Pacta Sunt Servanda -demands the performance in good faith of treaty
GENERAL PRINCIPLES
Principles of Sound Tax System (F-A-T)
a. Fiscal Adequacy - sources of tax revenue should
coincide with and approximate the needs of government expenditure.
b. Administrative Feasibility - Tax laws should be capable
of convenient, just and effective administration
c. Theoretical Justice- The tax burden should be in
proportion to the taxpayer's ability to pay.
I. DOCTRINES/ RULES IN TAXATION
1. DOCTRINE OF EQUITABLE RECOUPMENT- allows a
claim for refund that is barred by prescription to offset tax liabilities
2. COMPENSATION AND SET-OFF- GR: NO. XPT: both the
claims of the government and the taxpayer already become due and
demandable as well as fully liquated.
REASON: The government and the taxpayer are not creditors and debtors or
each other. Obligations in the nature of debts are due to the government in its
corporate capacity, while taxes are due to the government in its sovereign
capacity.
Requisites of Compensation in Taxation
1. The tax assessed against the government be fully liquidated.
2. The tax assessed against the government is due and demandable.
3. The government had already appropriated funds for the payment of the
claim.
3. INTERPRETATION OF TAX LAWS
GR: Tax statutes must be construed strictly against the government
and liberally in favor of the taxpayer .
Principle of Strictissimi Juris -Laws granting tax exemption are construed
strictly against the taxpayer and liberally in favor of the taxing power.
XPT: Unless a statute imposes a tax clearly, expressly and unambiguously
4. NON-RETROACTIVITY OF RULINGS - Any revocation,
modification, or reversal of rules and regulations of any of the rulings
or circulars shall not be given retroactive application if prejudicial to
the taxpayers.
XPT: taxpayer deliberately misstates or omits material facts from his return,
facts subsequently gathered by the BIR are materially different from the facts
on which the ruling is based on, taxpayer acted in bad faith
5. IMPACT OF TAXATION -The point on which a tax is
originally imposed. In so far as the law is concerned, the taxpayer is
the person who must pay the tax to the government.
INCIDENCE OF TAXATION - The point on which the tax burden
finally rests or settle down. It takes place when shifting has been
effected from the statutory taxpayer to another.
DIRECT TAXES- taxpayer is directly liable on the transaction or
business he is engaged in.
INDIRECT TAXES -are taxes wherein the liability for the payment
of the tax falls on one person, but the burden thereof can be shifted or
passed on to another person
6. DOUBLE TAXATION
Direct Double Taxation - taxing twice for the same purpose, by the
same taxing authority, in the same jurisdiction, in the same period,
some of the property in the territory. It is objectionable and
prohibited
Indirect Double Taxation - there is a burden of two or more
pecuniary impositions but imposed by different taxing authorities. It
is not legally objectionable.
Note: Double taxation may not be invoked where one tax by the state and the
other is imposed by the city
7. ESCAPE FROM TAXATION- desire to mitigate tax liabilities
3 FACTORS
1. non payment of tax when it is hown that tx is due
2. bad faith, willfull, or deliberate and not accidental
3. failure of action which is unlawful
8. TAXPAYER’S SUIT- directly affected by the alleges illegal
disbursement of public funds.
II. LIMITATIONS ON THE TAXING POWER
1.PUBLIC PURPOSE- (a) the support of the government, (b)
some of the recognized objects of the government, and (c) to
promote the welfare of the community
2. INTERNATIONAL COMITY- A State cannot tax another
State based on the principle of Sovereign Equality among
States.
obligations on the part of the states that enter into the agreement.
3. NON DELEGABILITY OF THE TAXING POWER- purely
legislative; hence the power cannot be delegated either to the
executive or judicial departments.
4 GOVERNMENT ENTITIES -Agencies performing
governmental functions are tax exempt, performing
proprietary functions are subject to tax .
-GOCCs performing proprietary functions are subject to tax, except for GSIS,
SSS, PHIC, PCSO and Local Water Districts. Real properties owned by the
government or its instrumentalities except when the beneficial use.
-Section 234(a) of the LGC provides that a real property owned by the
Republic of the Philippines or any of its political subdivisions is exempt from
realty taxes, except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
5. TERRITORIALITY OR SITUS- taxing power of a country is
limited to the person and property within and subject to its
jurisdiction. The factor which determines the source of income for personal
services is the place where the services were actually rendered
III. Constitutional Limitations
1. UNIFORMITY AND EQUITY IN TAXATION -All the
taxable persons or property of the same class shall be taxed at
the uniform or same rate. Inequalities resulting from singling out of one
particular class for taxation or exemption do not infringe any constitutional
limitation.
2. EXEMPTION OF LANDS, BUILDINGS AND
IMPROVEMENTS ACTUALLY, DIRECTLY AND
EXCLUSIVELY USED FOR RELIGIOUS, CHARITABLE OR
EDUCATIONAL PURPOSES
- exempt from property tax on the lands, buildings, and
improvements actually, directly and exclusively used for
charitable, educational and religious purposes.
▪ Under the NIRC, religious and charitable institutions are exempt from
income tax only for income received by them as such. Income received from
the use of their properties, real or personal, is subject to income tax regardless
of the disposition.
3. ALL OF THE REVENUES AND ASSETS DERIVED
BY THE NON-STOCK, NONPROFIT EDUCATIONAL
INSTITUTION- will be exempt from taxation provided they
are used actually, directly and exclusively for educational
purposes. The donation is, likewise, exempt from the donor's tax if actually,
directly and exclusively used for educational purposes, provided not more
than 30% of the donation is used by the donee for administration purposes.
- Proprietary Educational institutions are entitled only to preferential rate of
10% provided not more than 50% of the income comes from unrelated
business activity.
Application of 10% Preferential Tax Rate on Proprietary
Educational Institutions
It will apply only if its gross income from unrelated trade,
business, or activity does not exceed 50% of its total gross
income. Otherwise, it will be subject to the regular tax rate of
30%. (Sec 27, NIRC)
While there is incidental revenue to the local government unit, the imposition
of a Building Permit partakes of a regulatory nature. The imposition of
Building Permit fee is an exercise of police power to ensure compliance with
the standards under the Building Code to protect the public from any danger.
Effect on the tax-exempt status of a charitable or religious institution if it
engages in activities conducted for profit
It does not lose its tax-exempt status for its non-profit activities. However, its
income from activities conducted for profit, regardless of its disposition, shall
be subject to income tax
Distinction Between Tax and Fee
FEE- primarily regulatory in nature
TAX -primarily for revenue-raising
MODES OF ELIMINATING INTERNATIONAL
DOUBLE TAXATION - Double taxation usually takes place
when a person is resident of a contracting state and derives
income from, or owns capital in, the other contracting state
and both states impose tax on that income or capital.
▪ Allowing reciprocal exemption either by law or by treaty;
▪ Allowance of tax credit for foreign taxes paid;
▪ Allowance of deductions such as for foreign taxes paid, and vanishing
deductions in estate tax; or
▪ Reduction of Philippine tax rate.