TAXATION MIDTERM

What are the inherent limitations to taxation

1. Territoriality

2. Public Purpose

3. Tax Exemptions

4. International comity

5. Non-delegability

Explain public purpose

• Taxes must be exacted for public purpose only

• It must not be exacted for purely private purposes nor for the exclusive benefit of private persons

Two tests to determine whether a tax is for a public purpose

1. Duty test - whether it is imposed by the proper authority and for the public good

2. Promotion of general welfare test - whether the ultimate result of the tax statute favors the welfare of the public in general

Jurisprudence under Public Purpose

• Sugar industry is of public concern

• The rule is, if the public advantage or benefit is merely incidental to the promotion of a private enterprise, the law is invalid. On the other hand, if the promotion of a private enterprise is merely incidental, the law is valid

• Public purpose must be broadly construed. It does not merely include purposes traditionally viewed as essentially government functions but it may also include purposes which promote social justice

• Public purpose may still validly exist even if the motive that impelled the Congress to make the statute is to favor one industry over another

Rules of territoriality

GR: Taxes are limited to the territorial jurisdiction of the State. The authority to impose taxes are limited only to persons or property within and subject to the State’s jurisdiction

XPNs:

1. When privity of private relationship exists between the State and the taxpayer. The State can exercise its taxing authority over the taxpayer even outside the country

2. When tax laws operate outside the jurisdiction - taxable income derived from sources within and without the Philippines (Resident Citizen and Domestic Corporation

3. Auto-limitation

4. Destination principle

Rule on tax exemptions

GR: Government entitied, agencies and their instrumentalities are tax exempt

XPNs:

1. GOCCs are not exempt from real property taxes

2. Sec. 234 LGC. Real property owned by the Republic is exempt from real property taxes unless beneficial use of the property has been granted to a taxable person, either for consideration or otherwise

XPN to the XPN:

1. GSIS

2. SSS

3. PHIC

4. PCSO

5. Local Water Districts

6. PAGIBIG under CREATE Law

How will you determine whether government agency is tax exempt or not

As a rule, when a government agency is performing governmental function, it is tax-exempt unless expressly taxed. On the other hand, when a government agency is performing properiatary functions, it is subject to tax unless expressly exempted

May LGUs tax the National Government?

Generally, NO. Under the law, local Government Units (LGUs) cannot impose taxes on the National Government.

XPN: The right of pre-emption. When the National Government express its consent to be taxes

Rule on agencies that exercise both governmental and proprietary functions (ex. BSP)

1. Income derived from regulatory/governmental function is tax exempt

2. Income derived from proprietary function is taxable

Non-delegability of Power to Tax

For a valid delegation of power, it is essential that the law delegating it must be:

1. Completeness Test: Complete in itself, that is, it must set forth the policy to be executed by the delegate; and

2. Sufficiency Standard Test: It must fix a standard – limits of which are sufficiently determinate or determinable which the delegate must conform

Basis of due process of law

Under Art. III CONST, No person shall be deprived of life, liberty or property without due process of law

Substantial Due Process

The law must be within the Constitutional authority of the Congress and it must be just, fair and reasonable

Procedural Due Process

Taxpayer must be entitled to a notice or hearing or at least an opportunity to be heard

Requisites of Due Process

1. Substantial due process

2. Procedural due process

3. It must be exacted for public purpose

4. It must be within the territorial jurisdiction of the State

5. It must not be arbitrary or oppresive

Basis of Equal Protection

Nor shall any person be denied the equal protection of the law

When is equal protection satisifed

Absolute equality is not required. Equal protection merely requires that all persons (or property of the same class) subjected to such legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and, in the liabilities, imposed

Requisites of valid classification

1. It must be based on substantial distinction

2. It must apply both present and future conditions

3. It must be germane to the purposes of the law

4. It must apply equally to all members/property of the same class