court held that imposing a license fee is an indirect burden on
religious exercise, as requiring ABS to pay a fee to distribute Bibles restricts its
religious mission and violates the free exercise clause. Lastly, the Court
underscored that the government cannot impose fees that restrain religious
practices, as the State must maintain neutrality in matters of religion, ensuring
that religious groups can operate freely without financial burdens imposed
through taxation or fees.

TOPIC REQUISITES OF A VALID TAX

:

17. Tio vs. Videogram Regulatory Board, et. al.

G.R. No. L-75697, June 18, 1987

Doctrine:

A valid tax law must serve a public purpose, imposed by a legislative authority,
must be uniform and equitable and must not violate constitutional limitations.
While it is true that the Government vies for the regular implementation of
taxation to fund Government programs, the law requires it to be valid in form to
be fully implemented.
Facts:

Presidential Decree No. 1987 imposed a 30% tax on the gross receipts from the
sale, lease, or distribution of videograms. This decree aimed to regulate the
videogram industry and generate revenue. Petitioner Tio challenged the tax,
arguing that it was unconstitutional for being oppressive and discriminatory. He
claimed that it unfairly singled out videograms while other forms of media were
not subjected to a similar tax.

Issue:

Whether the tax imposed by P.D. No. 1987 satisfies the requisites of a valid tax.

Ruling:

The Supreme Court upheld the validity of the tax, affirming that it met the
essential requisites of a valid tax. It served a public purpose as it aimed to
generate funds for national development programs, including crime prevention.
The tax was imposed through legislative authority, specifically a validly enacted
Presidential Decree, which carried the force of law. It also satisfied the
requirement of uniformity and equity, as the classification of videograms as
taxable items was reasonable given their regulatory needs, and there was no
undue discrimination since the tax applied uniformly within the industry. Lastly,
the tax did not violate constitutional limitations, as it did not infringe on freedom of
expression. The Court emphasized that since the primary purpose of the tax was
 revenue generation rather than the suppression of speech, it remained a valid
exercise of taxation power, provided it did not arbitrarily restrict constitutional
rights.

TOPIC LIFEBLOOD DOCTRINE

:

18. Pilmico-Mauri Foods Corp. vs. CIR

G.R. No. 175651, September 14, 2016

Doctrines:

Taxpayers must strictly comply with tax regulations. Any claim for deductions or
exemptions shall be meticulously assessed and substantiated with proper
documentation as we uphold the importance of paying taxes as founded upon
the lifeblood doctrine.

Facts:

Pilmico-Mauri Foods Corp. (PMFC) underwent a tax audit for the year 1996
conducted by the Bureau of Internal Revenue (BIR). As a result, the BIR issued
deficiency tax assessments for withholding taxes, value-added tax (VAT), and
income tax, amounting to approximately ₱9.76 million. PMFC protested these
assessments, leading to a reduction of its tax liabilities to around ₱3.02 million.
However, PMFC failed to substantiate its claimed business deductions with the
necessary official receipts and invoices, as required under the Tax Code.

Issue:

Whether the deficiency tax assessments issued against PMFC were valid under
the principles of the lifeblood doctrine.

Ruling:

The Supreme Court upheld the validity of the tax assessments, reinforcing the
lifeblood doctrine, which states that taxes are essential for the government to
function effectively. The Court emphasized that taxation is the primary means by
which the government generates revenue for public services and national
development. Under this principle, strict compliance with tax laws, including the
proper substantiation of deductions, is required.

PMFC’s failure to present official receipts and invoices rendered its claimed
deductions invalid. The Court ruled that taxpayers have the burden to prove
entitlement to deductions, and failure to do so justifies the disallowance of such
deductions. Since taxation ensures the continuous operation of the government,
tax collection should not be hindered by a taxpayer’s non-compliance with
substantiation requirements.

19. CIR vs. Next Mobile, Inc.

G.R. No. 212825, December 7, 2015

Doctrine:

Well established is the fact that taxes are the lifeblood of the Government.
Without it, the Government cannot function and serve its purpose. However, even
if taxes are the lifeblood of the Government, the collection of these must still be in
conformity with valid legal procedures.
 Facts:

Next Mobile, Inc. (Next Mobile) was assessed by the Bureau of Internal Revenue
(BIR) for deficiency taxes, including income tax and value-added tax (VAT). The
Commissioner of Internal Revenue (CIR) issued a Final Assessment Notice
(FAN), but Next Mobile challenged the assessments, arguing that they were void
due to lack of proper due process. The case was elevated to the Court of Tax
Appeals (CTA), which ruled in favor of Next Mobile, declaring the assessments
void for failure to comply with the due process requirements. The CIR appealed
the case to the Supreme Court, invoking the Lifeblood Doctrine, which
emphasizes the government's need to ensure the collection of taxes for state
functions.

Issue:

Whether the deficiency tax assessments issued by the CIR against Next Mobile
were valid, despite procedural lapses, under the Lifeblood Doctrine.
Ruling:

The Supreme Court ruled in favor of Next Mobile, upholding the CTA's decision
that the tax assessments were void due to the CIR's failure to comply with due
process requirements. While the Lifeblood Doctrine recognizes that taxation is
essential for government operation, the Court emphasized that tax collection
must still adhere to legal and procedural requirements.

20. CIR vs. Dash Engineering Philippines, Inc.

G.R. No. 184145, November 11, 2013

Doctrine:

The government must still conform with the legal procedural process of collecting
taxes even if we are in pursuit of regular and efficient collection of taxes as we
uphold the lifeblood doctrine.

Facts:

Dash Engineering Philippines, Inc. (Dash) was issued a tax assessment by the
Bureau of Internal Revenue (BIR) for deficiency income tax and value-added tax
(VAT) for the fiscal year 2001. Dash contested the assessment, arguing that it
was entitled to tax incentives and that the assessment was issued beyond the
prescriptive period. The Court of Tax Appeals (CTA) ruled in favor of Dash,
canceling the tax assessment. The Commissioner of Internal Revenue (CIR)
appealed the decision, asserting that the tax assessment was valid and
collectible.

Issue:

Whether the tax assessment against Dash Engineering Philippines, Inc. was
valid and enforceable under the lifeblood doctrine.

Ruling:

The Supreme Court upheld the decision of the CTA, ruling that the BIR failed to
establish the validity of its tax assessment within the prescribed period. The
Court reiterated that while the lifeblood doctrine underscores the necessity of tax
 collection for the government’s survival and operation, tax authorities must still
comply with due process requirements and legal procedures in enforcing tax
laws.

The Court emphasized that taxation, though indispensable, must be exercised

within the bounds of the law. In this case, the BIR did not issue the assessment
within the proper period, and its failure to observe procedural due process
rendered the assessment void. The government’s need for revenue does not
justify violating a taxpayer’s rights under existing tax laws and regulations.

21. First Lepanto Taishu Insurance vs. CIR

G.R. No. 197117, March 19, 2014

Doctrines:

The power of the Government to tax its people shall not abridge the taxpayer’s
right to due process even if it is done in light with the principle of lifeblood
doctrine.

Facts:

First Lepanto Taishu Insurance Corporation (First Lepanto) was assessed by the
Bureau of Internal Revenue (BIR) for deficiency documentary stamp tax (DST)
and other taxes for taxable years 1996 and 1997. The company contested the
assessment, arguing that the BIR failed to comply with due process requirements
and that the assessment was issued beyond the prescriptive period. The Court of
Tax Appeals (CTA) ruled in favor of the BIR, holding that the assessment was
valid. First Lepanto then elevated the case to the Supreme Court.

Issue:

Whether the tax assessment issued by the BIR was valid and enforceable under
the lifeblood doctrine.

Ruling:

The Supreme Court ruled that while the lifeblood doctrine underscores the
necessity of taxation for government operations, tax authorities must strictly
comply with procedural due process in tax assessments. The Court found that
the BIR failed to comply with the requirements for a valid assessment, including
proper service of notices. As a result, the assessment was declared void.

The Court reiterated that although taxes are the lifeblood of the nation, the
government's power to tax is subject to limitations, including adherence to due
process. Failure to observe procedural requirements renders a tax assessment
invalid, even if the government’s interest in collecting revenue is paramount.

22. CIR vs. San Roque Power Corporation

G.R. No. 187485, October 8, 2013

Doctrine:

The 120 + 30-day period rule that is prescribed by the NIRC is naturally
jurisdictional, however it can be altered if an issued BIR ruling is rendered
erroneous.
 Facts:

San Roque Power Corporation filed a claim for a refund of unutilized input VAT
on its purchases related to the construction of its power plant. The claim was filed
with the Bureau of Internal Revenue (BIR) and later elevated to the Court of Tax
Appeals (CTA). However, the CIR argued that San Roque's claim was premature
because it failed to comply with the 120+30-day rule under Section 112(C) of the
1997 National Internal Revenue Code (NIRC), which requires taxpayers to wait
120 days for the Commissioner to act on the refund claim before filing an appeal.

San Roque countered that its early filing was justified by BIR Ruling No. DA-489-
03, which allowed immediate filing without waiting for the 120-day period.

Issue:

Whether San Roque Power Corporation’s early filing of its VAT refund claim was
valid under the lifeblood doctrine and the 120+30-day rule.

Ruling:

The Supreme Court ruled that the 120+30-day rule is mandatory and
jurisdictional, meaning that taxpayers must strictly follow the waiting period
before seeking judicial relief. However, the Court recognized an exception for
taxpayers who relied on BIR Ruling No. DA-489-03 before its reversal in 2010.
Since San Roque filed its claim before 2010, it was excused from strict
compliance with the 120-day rule.

The Court also reiterated that the lifeblood doctrine justifies strict enforcement of
tax laws, ensuring that taxes are properly collected to sustain government
operations. However, tax laws must also be applied consistently and fairly,
especially when administrative issuances cause confusion among taxpayers.

23. CIR vs. Bank of the Philippine Islands (BPI)

G.R. No. 178490, October 17, 2007

Doctrine:

It is true that the Lifeblood Doctrine fortifies the necessity of taxation, but, it does
not justify the Government’s act of imposing unjust, excessive and unnecessary
taxes without any substantial basis. Taxation must always be founded on
fairness, equity and legality.

Facts:

The Commissioner of Internal Revenue (CIR) assessed the Bank of the

Philippine Islands (BPI) for deficiency documentary stamp taxes (DST) on its
special savings accounts with automatic transfer features, arguing that these
accounts were equivalent to certificates of deposit and were therefore taxable
under the National Internal Revenue Code (NIRC). BPI challenged the
assessment, asserting that these accounts functioned as regular savings
accounts and did not fall under the definition of taxable instruments. The Court of
Tax Appeals (CTA) ruled in favor of BPI, prompting the CIR to elevate the case to
the Supreme Court.

Issue:
 Whether BPI’s special savings accounts with automatic transfer features were
subject to documentary stamp tax (DST) as certificates of deposit.

Ruling:

The Supreme Court ruled in favor of BPI and invalidated the tax assessment,
emphasizing the Lifeblood Doctrine. While taxes are essential for sustaining
government functions, the Court stressed that the power to tax is not absolute
and must be exercised within legal boundaries. In this case, the tax assessment
had no clear legal basis, making it invalid.

The Court further emphasized that strict interpretation of tax laws is necessary to
uphold the Lifeblood Doctrine. Although taxation is crucial for government
operations, tax laws must be strictly construed against the government to prevent
arbitrary impositions. Since BPI’s special savings accounts were not certificates
of deposit, taxing them under documentary stamp tax (DST) was unjustified.

Moreover, the Lifeblood Doctrine does not justify arbitrary taxation. While taxation
is necessary for government survival, it cannot be used as a tool to impose
unjust, excessive, or baseless taxes. The Court concluded that taxation must be
fair, equitable, and within the scope of legislative authority to maintain public trust
and uphold the rule of law.

24. Philex Mining Corp. vs. CIR

G.R. No. 125704, August 28, 1998

Doctrine:

Facts:

Philex Mining Corporation was assessed by the Bureau of Internal Revenue

(BIR) for its deficiency excise tax on mineral products. Philex did not contest the
assessment but argued that the government owed it tax refunds from
overpayments in prior years. Instead of paying the assessed deficiency, Philex
sought to offset its tax liabilities with the refund it claimed. The Commissioner of
Internal Revenue (CIR) denied this request, asserting that taxes cannot be
subject to compensation or set-off.

Issue:

Can Philex Mining offset its tax liabilities with its claim for tax refunds?

Ruling:

The Supreme Court ruled in favor of the CIR, upholding the Lifeblood Doctrine
and reaffirming that taxes cannot be the subject of set-off or compensation. The
Court emphasized that taxation is the lifeblood of the government, and allowing
taxpayers to offset tax liabilities against their claims for refund would disrupt the
efficient collection of revenue. Furthermore, the Court stated that a claim for tax
refund is not equivalent to an outright credit against tax liabilities. A refund must
first be properly established and approved before it can be applied. Since
Philex’s refund claim had not yet been adjudicated, it could not be used to offset
its tax liabilities.

TOPIC CONSTRUCTION AND INTERPRETATION OF TAX LAWS, RULES AND

: REGULATIONS
25. Philippine Bank of Communications (PBCom) vs. CIR
G.R. No. 112024, January 28, 1999

Doctrine:

Memorandum Circulars, regulations or issuances by the Bureau of Internal

Revenue must not supersede any law. Due process must always be observed in
taxation and administrative processes must be conformity with the prescribed
period stipulated in the law.

Facts:

PBCom settled its tax liabilities for the first two quarters of 1985 using tax credit
memos. However, due to incurred losses, it declared no tax payable for the year
in its Annual Income Tax Return. Despite this, PBCom’s lessees withheld and
remitted taxes on rental income to the Bureau of Internal Revenue (BIR). In
1987, PBCom sought a tax credit for its overpayments, followed by a refund
claim in 1988.

The Court of Tax Appeals (CTA) denied PBCom’s claim for a 1985 tax refund,
ruling that it was filed beyond the two-year prescriptive period under the National
Internal Revenue Code (NIRC). The CTA also denied PBCom’s 1986 refund
claim, concluding that the company had already availed itself of an automatic tax
credit for the succeeding year. The Court of Appeals (CA) affirmed these rulings,
prompting PBCom to elevate the case to the Supreme Court.

PBCom argued that Revenue Memorandum Circular (RMC) No. 7-85, which
allowed a ten-year prescriptive period based on the Civil Code, should apply
instead of the two-year limit under the NIRC.

Issue:

Whether the denial of PBCom’s refund claim violated due process, given its
reliance on RMC 7-85, which allowed a longer prescriptive period.

Ruling:

The Supreme Court ruled that there was no violation of due process because
PBCom’s refund claim was filed beyond the two-year prescriptive period set by
the Tax Code, which prevails over conflicting administrative circulars. Due
process in tax cases does not require judicial proceedings, as long as taxpayers
are given an opportunity to assert their claims within the legal timeframe.
Additionally, tax refunds and credits are alternative remedies, not cumulative
rights—since PBCom chose an automatic tax credit, it waived its right to a
refund.

26. Philippine Guarantee Company vs. CIR

G.R. No. L-22074, April 30, 1965

Doctrine:

As the law value and take cognizance of the power of taxation by the State, in
case of ambiguity in taxation law, it must be strictly construed against the
taxpayers. Further, the established procedures in paying taxes must be strictly
followed rather than following implied interpretations of the law.
 Facts:

Philippine Guarantee Company (PGC) was assessed for a deficiency income tax
by the Bureau of Internal Revenue (BIR). The company contested the
assessment, arguing that it had overpaid taxes in previous years and sought to
offset these overpayments against its current tax liabilities. However, the
Commissioner of Internal Revenue (CIR) denied this claim, asserting that tax
liabilities must be paid when due and cannot be unilaterally offset against prior
overpayments. PGC then brought the case before the courts.

Issue:

Can a taxpayer offset its current tax liabilities using alleged overpayments from
prior years?

Ruling:

The Supreme Court ruled in favor of the CIR, emphasizing the strict construction
and interpretation of tax laws. It reiterated that tax statutes, especially those
granting exemptions, deductions, or offsets, must be strictly construed against
the taxpayer and in favor of the government. Since tax laws do not explicitly allow
the automatic offsetting of past overpayments against current liabilities, PGC’s
claim was denied. The Court also stressed that tax obligations must be settled in
accordance with existing laws, not administrative convenience. A taxpayer cannot
unilaterally offset previous overpayments against new liabilities, as tax
obligations and refund claims are separate and must be processed
independently. Furthermore, administrative rules and regulations must align with
legislative intent. While tax authorities may issue guidelines to implement tax
laws, they cannot expand or modify taxation beyond what is explicitly provided by
law. In this case, the absence of a statutory provision permitting PGC’s offsetting
method rendered the tax assessment valid and enforceable.

TOPIC DIRECT DOUBLE TAXATION

:

27. Ericsson Telecommunications, Inc. vs. City of Pasig

G.R. No. 155650, June 22, 2007

Doctrine:

Direct Double Taxation is not allowed under the law, while Indirect Double
Taxation is rendered valid. Direct Double Taxation exists when the same taxing
authority imposes two identical taxes on the same subject, for the same purpose
within the same period, on the other hand, Indirect Double Taxation occurs when
different taxing authorities imposes taxes on the same entity. (e.g. Income Tax
earners also pay Value Added Taxes in purchasing goods or services.)

Facts:

Ericsson Telecommunications, Inc. (Ericsson) was engaged in the sale and

installation of telecommunications equipment. The City of Pasig imposed a local
business tax (LBT) on Ericsson under its local tax ordinance. Ericsson argued
that it was already paying a contractor’s tax under the National Internal Revenue
Code (NIRC) and that the LBT constituted direct double taxation, which is
prohibited. It challenged the validity of the local tax before the trial court, which
ruled in favor of the City of Pasig. On appeal, the Court of Appeals (CA) affirmed
 the trial court's decision, prompting Ericsson to elevate the case to the Supreme
Court.

Issue:

Does the imposition of a local business tax by the City of Pasig on Ericsson
constitute direct double taxation?

Ruling:

The Supreme Court ruled against Ericsson, holding that there was no direct
double taxation in this case. It clarified that double taxation occurs when two
taxes of the same nature, for the same purpose, by the same taxing authority, on
the same subject matter, and during the same period are imposed. However, this
was not applicable to Ericsson’s situation. The contractor’s tax was imposed by
the national government (BIR) under the NIRC, while the local business tax was
levied by the City of Pasig under its local ordinance. Since these taxes came
from different authorities, it did not constitute direct double taxation. Additionally,
the two taxes served different purposes—the contractor’s tax was an excise tax
on the privilege of engaging in business, whereas the local business tax was a
revenue-generating measure for the local government. These distinctions meant
that the taxes were not identical in nature or purpose. The Court further reiterated
that double taxation is not unconstitutional unless explicitly prohibited by law.
Since no legal provision forbade the imposition of both taxes, the challenge
against the local business tax was invalid.

28. Nursery Care Corporation, et. al. vs. Anthony Acevedo, et. al.
G.R. No. 180651, July 30, 2014

Doctrine:

Oppressive and redundant tax impositions by the Government are not allowed
under the law. Even though Local Governments can impose taxes in their locality,
their practice must be maintained in conformity with the law and the Constitution.

Facts:

The City of Manila, through its Revenue Code, imposed taxes on Nursery Care
Corporation and other petitioners under Sections 15 (Tax on Wholesalers,
Distributors, or Dealers) and 17 (Tax on Retailers). Additionally, the city applied
taxes under Section 21 as a precondition for business license renewal for the
year 1999. The petitioners complied and made payments under protest for the
first quarter of 1999, subsequently requesting a tax credit or refund.

Issue:

Does the imposition of taxes under Sections 15, 17, and 21 of the Manila
Revenue Code constitute double taxation?

Ruling:

The Supreme Court ruled in favor of the petitioners, finding that the local
business taxes imposed constituted double taxation. The Court noted that
Sections 15 and 17 already taxed the petitioners as wholesalers, distributors,
dealers, or retailers. Imposing an additional tax under Section 21, which was a
 general tax on businesses enjoying a franchise or privilege, resulted in taxing the
same activity twice. This practice was deemed unjust and oppressive, leading the
Court to order a refund of the taxes paid under Section 21.

TOPIC INDIRECT DOUBLE TAXATION

:

29. CIR vs. SC Johnson & Son, Inc.

G.R. No. 127105, June 25, 1999

Doctrine:

In this case, it exhibited our high regard to tax treaties over domestic tax laws in
case of any ambiguity or conflict. The Government must honor these treaties as
a preventive measure to counter double taxation and to prevent that an entity
shall not be unduly taxed again in another circumstance.

Facts:

SC Johnson & Son, Inc. (Philippines) is a subsidiary of SC Johnson & Son, USA,
and pays royalties to its parent company for the use of trademarks and
technology. The Bureau of Internal Revenue (BIR) assessed a 25% final
withholding tax on these royalty payments under Section 57 of the National
Internal Revenue Code (NIRC). SC Johnson argued that, under the Philippines-
United States Tax Treaty, the tax rate should be limited to 10%. The Court of Tax
Appeals (CTA) ruled in favor of SC Johnson, stating that the lower tax rate under
the tax treaty should apply. The CIR appealed the decision.

Issue:

Whether SC Johnson is entitled to the reduced 10% withholding tax rate under
the Philippines-US Tax Treaty, instead of the 25% rate under the NIRC.

Ruling:

The Supreme Court ruled in favor of SC Johnson & Son, Inc., affirming that the
tax treaty should prevail over the general tax law. It held that the Philippines-US
Tax Treaty, as an international agreement, takes precedence over the general
provisions of the NIRC. Since the treaty specifies a lower 10% tax rate for
royalties paid to US entities, this rate must be applied instead of the 25% rate
under the NIRC. The Court also emphasized the importance of avoiding double
taxation, reiterating that tax treaties exist to ensure income earned in one country
is not unduly taxed again in another. Imposing a higher tax rate would violate the
treaty’s intent. Furthermore, while taxation is the lifeblood of the government, it
must be exercised fairly and lawfully. The government cannot disregard tax
treaties simply to collect higher taxes, as doing so would undermine the country’s
international commitments and discourage foreign investment.

30. La Suerte Cigar & Cigarette Factory vs. CA

G.R. No. 125346, November 11, 2014

Doctrine:
The petitioner’s claim was held unmeritorious since they falsely categorized it as
indirect double taxation. The tax that was imposed in this case was distinct in its
nature and purpose. While Direct Double Taxation is strictly prohibited, Indirect
Double Taxation is permissible.

Facts:

La Suerte Cigar & Cigarette Factory (La Suerte) was engaged in the manufacture
and sale of cigarettes. The Bureau of Internal Revenue (BIR) imposed both an
excise tax on its cigarette products and a value-added tax (VAT) on their sale. La
Suerte challenged the imposition of VAT, arguing that it resulted in indirect double
taxation since the excise tax was already levied on the same products.

Issue:

Whether the imposition of both excise tax and VAT on La Suerte’s cigarette
products constitutes indirect double taxation.

Ruling:

The Supreme Court ruled that there was no unconstitutional indirect double
taxation in this case. It emphasized that excise tax and VAT are distinct in nature
and imposed on different aspects of the business transaction—excise tax applies
to the production of cigarettes, while VAT is levied on their sale. Since these
taxes do not overlap in purpose, they do not constitute double taxation in its
strictest sense. The Court further clarified that double taxation is not inherently
unconstitutional unless it leads to unjust and oppressive taxation, which was not
applicable here. Lastly, it upheld the legislature’s authority to impose multiple
taxes on the same subject as long as they serve different purposes, affirming that
the independent operation of excise tax and VAT made their simultaneous
imposition valid.