 IS THE POWER TO TAX A POWER TO DESTROY?

-No, But the power to Tax, INCLUDES the power to Destroy. Since the inherent power to Tax is
vested in the legislature, it includes the power to determine who to tax, what to tax, and how
much tax is to be imposed.
-It is used to validly implement the police power of the state to ultimately prohibit things that
are inimical to the public.
-HOWEVER, despite including the power to destroy, it should be exercised with caution to
minimize injury to the rights of the tax payer. It must be exercised fairly, equally, and uniformly.
“Lest the Tax Collector kill the hen that lays the golden egg, means that if the tax collectors, or
the authorities impose too many taxes on productive entities like businesses or individuals,
there is a risk that they are destroying the very thing that generates income. This highlights that
there must be balancing Taxation.
-Justice Homes pen states: The power to tax is not the power to destroy while this court sits.
BECAUSE
 TAXATION is subject to JUDICIAL REVIEW
-While taxation is a power to destroy it is not unlimited. The Judiciary can hold a tax law
unconstitutional if based on the nature and character of such law, it destroys or violates the
fundamental rights of property or persons subjected to TAX.
-Also when it violates the constitution, being fundamental law of the land.

 INHERENT LIMITATIONS ON THE TAXING POWER (S-P-I-N-E)

A. PUBLIC PURPOSE –
Taxes are exacted only for a public purpose. They cannot be used for purely private purposes or
for the exclusive benefit of private persons. The reason for this is simple. The power to tax exists
for the general welfare; hence, implicit in its power is the limitation that it should be used only
for a public purpose. It would be robbery for the State to tax its citizens and use the funds
generated for a private purpose.

Tax is Considered for Public Purpose if:

1. It is for the welfare of the nation and/or for the greater portion of the population;

Who determine public purpose: Legislative.

-It is the purpose which determines the public character of the tax law, not number of persons
benefited. As long the result benefit the general, it I deemed for public purpose.
Tests in Determining Public Purpose
1. Duty Test – whether the things to be furthered by the appropriation of public revenue is
something which is the duty of the State, as a government to provide.
2. Promotion of General Welfare Test – whether the statute enacted providing the tax promotes
the welfare of the community in equal measure.
DISCUSS CASES: (Gomez Vs Palomar)

 Tio v. VRB, 151 SCRA 208

 Bagatsing v. Ramirez, 74 SCRA 306

B. INTERNATIONAL COMITY

- It refers to the respect accorded by nations to each other because they are sovereign equals. Thus, the
property or income of a foreign state may not be the subject of taxation by another State. Under
International Comity, a state must recognize the generally accepted tenets of international law, among
which are the principles of sovereign equality among states and of their freedom from suit without their
consent, that limits that authority of a government to effectively impose taxes in a sovereign state and
its instrumentalities, as well as in its property held and activities undertaken in that capacity.

International Comity as a Limitation on the Power to Tax The Constitution expressly adopted the
generally accepted principles of international law as part of the law of the land. (Sec. 2, Art. II, 1987
Constitution)

Rationale:
1. Par in parem non habet imperium. As between equals, there is no sovereign. (Doctrine of Sovereign
Equality)
2. The concept that when a foreign sovereign enters the territorial jurisdiction of another, it does not
subject itself to the jurisdiction of the other.
3. The rule of international law that a foreign government may not be sued without its consent so that it
is useless to impose a tax which could not be collected.

C. SITUS

Taxation may be exercised only within the territorial jurisdiction of the taxing authority. Within its
territorial jurisdiction, the taxing authority may determine the “place of taxation” or “tax situs.”

GR: The taxing power of a country is limited to persons and property within and subject to its
jurisdiction.

Rationale: 1. Taxation is an act of sovereignty which could only be exercised within a country’s territorial
limits. 2. This is based on the theory that taxes are paid for the protection and services provided by the
taxing authority which could not be provided outside the territorial boundaries of the taxing State.

XPNs:
1. Where tax laws operate outside territorial jurisdiction (e.g., taxation of resident citizens on their
incomes derived abroad)
2. Where tax laws do not operate within the territorial jurisdiction of the State: a. When exempted by
treaty obligations; or b. When exempted by international comity.c. when the foreign country grant tax
exemtion or does not impose taxes on tangible properties of Filipino Citizens.

FACTORS TO CONSIDER IN SU=ITUS OF TAXATION

a. Subject Matter (Person, property, activity)
b. Nature of the Tax
 c. Citizenship of Tax Payer
d. Residence of Tax payer

1. Poll Tax, based on the residence of the tax payer regardless of source of income
2. Property Tax
 Real Property, Subject to taxation of state or country where it is located, regardless owner is
resident or non-resident
 Personal Property, following the doctrine of mobilia sequuntur personam, movables follow the
person, deemed to be at domicile of the owner
Domicile: is the place that constitute the principal seat of his residence, business and relations.
He live there and regard it as his home and live there for indefinite time.
 Shares of stocks, state in which they are permanently kept regardless of domicile of owner.
3. Excise Tax, imposed on specific goods or services, or exercise of right or privilege.
 Income Tax,
 Donor’s Tax,
 Estate Tax,
 Value Added Tax

Note: to acquire situs in a state other than domicile of owner, TANGIBLE property must have definite
location and accompanied by some degree of permanence.

DISCUSS CASE:  CIR v. BOAC, 149 SCRA 395

D. NON DELIGATION OF THE POWER TAX -

General rule – The power to tax is exclusively vested in the legislative body, hence, it cannot be
delegated. (Delegata potestas non potest delegari)
Power of taxation cannot be delegated – this contemplates the power to determine kind, object, extent,
amount, coverage, and situs of tax. It must be distinguished from power to assess and collect which is
exercised by the Executive through the BIR.

Exceptions:
1. Delegation to local governments
They have power to create its own sources of reveues,, fees and charges. And such shall accrue
exclusively to the local government.

2. Delegation to the President Certain aspects of the taxing process that are not legislative in character
may be vested to him, e.g. delegation of tariff powers by Congress to the President under the flexible
tariff clause (Sec. 28(2), Art. VI, Constitution), and delegation of emergency powers (Sec. 23(2), Art. VI,
Constitution

3. Delegation to administrative agencies Administrative agencies are authorized to fix within specified
limits, tariff rates, import or export quotas, tonnage and wharfage dues and other duties or imposts.

Note: these are subject to guidelines that the congress may impose, consistent with national
development program.

So delegatory power to president I not absolute;

Ex. The president can only increase, reduce, and remove existing tariff rates, upon recommendation of
NEDA and shall not be higher than 100% ad valorem

CASE TO DISCUSS:  Pepsi Cola Bottling Co. y City of Butuan, 24 SCRA 789
 Pepsi Cola Bottling Co, v. Municipality of Tanuan, 69 SCRA 460

E. EXEMPTION FROM TAXATION OF GOVERNMENT AGENCIES/ INSTRUMENTALITIE

Rationale: If the government taxes itself or if Local Government Units tax the national government, it
would be akin to taking money from one pocket to the other. Entities or agencies exercising sovereign
functions (acta jure imperii) are tax exempt, unless expressly taxed, agencies performing proprietary
functions are subject to tax unless expressly exempted.

XPNs: (L-P-G) 1. Law or Charter creating the agency provides that they are subject to tax; 2. Performing
Proprietary functions; and 3. Government wishes to tax itself.

Government owned and controlled corporation performing proprietary functions are subject to taxes,
except those exempted under Section 27(C) of RA 8424 as amended by RA 9337 and RA 10963, namely:
1. GSIS 2. SSS 3. PHIC 4. the local water districts

The amendment reduced the list of exempt entities by excluding therein the Philippine Amusement and
Gaming Corporation.

Instrumentality of the National Government is exempt from real property tax. (MIAA v. CA G.R. No.
155650, 2006) However, an instrumentality of the National Government can be subject to tax if there is
a statutory authority to do so and if there is no express provision against such act.

Government Agency It refers to any of the various units of the government, including a department,
bureau, office, instrumentality, or government-owned or controlled corporation, or a local government
or a distinct unit therein.

Government Instrumentality It refers to any agency of national government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy, usually through
charter.

Government-Owned and -Controlled Corporation (GOCC) It refers to any agency: 1. organized as a

stock or non-stock corporation; 2. vested with functions relating to public needs whether governmental
or proprietary in nature; and

 CONCEPT OF DOUBLE TAXATION

There is no constitutional prohibition against double taxation in the Philippines. It is something
not favored, but is permissible, provided some other constitutional requirement is not thereby
violated, such as the requirement that taxes must be uniform.

-There is double taxation where one tax is imposed by the state and the other tax is imposed by
the City.
-when same taxpayer is taxed twice by the same tax jurisdiction for the same thing.

There are two kinds of double taxation:

1. Direct double taxation (Strict sense)
- objectionable or prohibited sense since it violates the equal protection clause of the
Constitution.

Elements of Direct Double Taxation (Twice-Ju P2-A-C-S)

1. The same property is taxed Twice when it should be taxed only once; and
2. Both taxes are imposed: a. within the same Jurisdiction; b. for the same Purpose; c.
during the same taxing Period; d. by the same taxing Authority; e. the taxes must be of the
same kind or Character; and f. on the same Subject matter.

(City of Manila v. Coca Cola Bottlers Philippines, G.R. No. 181845, 04 Aug. 2009) All the
elements must be present in order to apply double taxation in its strict sense. Rationale: It
constitutes double taxation in the objectionable or prohibited sense since it violates the
equal protection clause of the Constitution.

Example: An income tax of 10% on monthly sales and 2% income tax on the annual sales
(total of annual sales)

2. Indirect double taxation.

-permissible double taxation.
It means indirect duplicate taxation. It extends to all cases in which there are two or more
pecuniary impositions. The Constitution does not prohibit the imposition of double taxation
in the broad sense.

Example: The national government collects income tax from tax payer on his income while
the local government collects community tax upon the same income.
3. Domestic Taxation- arises when taxes are imposed by the local or national government
within the same state
4. International- Imposition of comparable taxes in two or more states on the same tax payer
in respect to same subject matter and identical periods. This usually happens when a tax
payer works in one country but resides in another country
 Ex. A, a filipino Citizen work in US and earn incomes there. US impose taxes on the income
because it is where the income is earned. The Ph, where A’s residence is situated alo taxes
the same income because the Ph taxes its citizen on worldwide income.

 HOW TO MINIMIZE DOUBLE TAXATION?

Tax treaty
-2 METHODS
a. Exemption Method
-The home country does not tax or exempt the foreign-sourced income from taxationation
either partially or fully. The goal is to avoid taxing the same income twice, by excluding the
foreign income from tax base.

b. Credit Method
-The home country taxes its resident worldwide income (foreign source) but allows a credit for
any taxes paid [Link], tax payer still pays foreign tax but can subtract these foreign
taxes to his domestic taxes.

NOTE: The basic difference between the two methods is that in the exemption method, the
focus is on the income or capital itself, whereas the credit method focuses upon the tax

 TAX EVASION AND TAX AVOIDANCE DISTINGUISHED

a. Tax Evasion
Tax evasion is a scheme where the taxpayer uses illegal or fraudulent means to defeat or
lessen payment of a tax. It is a scheme used outside of those lawful means and when availed
of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.

Examples:
1. Gross understatement of income, nondeclaration of income, overstatement of expenses
or tax credit
2. Misrepresenting the amount of transaction to take advantage of lower tax.

Connotes 3 factors:

1. The end to be achieved, payment of less than that known by the taxpayer to be legally due,
2. Accompanying state of mind, being evil or bad faith, or deliberate not merely accidentally
3. There is failure of action, which is unlawful

b. Tax Avoidance
A scheme where the taxpayer uses legally permissible alternative method of assessing
taxable property or income, in order to avoid or reduce tax liability. It is a tax saving device
 within the means sanctioned by law. This method should be used by the taxpayer in good
faith and at arm’s length.
Example:

1. Selection and execution of transaction that would expose tax payer to lower taxes
2. Maximizing tax deductions, example a company invest in energy-efficient equipment to
qualify for tax deductions provided by the government for environmentally friendly
practices.

CASE FOR DISCUSSION:  Ungab Doctrine Sustained in CIR v. Pascor, 309 SCRA 402

Note: No tax evasion when there is no fraud.

In case of CIR vs Javier, it is merely mistake of Fact or law. Javier in this case opened him self on the table
“laid his cards on the table”

Estate Planning- process of organizing and managing individual asset and affairs during their lifetime and
after their death. To ensure that assets are distributed according to person’s wishes and that taxes are
minimized.