GCRO Module 11 JAN 2024 Tax Laws PDF

NATURE OF INTERNAL REVENUE LAW Internal revenue laws are not political in nature. They are deemed to be the laws of the occupied territory and not of the occupying enemy. Taxes are civil and not penal in nature, although there are penalties provided for their violation....

NATURE OF INTERNAL REVENUE LAW Internal revenue laws are not political in nature. They are deemed to be the laws of the occupied territory and not of the occupying enemy. Taxes are civil and not penal in nature, although there are penalties provided for their violation. 73 CONSTRUCTION OF LAWS Public purpose is always presumed. If the law is clear, apply the law in accordance to its plain and simple tenor. A statute will not be construed as imposing a tax unless it does so clearly, expressly and unambiguously. In case of doubt, it is construed most strongly against the Government, and liberally in favor of the taxpayer. 74 CONSTRUCTION OF LAWS Provisions of a taxing act are not to be extended by implication. Tax laws operate prospectively unless the purpose of the legislature to give retrospective effect is expressly declared or may be implied from the language used. Tax laws are special laws and prevail over a general law. 75 CONSTRUCTION OF LAWS Provisions intended for the security of the citizen or taxpayer or to ensure equality or uniformity of taxation are mandatory. Provisions that are designed to inform administrative officers on tax matters are generally directory. 76 CONSTRUCTION OF LAWS Where the intent to tax is clear and the taxpayer claims that he is exempt from the tax obligation, the tax shall be construed against the taxpayer and in favor of the government because the power of taxation is necessary to the existence of such government. Rules on the interpretation of custom and tariff laws do not apply to trade agreements. Customs and tariff laws are promulgated in the exercise of the power of taxation while trade agreements are entered into the exercise of the police power. If the tax law is repealed, taxes assessed before repeal of the law may still be collected unless the repealing law is made retroactive. 77 CONSTRUCTION OF LAWS Tax exemptions are strictly construed except: o If the law provides for liberal construction. o In case of special laws applying to special cases. o If the exemptions refer to public property. o In case of exemptions granted to entities organized for charitable, religious or educational purposes. Tax laws are given retroactive effect if there is a clear legislative intent in that regard. It has been held that tax laws shall have prospective effect only unless there is a clear provision to the contrary. If the retroactive effect would be harsh or oppressive the same transgresses the constitutional limitations of due process. 78  Inherent Limitations 1. Territoriality or Situs of taxation 2. Public purpose of taxes 3. International comity 4. Non-delegability of the taxing power 5. Tax Exemption of the government 79 Constitutional Limitations A. General or Indirect Constitutional Limitations 1.Due Process Clause (Art. III, Sec. 1, 1987 Constitution) 2. Equal Protection Clause (Art. III, Sec. 1, 1987 Constitution) 3. Freedom Of Speech And Of The Press (Art. III, Sec. 4, 1987 Constitution) 4. Non-Infringement Of Religious Freedom And Worship (Art. III, Sec. 5, 1987 Constitution) 80 Constitutional Limitations A. General or Indirect Constitutional Limitations 5. Non-Impairment Of Contracts (Art. III, Sec. 10, 1987 Constitution) 6. Presidential power to grant reprieves, commutations and pardons and remit fines and forfeitures after conviction (Art. VII, Sec. 19, 1987 Constitution) 7. Single subject rule on bills (Art. VI, Sec.26 (1), 1987 Constitution) 81 Constitutional Limitations B. Specific or Direct Constitutional Limitations 1. Non-Imprisonment For Debt Or Non-Payment Of Poll Tax (Art. III, Sec. 20, 1987 Constitution) 2. Rule Requiring That Appropriations, Revenue And Tariff Bills Shall Originate Exclusively From The House Of Representatives (Art. VI, Sec. 24, 1987 Constitution) 3. Uniformity, Equitability And Progressivity Of Taxation (Art. VI, Sec. 28(1), 1987 Constitution) 82 Constitutional Limitations B. Specific or Direct Constitutional Limitations 4. Limitations On The Congressional Power To Delegate To The President The Authority To Fix Tariff Rates, Import And Export Quotas, Etc. (Art. VI, Sec. 28(2), 1987 Constitution) 5. Tax Exemption Of Properties Actually, Directly And Exclusively Used For Religious, Charitable And Educational Purposes. (Art. VI, Sec. 28(3) 7, 1987 Constitution) 83 Constitutional Limitations B. Specific or Direct Constitutional Limitations 6. Voting Requirement In Connection With The Legislative Grant Of Tax Exemption (Art. VI, Sec. 28(4), 1987 Constitution) 7. Non-Impairment Of The Jurisdiction Of The Supreme Court In Tax Cases (Art. VIII, Sec. 2 And 5(2)(B), 1987 Constitution) 8. Exemption From Taxes Of The Revenues And Assets Of Educational Institutions, Including Grants, Endowments, Donations And Contributions (Art. XIV, Sec. 4(3) And (4), 1987 Constitution) 84 Constitutional Limitations C. Other Specific Tax Provisions in the Constitution 1.Power of the President to veto any particular item or items in an appropriation, revenue, or tariff bill. (Art VI, Sec. 27(2), 1987 Constitution) 2. Necessity of an appropriation before money may be paid out of the public treasury. (Art. VI, Sec. 29 (1), 1987 Constitution) 85 Constitutional Limitations C. Other Specific Tax Provisions in the Constitution 3. Non-appropriation of public money or property for the use, benefit, or support of any sect, church, or system of religion. (Art. VI, Sec. 29 (2), 1987 Constitution) 4. Treatment of taxes levied for a special purpose. (Art. VI, Sec. 29 (3), 1987 Constitution) 5. Internal revenue allotments to local government units. (Art. X, Sec. 6, 1987 Constitution) 86 SITUS OF TAXATION Definition It literally means place of taxation. The basic rule is that the state where the subject property or where the owner of the property to be taxed is situated or may be found has a situs, may rightfully levy and collect the tax. The situs is necessarily in the state which has jurisdiction or which exercises dominion over the subject in question. Thus, the person may be subject to taxation in several taxing jurisdictions. 87 SITUS OR SUBJECTS OF TAXATION Persons Real property Personal Property o Tangible personal property o Intangible personal property Income Business, occupation and transaction Gratuitous transfer of property 88 DOUBLE TAXATION Definition In its strict sense, it means being taxed twice by the same taxing authority within the same jurisdiction or taxing district for the same purpose in the same year or taxing period some of the property in the territory. In its broad sense, double taxation is sometimes known as “duplicate taxation.” Duplicate taxation may be direct or indirect. 89 FORMS OF ESCAPE FROM TAXATION 1. Shifting – the process by which the tax burden is transferred from the statutory taxpayer (impact of taxation) to another (incident of taxation) without violating the law. 2. Capitalization – a mere increase in the value of the property is not income but merely an unrealized increase in capital. No income until after the actual sale or other disposition of the property in excess of its original cost. 90 FORMS OF ESCAPE FROM TAXATION 3. Transformation – the manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, pays the tax and endeavors to recoup himself by improving his process of production, thereby turning out his units at a lower cost. 91 FORMS OF ESCAPE FROM TAXATION 4. Tax Avoidance – the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid or reduce tax liability. 5. Tax Evasion – use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of the tax. 6. Tax Amnesty – an absolute waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. 92 Meaning of Exemption from Taxation This is a grant of immunity, express or implied, to particular persons or corporations (or to persons or corporations of a particular class) from a tax which persons and corporations generally within the same state or taxing district, are obliged to pay. It is an immunity or a privilege; a freedom from a financial charge or burden to which others are subjected. 93 Ground for Grant of Exemption Contract – the public represented by the government is supposed to receive the full equivalent; the provisions of the contract of exemption from taxation are contained in the charter of the corporation. Public policy – to encourage new and necessary industries; foster charitable and other benevolent institutions or at least make the public at large interested in the class or interest in whose behalf the exemption is made. Treaty on grounds of reciprocity – to lessen the rigors of international double or multiple taxation of income and intangible personal property. 94  Nature of Tax Exemption An exemption from taxation is a mere personal privilege of the grantee. Tax exemption is generally revocable by the government. Tax exemption implies a waiver. Tax exemption is not necessarily discriminatory. 95  Kinds of Tax Exemption As to manner of creation Express or affirmative – when certain persons, property, or transactions are, by express provisions, exempted from all or certain taxes, either entirely or in part. Implied exemption or exemption by omission – when a tax is levied on certain classes of persons, properties, or transaction without mentioning the other classes. 96  Kinds of Tax Exemption As to scope or extent Total exemption – when certain persons, property or transactions are exempted, expressly or implied, from all taxes. Partial exemption – when certain persons, property, or transactions are exempted, expressly or implied, from certain taxes, either entirely or in part. 97  Kinds of Tax Exemption As to object Personal – those granted directly in favor of such persons are within the contemplation of the law granting the exemption. Impersonal – those granted directly in favor of a certain class of property. 98  Sources of Tax Laws Statutes Tax Codes Presidential Decrees Revenue Regulations Executive Orders Administrative Issuances Constitution BIR Rulings Court Decisions Local Tax Ordinance Tax treaties and Conventions 99 Construction of Tax Exemption Statutes Tax exemptions are liberally construed when: the law itself expressly provides for a liberal construction then in case of doubt, it shall be resolved in favor of the exemption. the exemption is in favor of the government itself or its agencies, or of charitable, religious, and educational institutions because the general rule is that they are exempted from tax. there is an express mention or the taxpayer falls within the purview of the exemption by clear legislative intent. 100  Principles Governing Tax Exemption Exemptions from taxation are highly disfavored in law, and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statutory law. He who claims an exemption from his share of common burden in taxation must justify his claim by showing that the legislative intended to exempt him by words too plain to be mistaken. It is a well-settled rule that he who claims exemption should prove that he is exempted. 101  Principles Governing Tax Exemption Tax exemptions must be strictly construed such that the exemption will not be held to be conferred unless the terms under which it is granted clearly and show distinctly that such was the intention of the parties. Constitutional grant of tax-exemptions are self-executing. The reason for this is that a constitutional provision declaring certain properties as tax-exempt does not need a legislative enactment to put it into effect. 102