CHAPTER 2 DOCTRINES IN TAXATION
I.
Doctrine of Prospectivity of Tax Laws
1. What is the “Doctrine Prospectivity of Tax Laws”?
of
As a general rule, tax laws are prospective in operation, 1 unless the legislative intent that statute should operate retrospectively is distinctly expressed or necessarily implied. 2 Where a statute amending a tax law is silent as to whether it operates retroactively, the amendment will not be given a retroactive effect so as to subject to tax past transactions not subject to tax under the original act. Every case of doubt must be resolved against its retroactive effect. 3 1
Because taxes are burdens and should not be imposed without due process of law. B elle C or p. v. v. CI CI R , G.R.181298, Jan. 10, 2011 2 L or enzo nzo v. v. Posada sadas, 64 Phil. 353; C I R . v. v. F ilipi ilipi nas C i a. de Seguro ur os, 107 Phil. 1055 3 C I R v. M ar ube ubeni Corpo Corpor ati on, 372 SCRA 576 (2001)
II. Doctrine of Imprescriptibility 2. What is the Imprescriptibility”?
“Doctrine
of
Considering that taxes are the lifeblood of the government, it may be stated that the assessment and collection of taxes are imprescriptible unless otherwise provided by the tax law itself. 4 Thus, if the tax law itself is silent on prescription, the right of the government to assess and collect taxes will not prescribe. In criminal cases involving tax offenses punishable under the Tax Code, it would indeed seem that tax cases are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years.
4
C I R v. Ay A yala Secu Securr i ti es Cor Cor p., 101 SCRA 231
II. Doctrine of Imprescriptibility 2. What is the Imprescriptibility”?
“Doctrine
of
Considering that taxes are the lifeblood of the government, it may be stated that the assessment and collection of taxes are imprescriptible unless otherwise provided by the tax law itself. 4 Thus, if the tax law itself is silent on prescription, the right of the government to assess and collect taxes will not prescribe. In criminal cases involving tax offenses punishable under the Tax Code, it would indeed seem that tax cases are practically imprescriptible for as long as the period from the discovery and institution of judicial proceedings for its investigation and punishment, up to the filing of the information in court does not exceed five (5) years.
4
C I R v. Ay A yala Secu Securr i ti es Cor Cor p., 101 SCRA 231
As the provision5 of the law stands in the statute book (and to this day it has remained unchanged), prescription is a matter of defense and the information does not need to anticipate and meet it. The defendant could, at most, object to the introduction of evidence to defeat his claim of prescription. Anyway, the law says that prescription begins to run from ... "the institution of judicial proceedings for its ... punishment ." ." Unless amended by the legislature, this provision stays in the Tax Code as it was written during the days of the Commonwealth. And as it is, must be applied regardless of its apparent one-sidedness in favor of the Government. In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its right to prosecute. They receive a strict construction in favor of the Government and limitations in such cases will not be presumed in the absence of clear legislation. 6 III. Double Taxation 5
Sec. 281, NIRC
6
Emilio E. Lim, Sr., v. CA, GR Nos. L-48134-37,
Oct. 18, 1990
3. What is the meaning of double taxation? BQ2015, 2014, 2013, 2012 “Double taxation” means taxing the same property / person / activity twice when it should be taxed only once; that is, taxing the same property/person/activity twice by the same jurisdiction, during the same taxing period for the same purpose and for the same kind of tax by the same taxing authority when it should only be taxed but once. 7 4. What are the kinds of double taxation? BQ2015, 2014, 2012 (a) In the Strict Sense - Double taxation in the strict or prohibited sense is called “direct double taxation” which is objectionable because it is a violation of the substantive due process under the Constitution since the same property or subject matter is taxed twice when it should be taxed once; it is tantamount to taxing the same person twice by the same jurisdiction for the same thing.
7
Nursery Care Corp v. City of Manila, GR 180651,
July 30, 2014
Otherwise described as “direct duplicate taxation,” the following are the elements of direct double taxation: The imposed:
two
taxes
must
be
(1) on the same person, property or subject matter, (2) for the same purpose, (3) by the same taxing authority, (4) within the same territory or taxing jurisdiction, (5) during the same taxing period; and (6) the taxes must be of the same kind or character.8 (b) In the Broad Sense - Double taxation in the broad sense is called “indirect double taxation” or “indirect duplicate taxation” which extends to all cases in which
Swedish Match Phils. I nc. v. The Treasurer of the City of Manila, G.R. 181277, July 3, 2013 (700 SCRA 428) I bid ; Nursery Care Corp. v. Anthony Acevedo & the City of Manila, GR 180651, July 30, 2014. 8
there are two or more pecuniary impositions, but the ABSENCE OF ONE OR MORE of the above-mentioned elements makes the double taxation indirect. The Constitution does NOT prohibit the imposition of double taxation in the broad sense because it does not violate the substantive due process since no actual double taxation occurred. 5. What are the kinds duplicate taxation? BQ2013 There are two kinds duplicate taxation, namely:
of
of
indirect
indirect
(1 ) Domestic double taxation. This arises when the same taxes are imposed by the local or national government within the same State. Double taxation may not be invoked where one tax is imposed by the national government and the other by a local government , being widely recognized that there is nothing inherently obnoxious in the requirement that licenses or taxes be exacted with respect to the same occupation, calling or activity by both the state and its political
subdivision.9 Thus, double taxation does not exist when a corporation is assessed with local business tax as a manufacturer, and at the same time, VAT as a person selling goods in the course of trade or business. (2) International juridical double taxation – It refers to the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. 10 When an item of income is taxed in the Philippines and the same income is taxed in another country, there is a case of double taxation but it is only a case of indirect duplicate taxation, which is called “international juridical double taxation,” which is not legally prohibited because the taxes are imposed by different taxing authorities. 6. Is double taxation allowed in our Constitution?
9
Punzalan v. Mun. Board of Manila, 95 Phils. 46 (1994); City of B aguio v. De Leon, 25 SCRA 38 (1968) 10 CI R v. SC Johnson and Son., I nc . 309 SCRA 87 (1999)
The Supreme Court held that there is no constitutional prohibition against double taxation in the Philippines. 11 Therefore, it is not a valid defense against the validity of a tax measure.12 However, it is not favored but the same is permissible, provided some other constitutional requirements are not thereby violated.13 For example, double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity14 or by the same jurisdiction for the same purpose, 15 but not in a case where one tax is imposed by the State and the other by a province, city or municipality.16 7. Is double taxation a valid defense against the legality of a tax measure?
Villanueva v. I loilo, 26 SCRA 578, Dec. 28, 1968 12 Pepsi Cola v. Mun. of Tanauan, GR L-31156, 11
Feb. 27, 1976 (69 SCRA 460) 13
Pepsi Cola Bottling Co. v. City of Butuan, GR L-
22814, Aug. 28, 1968 14
CI R v. Lednicky GR L-18169, July 31, 1964 (11
SCRA 609) 15
SMB, I nc. v. City of Cebu, GR L-20312, Feb. 26,
1972 (43 SCRA 280) 16
OG 2485
Punzalan v. Mun. Board of City of Manila, 50
No. Double taxation standing alone and not being forbidden by our fundamental law is not a valid defense against the legality of a tax measure. 17 However, if double taxation amounts to a direct duplicate taxation, that the same subject is taxed twice when it should be taxed but once, in a fashion that both taxes are imposed for the same purpose by the same taxing authority, within the same jurisdiction or taxing district, for the same taxable period and for the same kind or character of a tax, then it becomes legally objectionable for being oppressive and inequitable. 8. Can a court impose local business tax on manufacturers of liquors, distilled spirits, whins and other article of commerce. 8. Is there double taxation where a lessor of a property pays real estate tax on the premises being leased, a real estate dealer’s tax based on rental receipts and income tax on the rentals?
17
Pepsi Cola v. Mun. of Tanauan, GR L-31156,
Feb. 27, 1976 (69 SCRA 460)
No. There is no double taxation here in the prohibited sense. Double taxation in the prohibited sense means (1) taxing for the same tax period, (2) the same thing or activity twice, (3) when it should be taxed but once, (4) by the same taxing authority, (5) for the same purpose, and (6) with the same kind or character of tax. The real estate tax is a property tax. On the other hand, the real estate dealer's tax is a tax on the privilege to engage in business of real estate dealership. While the income tax is a tax on the privilege to earn an income. These taxes are imposed by different taxing authorities and are essentially of different kinds and character. 18 9. Is there double taxation when the interest income of a bank derived from its bank deposits in another bank is subjected to tax and it will again be 18
Villanueva v. City of I loilo, 26 SCRA 578
subjected to the 5% gross receipts tax on its interest income from its loan transactions? BQ2012 No. There is no double taxation when the interest income of a bank from its bank deposits in another bank had been subjected to the 20% final withholding tax (which is a passive income and a direct tax), and at the same time, its interest income on loan transactions to its debtors-customers is subjected to the 5% gross receipts tax (which is considered as active income and indirect tax) because the first tax is income tax, while the second tax is business tax. 10. Can a municipal mayor refuse to sign an ordinance which requires that all establishments selling liquor should pay a fixed annual fee and at the same time imposing a sales tax equivalent to 5% of the amount paid for the purchase or consumption of liquor in the said establishments on the ground that it would constitute double taxation? No. The refusal of the mayor is not justified. The impositions are of different
nature and character. The fixed annual fee is in the nature of a license fee imposed through the exercise of police power while the 5% tax on purchase or consumption is a local tax imposed through the exercise of taxing powers. Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article and this is not in violation of the rule against double taxation. 19 11. Is there double taxation in the imposition of local business tax based on gross revenue in the case of a taxpayer whose method of accounting is on the accrual basis? Yes. In petitioner's case, its audited financial statements reflect income or revenue which accrued to it during the taxable period although not yet actually constructively received or paid. This is because petitioner uses the accrual method of accounting, where income is reportable when all the events have occurred that fix the taxpayer's right to receive the income, and the amount can be
Compania General de Tabacos de F ilipinas v. City of Manila, 8 SCRA 367 (1963) 19
determined with reasonable accuracy; the right to receive income, and not the actual receipt, determines when to include the amount in gross income. The imposition of local business tax based on petitioner's gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing -- inasmuch as petitioner's revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid. Thus, respondent committed a palpable error when it assessed petitioner's local business tax based on its gross revenue as reported in its audited financial statements, as Sec. 143 of the LGC and Sec. 22(e) of the Pasig Revenue Code clearly provide that the tax should be computed based on gross receipts.20 12. What are the modes of avoiding/eliminating double taxation?
20
E ricsson Telecom vs. City of Pasig, GR 176667,
Nov. 22, 2007( 538 SCRA 99)
The usual methods of avoiding the occurrence of double taxation are: (a) Entering into tax treaties with other states. - Double or multiple taxation is avoided by means of allowing reciprocal exemptions, which may be done either by statute or by treaty. (b) Application of the principle reciprocity - Exemption from taxation treaty are generally granted on grounds reciprocity21 and to lessen the rigors international double or multiple taxation.
of by of of
(c ) Allowance of deduction/tax credit for foreign taxes paid - The rigors of international double taxation may also be lessened by the allowance of deduction or tax credit taxes paid to foreign countries. 22 Example: A resident Filipino citizen has the option to either claim the amount of income 21
Reciprocity is used to denote the relation between
two states when each of them, by their respective laws or by treaty, gives the citizens or nationals of the other State certain privileges, as in the practice of a profession, on condition that its own citizens or nationals shall enjoy similar privileges in the latter state. Sison v. Board of Accountancy, 85 Phil. 276 (1949) 22 Sec. 34(C), NIRC
tax withheld abroad as a deduction from his gross income in the Philippines or to claim it as a tax credit23 provided that he includes the subject income in the computation of his worldwide gross income considering that he is a resident Filipino citizen. A resident Filipino citizen is subject to tax on his income derived from within and without the Philippines or his worldwide income. (d) Using the Tax Sparing Rule – A non-resident foreign corporation (NRFC) who earned cash and/or property intercorporate dividends from a domestic corporation is taxed on a reduced rate of 15% tax on dividends (in lieu of the 30% corporate income tax), which represents the difference between the regular income tax of 30% and the 15% tax on dividends on the condition that the country of residence of the NRFC shall allow a credit against the tax due from the NRFC, taxes deemed to have been paid in the Philippines. 24 The apparent rationale for doing away with double taxation is to encourage the free 23
Sec. 34(C)(1)(B), NIRC 24 Sec. 28(B)(5)(b), NIRC; 66838, Dec. 2, 1991
CIR v. PGMC, GR
flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies. 25 IV. Escape from Taxation 13. What are the forms of escape from taxation? Taxpayers escape paying their taxes thru the following modes, although the modes used may not necessarily be legal, and therefore, sanctionable. (a) Shifting the tax burden to another taxpayer. (b) Tax avoidance. (c ) Tax evasion. A. Shifting of Tax Burden 14. What is the meaning of the term “shifting of tax burden”?
25
(1999)
CI R v. SC Johnson and Son, I nc ., 309 SCRA 87
“Shifting of tax burden” simply means that the imposition of tax is transferred from the statutory taxpayer, or the person who is required by law to pay the tax, to another person who shall bear the burden of the tax without violating the law. Only the payment of indirect taxes may be shifted to another taxpayer, but not direct taxes. Example: Under the VAT system, the seller can shift the burden of the VAT to the buyer, the said tax (VAT) being an indirect tax. 15. What are the ways of shifting the burden of tax to another taxpayer? The ways of shifting the burden of tax to another taxpayer are as follows: (1) Forward shifting – refers to the transfer of tax burden from the producer to distributor until it finally reaches the ultimate purchasers or end consumers. Example: The producer shifts its VAT to the distributor, and the distributor shifts its VAT to the final consumer. (2) Backward shifting – refers to the reverse of forward shifting, meaning, the
burden of the tax is transferred from the end consumer through the factors of distribution to the factor of production. Example: The end consumer may shift the tax imposed on him to the distributor by buying the goods only after the price of the goods is reduced by the amount of the tax, and lastly, the manufacturer agrees to buy the distributor’s products only if the price is also reduced by the amount of tax. (3) Onward shifting – the tax burden is shifted twice or more either forward or backward. 16. What are the taxes which can be shifted to another taxpayer? Under the National Internal Revenue Code, the national taxes which can be shifted to another taxpayers are the indirect taxes, such as the VAT, Other percentage taxes, excise tax on excisable articles and documentary stamp taxes. In the case of VAT, the seller, who is the statutory taxpayer, is given the right by law to shift the burden of tax to the buyer,
which tax shall become part of the cost of the goods or services sold if the buyer is the end consumer. 17. What are the taxes which cannot be shifted to another taxpayer? Under the National Internal Revenue Code, all taxes which are the direct tax liabilities of the taxpayers are the taxes which cannot be shifted to another taxpayer, such as income tax, estate tax and donor’s tax. 18. Why does the law allow the shifting of the burden of tax to another person? When the law allows that the burden of tax may be shifted to another person, this is one form of escape from taxation which does not result to any loss on the part of the Government, hence, not objectionable. 19. What is the meaning of “impact” and “incidence” of taxation? The term "impact of taxation " refers to the point on which the tax is originally imposed or the person/taxpayer who
is required by law to pay the tax or the taxpayer on whom the tax can be formally assessed. Example: VAT is originally assessed against the VAT-registered SELLER who is required to pay the said tax. (This is the socalled "impact of taxation .") On the other hand, "incidence of taxation " refers to the point on which the tax burden finally rests or settles down. It takes place when shifting has been effected from the statutory taxpayer to another. Hence, VAT, being an indirect tax, the burden of paying the tax is actually shifted or passed on to the BUYER. (This is the so-called "incidence of taxation.") 20. What is the relationship between Impact, Shifting, and Incidence of a tax? The” impact of taxation,” which is the imposition of the tax to the statutory taxpayer, is the initial phenomenon; the “shifting of the tax ,” which is the passing on of the tax to the buyer, is the intermediate event, while the “incidence of the tax ” which is the final point of the transaction makes the end consumer finally shouldering or
bearing the burden of the tax, which resultant effect.
is the
B. Tax Avoidance 21. What is the meaning of “tax avoidance”? BQ2014 "Tax avoidance" is the other term for "tax minimization." It is a legal tax saving device within the means sanctioned by law the object of which is merely to minimize the payment of taxes. This method should be used by the taxpayer in good faith and at arm's length. A taxpayer has the legal right to decrease the amount of what otherwise would be his taxes or altogether avoid them by means which the law permits. A taxpayer may therefore perform an act that he honestly believes to be sufficient to decrease his tax liability or to exempt him from taxes. He does not incur fraud thereby even if the act is thereafter found to be insufficient. 26 Yutivo Sons Hardware Co. v. CTA , 1 SCRA 160 (1961); H eng Tong Textiles Co., I nc. v. CI R , 24 SCRA 767 26
(1968)
C. Tax Evasion 22. What evasion”?
is
the
meaning
of
“tax
"Tax evasion" is the other term for “tax dodging.” It is the use of the taxpayer of illegal means to avoid or defeat the payment of the tax. It is a scheme used outside of those lawful means and when availed of is punishable by law because its main purpose is to entirely escape the payment of taxes thru illegal means. It usually subjects the taxpayer to further or additional civil or criminal liabilities. 27 Tax evasion connotes fraud through the use of pretenses and forbidden devices to lessen or defeat the payment of correct taxes. Mere understatement of tax in itself does not prove fraud. Fraud is never imputed and courts never sustain findings of fraud upon circumstances which create only suspicion; it must be willful and intentional .
27
CI R v. CA, 327 Phil. 1
23. Distinguish "tax avoidance" from "tax evasion." BQ2014 Tax Avoidance “Tax avoidance” is a tax saving device wherein the taxpayer uses legal means to reduce tax liability within the means sanctioned by law, hence legal.28 It is used by the taxpayer in good faith and at arm's length.
Taxpayer is not subjected to civil or criminal liabilities because it is a legal tax saving device. It is “tax minimization”.
“Tax evasio means to av of the tax. It connotes pretenses a lessen or def taxes. When availed taxpayer to liabilities. It is “tax do
24. What are the factors that constitute “tax evasion”? To constitute "tax evasion," there must be an integration of three factors, namely:
28
767 (1968)
H eng Tong Textiles Co., I nc. v. CI R , 24 SCRA
(1) The end to be achieved, i.e., payment of an amount of tax less than what is known by the taxpayer to be legally due; (2) An accompanying state of mind which is described as being evil, in bad faith, willful or deliberate and not merely accidental; and (3) A course of action or failure of action which is unlawful. The second and third factors are not present in tax avoidance, hence there can be no tax evasion if what was committed is just tax avoidance.29 Example: When a tax consultant advised the taxpayer to execute two deeds of sale with the intent to evade the payment of the correct tax, both the tax consultant and the taxpayer shall be criminally liable for tax evasion considering that the above-stated three requisite factors to constitute tax evasion are present.
29
CI R v. The E state of B enigno P. Toda, J r.,
G.R.147188, Sept. 14, 2004. (48SCRA 290)
25. When complete?
is
tax
evasion
deemed
The Supreme Court ruled that tax evasion is deemed complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the tax. 30 V. Exemption from Taxation 26. What is the meaning of the term “exemption from taxation"? Tax exemption is an immunity or privilege from a charge or burden to which others are subject. It is the grant of immunity, express or implied, to particular persons or corporations of a particular class, from the obligation to pay taxes generally within the same state or taxing district to which others are obliged to pay. 31
Ungab v. J udge Cusi, Jr ., 186 Phil. 604 (1980) 31 Greenfield v. Meer, 77 Phil 394 30
27. What exemption?
is
the
nature
of
tax
(a) The tax exemptions provided in the Constitution are self-executing and need no legislation to enforce them. (b) The grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress. 32 (c) Exemption from taxes is personal in nature and covers only taxes for which the taxpayer-grantee is directly liable. In any case, it cannot be transferred or assigned by the person to whom it is given without the consent of the State. He who claims tax exemption should prove by convincing proof that he is exempted. Therefore, an exemption granted to a corporation does not apply to its stockholders.33 (d) Tax exemptions are not presumed, but when public property is
Diaz v. Sec. of F inance, 654 SCRA 96 (2011) 33 Manila Gas Corp. v. Collector , 71 Phil. 513 32
involved, tax exemption is the rule, and taxation, the exception. (e) There can be no simultaneous tax exemptions under two laws, one partial and the other total. (f) It is an ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax exemptions are looked upon with disfavor and may almost be said to be odious to the law. 34 (g) He who claims that he is exempted from tax must be able to justify his claim by the clearest grant of organic or statute law by words to plain to be mistaken. If ambiguous, there is no tax exemption. 28. What exemption?
are
the
kinds
of
tax
The kinds of tax exemptions are as follows:
ME RALCO v. Vera, 67 SCRA 351; Phil. Petroleum Corp. v. Mun. of Pililla, R izal, 198 SCRA 82 (1991) 34
(1) Express tax exemption (or affirmative exemption) – This is the tax exemption which expressly and affirmatively exempts from taxation certain persons, properties or transactions, either entirely or in part. It may be created by express provisions of the Constitution, statute, treaty or ordinance. (2) Implied tax exemption (or exemption by omission) – This is the tax exemption which may be either accidental or intentional, as where the tax is laid on certain classes of persons, properties or transactions without mentioning other classes. All subjects for which taxation is not provided are exempted, and the subjects selected are alone taxable. Tax exemptions are not presumed, but when public property is involved, exemption is the rule, and taxation, the exception (3) Contractual tax exemption Contractual tax exemption, in the real sense of the term and where the non-impairment clause of the Constitution can rightly be invoked, is one which is agreed to by the
taxing authority in contracts, such as the one contained in government bonds or debentures, lawfully entered into under enabling laws in which the government, acting in its private capacity, sheds its cloak of authority and waives its governmental immunity. 35 This exemption must not be confused with the tax exemption granted under a franchise, which is not a contract within the context of nonimpairment clause of the Constitution. 36 In general, tax exemptions granted by contract are not assignable. However, Congress may authorize a transfer of the tax exemption either by the original act or by a subsequent statute. A contractual tax exemption may also be transferred where the original grant includes the successors and assigns of the grantee. 37 Statutory exemptions are generally granted on the basis of contract and on grounds of public policy. 35
PAGCOR v. B I R, John Doe & Jane Doe, GR
172087, March 15, 2011
Cagayan E lectronic Co. v. CI R , 138 SCA 629 37 PAL v. Commissioner of Customs, BTA No.184, 36
Sept. 10, 1954
29. What is the rationale for the grant of tax exemption? The rationale for the grant of tax exemption is some kind of public benefit or interest which the law-making body considers sufficient to offset the monetary loss entailed in the grant of tax exemptions. 30. What are the grounds for tax exemption? (1) The power of the Legislature to exempt taxpayers from taxation, although of wide scope, is not unlimited. Exemptions from taxation, when properly made, must be determined in the legislative discretion, which must not, however, be arbitrary; there must underlie in its exercise some principles of public policy that can support a presumption that the public interest will be subserved by the exemption allowed. 38
Art. 17(4), Art. VIII, 1987 Phil. Constitution; CIR v. Botelho Shipping Corp., L-21633-34, June 29, 1967 (20 SCRA 487) 38
(2) The purpose of the grant is some public benefit or interest which the lawmaking body considers sufficient to offset the monetary loss entailed in the grant of tax exemptions. (3) Tax exemptions in tax treaties are created on grounds of reciprocity or to lessen the rigors of the international double or multiple taxation. 31. May tax exemption be granted on the ground of equity? No. Tax exemption cannot be recognized on grounds of equity. The long range objective of all tax measures is the accomplishment of social order. Although the variant forms of taxation may sometimes produce individual hardships, a too stilted interpretation of tax laws for the benefit of one particular taxpayer may result in the loss of revenue at the expense of the government and operate to the disadvantage of the others contributing to its support. A tax exemption claimed merely on the ground that another
person similarly situated has not paid similar taxes is unjustifiable and should be ignored. 39 32. May tax exemptions be revoked? Yes. As a general rule, grants of tax exemption are revocable. The Congressional power to grant an exemption necessarily carries with it the consequent power to revoke the same. In the case of franchises to operate public utilities, the Constitution provides that no franchise shall be granted unless subject to the condition that it shall be subject to repeal or amendment. Therefore, any exemption granted under a franchise may be revoked by Congress. Exception: On the other hand, there is a recognized exception as regards contractual exemptions, on the theory that revocation without the consent of the grantee would impair the obligation of contract. There is no vested right in a tax exemption, more so when the latest expression of legislative intent renders its continuance doubtful. Being a mere statutory privilege, a tax exemption may B PI v. Trinidad, 45 Phil. 384
39
be modified or withdrawn at will by the granting authority. To state otherwise is to limit the taxing power of the State, which is unlimited, plenary, comprehensive and supreme. The power to impose taxes is one so unlimited in force and so searching in extent, it is subject only to restrictions which rest on the discretion of the authority exercising it. 40 VI. Tax Refund 33. What is the nature of a claim for refund? Since an action for a tax refund partakes of the nature of tax exemption , which cannot be allowed unless granted in the most explicit and categorical language, it is strictly construed against the claimant who must discharge such burden most convincingly.41 34. Will the fact that a taxpayer is under audit by the BIR or that there is a Republic v. Caguioa, GR 168584, Oct. 15, 2007 41 South African Ai rways v. CI R , 612 SCRA 665 40
deficiency tax assessment and it has a potential tax liability be a bar to a claim for tax refund? No. As a general rule, a deficiency tax assessment is not a bar to a claim for tax refund or tax credit of a taxpayer. The BIR has no valid justification if it will not grant the refund or to withhold the issuance of the Tax Credit Certificate (TCC). Offsetting the amount of TCC against a potential tax liability is not allowed, because both obligations are not yet fully liquidated. While the amount of the TCC has been determined, the amount of deficiency tax is yet to be determined through the completion of the audit. To reopen the claim for TCC or Tax Refund in order to give way to the introduction of evidence of a deficiency assessment will lead to an endless litigation, which is not allowed. 42 However, if the deficiency tax assessment is already final, the CIR should not grant the claim for refund unless the taxpayer pays the deficiency tax. Likewise, no
42
(2006)
CI R v. Citytrust Banking Corp., 499 SCRA 477
tax refund or tax credit will be granted as long as there is a pending deficiency tax assessment for the same taxable period. To award a tax refund or tax credit despite the existence of deficiency assessment for the same taxable period is an absurdity and a polarity in conceptual effects. A taxpayer cannot be entitled to a refund and at the same time be liable for a tax deficiency assessment. In order to avoid multiplicity of suits, it is logically necessary and legally appropriate that the issue of deficiency tax assessment be resolved jointly with the taxpayer’s claim for tax refund, to determine once and for all in a single proceeding the true and correct amount of the tax due or refundable.43 35. May a taxpayer who has pending claims for refund of excess VAT input tax refund or set off said claims against his other tax liabilities? No. Taxes and claims for refund cannot be the subject of set-off for the simple reason that the government and the taxpayer
43
CI R v. CA, Citytrust Banking Corp. and CTA , 234
SCRA 348 (1994)
are not creditors and debtors of each other. There is a material distinction between a tax and a claim for refund. Claims for refunds just like debts are due from the government in its corporate capacity, while taxes are due to the government in its sovereign capacity. However, compromise or set-off may be available but only if both obligations are liquidated and demandable. Liquidated debts are those where the exact amounts have already been determined. In the instant case, the claim of the taxpayer for VAT refund is still pending and the amount has still to be determined. Thus, the liquidated obligation of the taxpayer to the government cannot be setoff against the unliquidated claim which the taxpayer conceived to exist in his favor. 44 VII. Compromise 36. When is compromise agreement? A compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put 44
Philex Mining v. CI R, GR 125704, Aug. 29, 1998
an end to one already commenced. 45 It involves a reduction of a person’s tax liability. Accordingly, a compromise is either judicial, if the objective is to put an end to a pending litigation, or extrajudicial, if the objective is to avoid a litigation. 46 Its validity is dependent upon the fulfillment of the requisites and principles of contracts dictated by law; and its terms and conditions must not be contrary to law, morals, good customs, public policy, and public order. When given judicial approval, a compromise agreement becomes more than a contract binding upon the parties. Having been sanctioned by the court, it is entered as a determination of a controversy and has the force and effect of a judgment. It is immediately executory and not appealable, except for vices of consent or forgery. The nonfulfillment of its terms and conditions justifies the issuance of a writ of execution; in 45
Art, 2928, New Civil Code 46
Malvar v. K raft F ood Phils., I nc., 705 SCRA 242
(2013)
such an instance, execution ministerial duty of the court. 47
becomes
a
A compromise is generally allowed and enforceable under the law when the subject matter thereof is not prohibited from being compromised and the person entering such compromise is duly authorized to do so. VIII. Doctrine of Compensation and SetOff 37. Discuss the “Doctrine of Compensation and Set- Off.” May taxes be the subject of set-off or compensation? General Rule: The Doctrine of Compensation and Set-off states that taxes are NOT subject to set-off or legal compensation because the government and the taxpayer are not mutual creditor and debtor of each other. 48
47
Magbanua v. Uy, 497 Phil. 511 (2005) cited in Metro Manila Shopping Mecca Corp. v. City Treasurer of Manila, GR 190818, Nov. 10, 2014 Republic v. Mambulao Lumber Co., 6 SCRA 522; Caltex Phils v. COA, 208 SCRA 726 48
It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government for the following reasons: (1) A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. (2) Taxes are of such distinct kind, essence and nature, and these impositions cannot be classed in merely the same category as ordinary obligations. Taxes and debts are of different nature and character; hence, no setoff or compensation between these two different classes of obligations is allowed. (3) The taxes assessed are the obligations of the taxpayer arising from law, while the money judgment against the government is an obligation arising from contract, whether express or implied.
(4) Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. 49 (5) Inasmuch that taxes are not debts, it follows that the two obligations are not susceptible to set-off or legal compensation. (6) There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.50 Examples: (a) An assessment for a local tax cannot be the subject of set-off or compensation against a final judgment for a sum of money 49
South African Airways v. CI R , 612 SCRA 665
(2010) 50
SCRA 753)
F rancia v. I AC, GR L- 76749, June 28, 1988 (162
obtained by the taxpayer against the local government unit that made the assessment. (b) A taxpayer who has pending claims for VAT input credit or refund cannot set off said claims against his other tax liabilities. (c) The income tax liability of a taxpayer cannot be compensated with the amount owed by the Government as just compensation for his property which had been expropriated. Exception: However, if the obligation to pay taxes and the taxpayer’s claim against the government have already become both due, and demandable, as well as fully liquidated, compensation takes place by operation of law 51 and both obligations are extinguished to their concurrent amounts.52
51
Art. 1200, in relation to Arts. 1279 and 1290, NCC 52 Domingo v. Garlitos, 8 SCRA 443 (1963)
A debt is liquidated when its existence and amount are determined. A debt is considered liquidated, not only when it is expressed already in definite figures which do not require verification, but also when the determination of the exact amount depends only on a simple arithmetical operation. 53 IX. Doctrine of Equitable Recoupment 38. What is the meaning of the term “Doctrine of Equitable Recoupment”? BQ2009 The doctrine of “equitable recoupment ” arose from common law origin allowing the offsetting of a prescribed claim for refund against a tax liability arising from the same transaction on which an overpayment is made on one hand and underpayment is due on the other hand. In other words, when the refund of a tax supposedly due to the taxpayer has already been barred by prescription, and the same taxpayer is assessed with a tax at present, the two taxes may be set-off with
Philex Mining Corp. v. CI R, GR 125704, Aug. 29, 1998;. Montemayor v. Millora, 654 SCRA 580 (2011) 53
each other. It allows a taxpayer whose claim for refund has prescribed to offset tax liabilities with his claim of overpayment. But this doctrine of equitable recoupment is allowed only in common law countries, but NOT in the Philippines. It finds no application to cases where the taxes involved are totally unrelated, and although it seems equitable, IT IS NOT ALLOWED IN OUR JURISDICTION because of the doctrine of no set-off or compromise. 54 X. Tax Amnesty 39. What is amnesty”?
the
meaning
of
“tax
“Tax amnesty” is a general grant of pardon or the intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of violation of a tax law. It partakes of an absolute waiver by the government of its right to collect what otherwise would be due it and to give tax evaders who wish to relent a chance to start 54
Collector v. UST , 104 Phil. 1062 (1958)
with a clean slate. A tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority. 55 It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. 56 “Tax amnesty ” refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and power to impose penalties on persons or entities guilty of violating a tax law. Tax amnesty aims to grant a general reprieve to tax evaders who wish to come clean by giving them an opportunity to straighten out their records.57
CI R v. Gonzalez , 633 SCRA 139 (2010) 56 I NG Bank N.V., Manila Branch v. CI R, GR 55
167679, July 22, 2015
MBTC v. CI R , G.R. 178797, Aug. 4, 2009 (595 SCRA 234) cited in CS Garment, I nc. v. CI R , GR 182399, 57
March 12, 2014
40. Distinguish "tax amnesty" "tax exemption."
from
Tax Amnesty Tax amnesty is an immunity from all criminal, civil and administrative liabilities arising from nonpayment of taxes. It is a general pardon given to all taxpayers. It applies only to past tax periods, hence of retroactive application.58 In a tax amnesty, however, there will be a revenue loss since there was actually taxes due but the collection was just waived by the Government.
T Tax exemptio the civil lia immunity or a charge or b subjected. It is generall application. In tax exemp revenue los actual taxes transaction is exemption.
41. How construed?
should
tax
amnesty
be
While tax amnesty, similar to a tax exemption, must be construed strictly against the taxpayer and liberally in favor of the taxing authority, it is also a well-settled doctrine that the rule-making power of administrative agencies cannot be extended to amend or People v. Castaneda, GR L46881, Sept. 15, 1988
58
expand statutory requirements or to embrace matters not originally encompassed by the law. Administrative regulations should always be in accord with the provisions of the statute they seek to carry into effect, and any resulting inconsistency shall be resolved in favor of the basic law. 59 42. May the creditable withholding taxes be the subject of tax amnesty? No. Just like in the compromise settlement of tax liability of a taxpayer, withholding taxes cannot fall within the coverage of tax amnesty because the same is not one of the taxes for which a taxpayer is directly liable. Withholding tax is just a mode of collecting the tax and the tax that is being withheld is treated as a trust fund which should be remitted to the government because it is not a personal tax liability of the withholding agent, but that of the payor, which should have been remitted to the government when the same was withheld from the taxpayer.60 59
CS Garment, I nc. v. CI R , G.R. 182399, March
12, 2014 60
RMC 61-2014 (July 30, 2014)
XI. Tax Pyramiding 43. What is the meaning of "tax pyramiding"? What is its basis in law? BQ2006 “Tax pyramiding” refers to the imposition of a tax upon a tax. This occurs when some or all of the stages of distribution of goods or services are taxed, with the accumulation borne by the final consumer. There is tax pyramiding when sales taxes are applied to both inputs and outputs, thus shifting all the tax burden to the end consumer. It has no basis whether in fact or in law because it violates the principle of uniformity and neutrality in taxation. Tax pyramiding has, since 1922, been rejected by the Supreme Court, the legislature, and our tax authorities. 61 XII. Doctrine of Piercing the Veil of Corporate Fiction
61
CI R v. American Rubber Co., 18 SCRA 842
(1966); Pp. v. Sandiganayan, 467 SCRA 137 (2005)
44. What is the “Doctrine of Piercing the Veil of Corporate Fiction”? BQ2013 Under the “doctrine of piercing the veil of corporate fiction ,” the court looks at the corporation as a mere collection of individuals or an aggregation of person undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group.62 Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same. 63 It was held that while a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or illegality. The doctrine 62
K ukan I nternational Corp. v. R eyes, 631 SCRA
63
Pantranco E mployees Association v. NLRC , GR
596 (2010) L-10689, March 17, 2009 (581 SCRA 598 )
applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. 45. May the stockholders be held personally liable for the unpaid taxes of a dissolved corporation? A corporation, upon coming into existence, is invested by law with a personality separate and distinct from those of the persons composing it as well as from any other legal entity to which it may be related. For this reason, a stockholder is generally not made to answer for the acts or liabilities of the corporation, and vice versa. The separate and distinct personality of the corporation is, however, a mere fiction established by law for convenience and to promote the ends of justice. It may not be used or invoked for ends
that subvert the policy and purpose behind its establishment, or intended by law to which the corporation owes its being. This is true particularly when the fiction is used to defeat public convenience, to justify wrong, to protect fraud, to defend crime, to confuse legitimate legal or judicial issues, to perpetrate deception or otherwise to circumvent the law. This is likewise true where the corporate entity is being used as an alter ego,64 adjunct, or business conduit for the sole benefit of the stockholders or of another corporate entity. In such instances, the veil of corporate entity will be pierced or disregarded with reference to the particular transaction involved. 65 Thus, as a general rule, stockholders cannot be held personally liable for the unpaid taxes of a dissolved corporation. The rule prevailing under our jurisdiction is that a corporation is vested by law with a personality 64
In applying the "instrumentality" or" alter ego" doctrine, the courts are concerned with reality, not form, and with how the corporation operated and the individual defendant's relationship to the operation. 65 Land Bank of the Philippines v. Court of Appeals, G.R. 127181, Sept.. 4, 2001 (364 SCRA 375) cited in Commissioner of Customs v. Oilink International Corp., GR 161759, July 2, 2014
that is separate and distinct from those of the persons composing it. 66 However, stockholders may be held liable for the unpaid taxes of a dissolved corporation if it appears that the corporate assets have passed into their hands. 67 Likewise, when stockholders have unpaid subscriptions to the capital of the corporation, they can be made liable for unpaid taxes of the corporation to the extent of their unpaid subscription. XIII. Doctrine of Usage 46. What is the “Doctrine of Usage”? This is the test of exemption on real property tax provided in the 1987 Constitution which mandates that such real properties of non-stock non-profit educational institutions shall be exempt from the real property tax if the said properties are actually, directly and exclusively USED for religious, charitable or educational purpose. The gauge of
Sunio v. NLRC, 127 SCRA 390 (1984) 67 Tan Tiong B io v. CI R, 4 SCRA 986 (1962) 66
exemption is the USE of the property, NOT the ownership, and in accordance with the enabling law under Sec. 234 68 of the Local Government Code of 1991. XIV. Marshall Dictum SEC. 234. E xemptions 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; (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or educational purposes; (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or -controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; (d) All real property owned by duly registered cooperatives as provided for under R. A. No. 6938 (now RA 9520); and (e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or -controlled corporations are hereby withdrawn upon the effectivity of this Code. (Local Government 68
Code)
47. What does the “Marshall Dictum” state ? The Marshall Dictum69 states that “the power to tax is the power to destroy”, which refers to the unlimitedness and the degree or vigor with which the taxing power may be employed to raise revenue. The financial needs of the State may outrun any human calculation, so the power to meet those needs by taxation must not be limited even though taxes become burdensome or confiscatory. However, Marshall Dictum has no application to a lawful tax. This may be true only if the Legislature has no power to tax. It has no relation to a case where such right exists, because the power to destroy may be a consequence of taxation but it cannot and should not tax to the point of being confiscatory. XV. Holmes Doctrine (Marshall Dictum) U.S. Chief Justice Marshall in McCulloch v. Maryland , 17 U.S. 316, 4 Wheat, 316, 4 L Ed. 579 (1819) 69
48. What does the “Holmes Doctrine” state? The Holmes Doctrine, 70 on the other hand, states that “the power to tax is not the power to destroy while the Supreme Court sits.” sits.” The power to tax knows no limit except those expressly stated in the Constitution.It only means that in the exercise of the taxing power, the authority should not violate the Constitutional, inherent and contractual limitations of taxation, otherwise the court has the primordial duty to declare the same void and unconstitutional, thereby preventing the destructive nature of the power of taxation. XVI. Doctrine of Estoppel 49. How is the "Doctrine of Estoppel" applied in taxation? Is there any exception?
Panhandle Oil Co. v. Mississipi ex rel Knox 277
70
U.S. 233 (1928) (Justice Oliver Wendell Holmes, Jr.)
General Rule: It is rule in taxation that estoppel does not apply to the government, especially on matters of taxation. It does not prevent the government from collecting taxes; it is not bound by the mistake or negligence of its agents. The rule is based on the political law concept “the king can do no wrong,” 71 which likens a state to a king; it does not commit mistakes, and it does not sleep on its rights. The analogy fosters inequality between the taxpayer and the government, with the balance tilting in favor of the latter. This concept finds justification in the theory and reality that government is necessary, and it must therefore collect taxes if it is to survive. Thus, the mistake or negligence of government officials should not bind the state, lest it bring harm to the government and ultimately the people, in whom sovereignty resides. 72 Upon taxation depends the ability of the government to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect Tr eati se on Ta Taxx Pri Pr i nci nci ple less and Eric R. Recalde, A Tre R emedi es, p. 33 (2009) 72 C I R v. P r octer & G amble PM PMC C , GR L-66838, April 15, 1988 (160 SCRA 560), cited in CIR v. Raul M. G onzales nzales , , G.R. 177279, Oct. 13, 2010 71
or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people."73 Taxes are the nation’s lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents.74 Exception: However, while the State in the performance of governmental function is not estopped by the neglect or omission of its agents, and nowhere is this truer than in the field of taxation, yet this principle cannot be applied to work injustice against an innocent party. In one case , , the Court held that "admittedly the government is not estopped from collecting taxes legally due because of mistakes or errors of its agents, but like other principles of law, this admits of exceptions in V i saya sayas Ge G eother ther mal Po P ower C ompany v. v. CI C I R , G.R. N i ppon 197525, June 4, 2014 (725 SCRA 130) cited in C I R v. Ni E xp xprr ess ( P hils) Co C or p., GR 212920, Sept. 16, 2015 74 C I R v. Pe P etr on Cor Cor p., 668 SCRA 735 (2012) 73
the interest of justice and fair play, as where injustice will result to the taxpayer by keeping the latter in the dark for so long, as to whether it is liable for the tax and, if so, for how much." 75 XVII. Presumption Regarding the Constitutionality or Validity of Tax Laws 50. What is the meaning of “Presumption regarding the constitutionality or validity of tax laws”? The constitutionality or validity of tax laws, orders, or such other rules with the force of law cannot be attacked collaterally. There is a legal presumption of validity of these laws and rules, and unless a law or rule is annulled in a direct proceeding, the legal presumption of its validity stands. 76
75
Republic v. K er & Co., 124 Phil. 822 (1966); CIR
v. Gonzalez, 633 SCRA 139 (2010) 76 Chevron Phils., I nc. v. Commissioner of Customs , 561 SCRA 710 (2008)
Every presumption must be indulged in favor of the constitutionality of a statute. The burden of proving the unconstitutionality of a law rests on the party assailing the law. In passing upon the validity of an act of a coequal and coordinate branch of the government, courts must ever be mindful of the time-honored principle that a statute is presumed to be valid.77 XVIII. Presumption of Regularity in the Performance of Official Duty & Doctrine of Good Faith 51. What is the meaning of “presumption of regularity in the performance of official duty”? The presumption of regularity in the performance of official duty cannot by itself overcome the presumption of innocence nor constitute proof of guilt beyond reasonable doubt.78
77
Republic v. Caguioa, GR 168584, Oct. 15,
2007(536 SCRA 193) 78
SCRA 611)
Valdez v. People, GR 170180, Nov. 23, 2007 (538
52. What is the presumption regarding the assessments made by the Commissioner or by his duly authorized representatives? Tax assessments made by the CIR or by his duly authorized representative shall be prima facie presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise.79 The taxpayer has the burden of proof of showing the incorrectness or inaccuracy of such assessment or its details lies with the taxpayer. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. All 79
CI R v. Gonzalez, 633 SCRA 139 (2010)
presumptions are in favor correctness of tax assessments.
of
the
80
53. What is the meaning of “Doctrine of Good Faith”? “Good faith” is that state of mind denoting honesty of intention and freedom from knowledge of circumstances which ought to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which render transaction unconscientious.81 XIX. Doctrine of Exhaustion of Administrative Remedies 54. What is the meaning of “Doctrine of Exhaustion of Administrative Remedies”?
CI R v. K udos Metal Corp., G.R. 178087. May 5, 2010; CI R v. Traders Royal Bank, G.R. L-167134, March 18, 80
2015 81
Civil Service Commission v. Maala, G.R. 165523,
Aug. 18, 2005 (467 SCRA 390)
It is settled that the premature invocation of the court's intervention is fatal to one's cause of action -- if a remedy within the administrative machinery can still be resorted to by giving the administrative officer every opportunity to decide on a matter that comes within his jurisdiction then such remedy must first be exhausted before the court's power of judicial review can be sought. The party with an administrative remedy must not only initiate the prescribed administrative procedure to obtain relief but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to the court.82 Nonetheless, jurisprudence allows certain exceptions to the rule on exhaustion of administrative remedies. The doctrine of exhaustion of administrative remedies is a relative one and its flexibility is called upon by the peculiarity and uniqueness of the factual RCB C v. CI R , G.R.L-170257, Sept. 7, 2011
82
and circumstantial settings of a case. Hence, it is disregarded (1) when there is a violation of due process, (2) when the issue involved is purely a legal question, (3) when the administrative action is patently illegal amounting to lack or excess of jurisdiction, (4) when there is estoppel on the part of the administrative agency concerned, (5) when there is irreparable injury, (6) when the respondent is a department secretary whose acts as an alter ego of the President bears the implied and assumed approval of the latter, (7) when to require exhaustion of administrative remedies would be unreasonable, (8) when it would amount to a nullification of a claim, (9) when the subject matter is a private land in land case proceedings, (10) when the rule does not provide a plain, speedy and adequate remedy,
(11) when there are circumstances indicating the urgency of judicial intervention, and (12) when the exhaustion will result in an exercise in futility. 83 XX. Doctrine of Operative Fact 55. What is the “Doctrine of Operative Fact”? The GENERAL RULE is that a void law or administrative act cannot be the source of legal rights or duties. Article 7 of the Civil Code enunciates this general rule, as well as its exception. “Laws are repealed only by subsequent ones, and their violation or nonobservance shall not be excused by disuse, or custom or practice to the contrary. When the courts declared a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws or the Constitution.” Commissioner of Customs v. Oilink I ntl. Corp., GR 161759, July 2, 2014’ Banco De Oro v. RP & CI R, G.R. 83
198756, Jan. 13, 2015
The “doctrine of operative fact” is, however, an EXCEPTION to that general rule, such that it recognizes that a judicial declaration of invalidity may not necessarily obliterate all the effects and consequences of a void act prior to such declaration .84 A legislative or executive act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with. This doctrine is in fact incorporated in Section 246 of the Tax Code which provides that taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the Commissioner or by the Court. The reversal is not given retroactive effect. This, in essence is the doctrine of operative fact. There must, however, be a rule or ruling issued by the Commissioner or by the judiciary that is relied upon by the taxpayer in good faith. A mere administrative practice, not formalized into a rule or ruling, will not suffice because such a mere administrative practice may not be uniformly and consistently applied. An
84
SCRA 509)
Republic v. CA, GR 79732, Nov. 8, 1993 (227
administrative practice, if not formalized as a rule or ruling, will not be known to the general public and can be availed of only by those with informal contacts with the government agency.85 XXI. Principle of “Pacta Sunt Servanda”
56. What is the principle of “Pacta Sunt Servanda”? The Philippine Constitution provides for adherence to the general principles of international law as part of the law of the land. The time honored international principle of ‘pacta sunt servanda’ demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement. In this jurisdiction, treaties have the force and effect of law. 86 XXII. Doctrine of “Stare Decisis”
CI R v. San Roque Power Corp., GR 187485, Oct. 8, 2013; CI R v. Puregold Duty F ree, I nc., GR 202789, June 22, 85
2015
Deutsche Bank AG Manila Branch v. CI R, cited in CBK Power Co. Ltd. v. CI R/CI R v. CB K Power Co. Ltd. v. CIR,, G.R. 193383-84/G.R. 193407-08, Jan. 14, 2015 86
57. What is the Doctrine of “Stare Decisis”? Time and again, the Court has held that it is a very desirable and necessary judicial practice that when a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases in which the facts are substantially the same. Stare decisis et non quieta movere. Stand by the decisions and disturb not what is settled. Stare decisis simply means that for the sake of certainty, a conclusion reached in one case should be applied to those that follow if the facts are substantially the same, even though the parties may be different. It proceeds from the first principle of justice that, absent any powerful countervailing considerations, like cases ought to be decided alike. Thus, where the same questions relating to the same event have been put forward by the parties similarly situated as in a previous case litigated and decided by a competent court, the rule of stare
decisis is a bar to any attempt to relitigate the same issue.87 XXIII. Principle of Good Governance 58. How should the principle of good governance be applied? The principle of good governance cannot, should not, be trivialized nor oversimplified by tenuous whimpering and individualism intended to detract from the urgent need to cleanse the Republic from a mainstream culture of unabated corruption, perpetuated with impunity and sense of selfentitlement. The issue at hand is not about who, but what; it is not about individual loss, but about national gain. Whether from the birth pains of reform, this nation can gain a foothold, nay, a stride into restoring this nation into its prideful place from the clutches of a “kleptocratic mafia” that had gained a 87
F ort Bonifacio Devt. Corp. v. CI R , G.R. Nos. 175707 / 180035 / 181092, Nov. 19, 2014; RP, represented by the Bureau of Customs v. Pilipinas Shell Petroleum Corp., GR 209324, Dec. 9, 2015
