Caltex Philippines, Inc. v COA (1992)

Caltex Philippines, Inc. v Commission on Audit GR No. 92585, May 8, 1992

FACTS:In 1989, COA sent a letter to Caltex, directing it to remit its collection to the Oil Price Stabilization Fund (OPSF), excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under the PD 1956. Pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. The grant total of its unremitted collections of the above tax is P1,287,668,820.Caltex submitted a proposal to COA for the payment and the recovery of claims. COA approved the proposal but prohibited Caltex from further offsetting remittances and reimbursements for the current and ensuing years. Caltex moved for reconsideration but was denied. Hence, the present petition.

ISSUE:Whether the amounts due from Caltex to the OPSF may be offsetted against Caltexs outstanding claims from said funds

RULING:No. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of government. Taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the State.PD 1956, as amended by EO 137, explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims he may have against the government. Taxes cannot be subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand,, contract or judgment as is allowed to be set-off.Hence, COA decision is affirmed except that Caltexs claim for reimbursement of underrecovery arising from sales to the National Power Corporation is allowed.

Engracio Francia vs Intermediate Appellate Court

162 SCRA 753 Taxation Law General Principles Set-off of TaxesEngracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977, a portion of his land (125 square meter) was expropriated by the government for P4,116.00. The expropriation was made to give way to the expansion of a nearby road.

It also appears that Francia failed to pay his real estate taxes since 1963 amounting to P2,400.00. So in December 1977, the remaining 203 square meters of his land was sold at a public auction (after due notice was given him). The highest bidder was a certain Ho Fernandez who paid the purchase price of P2,400.00 (which was lesser than the price of the portion of his land that was expropriated).

Later, Francia filed a complaint to annul the auction sale on the ground that the selling price was grossly inadequate. He further argued that his land should have never been auctioned because the P2,400.00 he owed the government in taxes should have been set-off by the debt the government owed him (legal compensation). He alleged that he was not paid by the government for the expropriated portion of his land because though he knew that the payment therefor was deposited in the Philippine National Bank, he never withdrew it.

ISSUE:Whether or not the tax owed by Francia should be set-off by the debt owed him by the government.

HELD:No. As a rule, set-off of taxes is not allowed. There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). This is not applicable in taxes. 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.

The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on.

Further, the government already Francia. All he has to do was to withdraw the money. Had he done that, he could have paid his tax obligations even before the auction sale or could have exercised his right to redeem which he did not do.

Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not tenable. The Supreme Court said: alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption. If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. Where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale. This rule arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land.

PHILEX MINING CORP. v. CIRGR No. 125704, August 28, 1998294 SCRA 687

FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals affirming the Court of TaxAppeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the period from the 2nd

quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994

until fully paid pursuant toSections 248 and 249 of the Tax Code of 1977. Philex protested the demand for payment of the tax liabilitiesstating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 inthe amount of P120 M plus interest. Therefore these claims for tax credit/refund should be applied against thetax liabilities.

ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax refund of the petitioner?

HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that taxes are the lifeblood of thegovernment and so should be collected without unnecessary hindrance. Evidently, to countenance Philex'swhimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or injurisprudence. To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the ground that it has apending tax claim for refund or credit against the government which has not yet been granted.Taxes cannot besubject to compensation for the simple reason that the government and the taxpayer are not creditors anddebtors of each other. There is a material distinction between a tax and debt. Debts are due to the Governmentin its corporate capacity, while taxes are due to the Government in its sovereign capacity. xxx There can be nooff-setting of taxes against the claims that the taxpayer may have against the government. A person cannotrefuse to pay a tax on the ground that the government owes him an amount equal to or greater than the taxbeing collected. The collection of a tax cannot await the results of a lawsuit against the government.

Progressive Development Corporation vs. Quezon CityPost undercase digests,TaxationatSunday, February 05, 2012Posted bySchizophrenic MindFacts:The City Council of QCpassedanordinanceknown as the Market Code of QC, which imposed a 5% supervision fee on gross receipts on rentals or lease of privately-owned market spaces in QC.

In case of failure of the owners of the market spaces to pay the tax for three consecutive months, the City shall revoke the permit of the privately-owned market to operate.

Progressive Development Corp, owner and operator of Farmers Market, filed a petition for prohibition against QC on the ground that the tax imposed by the Market Code was in reality a tax on income, which the municipal corporation was prohibited by law to impose.

Issue:Whether or not the supervision fee is anincome taxor alicense fee.

Held:It is alicense fee. ALICENSE FEEis imposed in the exercise of the police power primarily for purposes of regulation, while TAX is imposed under the taxing power primarily for purposes of raising revenues.

If the generating of revenue is the primary purpose and regulation is merelyincidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally, revenue is also obtained does not make the imposition a tax.

To be considered alicense fee, the imposition must relate to an occupation or activity that so engages the public interest in health,morals, safety, and development as to require regulation for the protection and promotion of such public interest; the imposition must also bear a reasonable relation to the probable expenses of regulation, taking into account not only the costs ofdirectregulation but also itsincidentalconsequences.

In this case, the Farmers Market is a privately-owned market established for the rendition of service to the general public. It warrants close supervision and control by the City for the protection of the health of the public by insuring the maintenance of sanitary conditions, prevention of fraud upon the buying public, etc.

Since the purpose of theordinanceis primarily regulation and not revenue generation, the tax is alicense fee. The use of the gross amount of stall rentals as basis for determining the collectible amount of license tax does not, by itself,convertthe license tax into a prohibited tax on income.

Such basis actually has a reasonable relationship to the probable costs of regulation and supervision of Progressives kind of business, since ordinarily, the higher the amount of rentals, the higher the volume ofitems sold.

The higher the volume of goods sold, the greater the extent and frequency of supervision and inspection may be required in the interest of the buying public.

Apostolic Prefect of Mountain Province v City Treasurer of Baguio City (1941)

Apostolic Prefect of Mountain Province v City Treasurer of Baguio City GR No 47252, April 18, 1941

FACTS:The Apostolic Prefect is a corporation sole, of religious character, organized under the Philippine laws, and with residencein Baguio. The City imposed a special assessment against properties within its territorial jurisdiction, including those of the Apostolic Prefect, which benefits from its drainage and sewerage system. The Apostolic Prefect contends that its properties should be free from tax.

ISSUE:Is the Apostolic Prefect exempt from paying?

RULING:No, it is liable.

In its broad meaning, tax includes both general taxes and special assessment. Yet actually, there is a recognized distinction between them in that assessment is confined to local impositions upon property for the payment of the cost of public improvements in its immediate vicinity and levied with reference to special benefits to the property assessed.A special assessment is not, strictly speaking, a tax; and neither the decree nor the Constitution exempt the Apostolic Prefect from payment of said special assessment.

Furthermore, arguendo that exemption may encompass such assessment, the Apostolic Prefect cannot claim exemption as it has not proven the property in question is used exclusively for religious purposes; but that it appears that the same is being used to other non-religious purposes.

Thus, the Apostolic Prefect is required to pay the special assessment.

RENATO V. DIAZ andG.R. No. 193007AURORAMA. F. TIMBOL,Petitioners,Present:

CORONA,C.J.,CARPIO,THE SECRETARY OF FINANCEand THE COMMISSIONER OFPromulgated:

INTERNAL REVENUE,Respondents.July 19, 2011

x ---------------------------------------------------------------------------------------- x

DECISIONABAD,J.:

May toll fees collected by tollway operators be subjected to value- added tax?The Facts and the CasePetitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition for declaratory relief[1]assailing the validity of the impending imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping the BIR action.Additionally, Diaz claims that he sponsored the approval of Republic Act 7716 (the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997 National Internal Revenue Code or the NIRC) at the House of Representatives.Timbol, on the other hand, claims that she served as Assistant Secretary of the Department of Trade and Industry and consultant of the Toll Regulatory Board (TRB) in the past administration.

Petitioners allege that the BIR attempted during the administration of President Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was deferred, however, in view of the consistent opposition of Diaz and other sectors to such move. But, upon President Benigno C. Aquino IIIs assumption of office in 2010, the BIR revived the idea and would impose the challenged tax on toll fees beginning August 16, 2010 unless judicially enjoined.

Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of sale of services that are subject to VAT; that a toll fee is a users tax, not a sale of services; that to impose VAT on toll fees would amount to a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate the non-impairment clause of the constitution.

On August 13, 2010 the Court issued a temporary restraining order (TRO), enjoining the implementation of the VAT. The Court required the government, represented by respondents Cesar V. Purisima, Secretary of the Department of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal Revenue, to comment on the petition within 10 days from notice.[2]Later, the Court issued another resolution treating the petition as one for prohibition.[3]

On August 23, 2010 the Office of the Solicitor General filed the governments comment.[4]The government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law provides otherwise; that the Court should seek the meaning and intent of the law from the words used in the statute; and that the imposition of VAT on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.[5]The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators.At any rate, the non-impairment clause cannot limit the States sovereign taxing power which is generally read into contracts.

Finally, the government contends that the non-inclusion of VAT in the parametric formula for computing toll rates cannot exempt tollway operators from VAT.In any event, it cannot be claimed that the rights of tollway operators to a reasonable rate of return will be impaired by the VAT since this is imposed on top of the toll rate.Further, the imposition of VAT on toll fees would have very minimal effect on motorists using the tollways.

In their reply[6]to the governments comment, petitioners point out that tollway operators cannot be regarded as franchise grantees under the NIRC since they do not hold legislative franchises.Further, the BIR intends to collect the VAT by rounding off the toll rate and putting any excess collection in an escrow account.But this would be illegal since only the Congress can modify VAT rates and authorize its disbursement.Finally, BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, contravenes Section 111 of the NIRC which grants entities that first become liable to VAT a transitional input tax credit of 2% on beginning inventory.For this reason, the VAT on toll fees cannot be implemented.

The Issues PresentedThe case presents two procedural issues:

1.Whether or not the Court may treat the petition for declaratory relief as one for prohibition; and

2.Whether or not petitioners Diaz and Timbol have legal standing to file the action.

The case also presents two substantive issues:

1.Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway operations in the terms franchise grantees and sale of services under Section 108 of the Code; and

2.Whether or not the imposition of VAT on tollway operators a) amounts to a tax on tax and not a tax on services; b) will impair the tollway operators right to a reasonable return of investment under their TOAs; and c) is not administratively feasible and cannot be implemented.

The Courts RulingsA.On the Procedural Issues:

On August 24, 2010 the Court issued a resolution, treating the petition as one for prohibition rather than one for declaratory relief, the characterization that petitioners Diaz and Timbol gave their action. The government has sought reconsideration of the Courts resolution,[7]however, arguing that petitioners allegations clearly made out a case for declaratory relief, an action over which the Court has no original jurisdiction.The government adds, moreover, that the petition does not meet the requirements of Rule 65 for actions for prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerial functions when it sought to impose VAT on toll fees.Besides, petitioners Diaz and Timbol has a plain, speedy, and adequate remedy in the ordinary course of law against the BIR action in the form of an appeal to the Secretary of Finance.

But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good.[8]The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority.[9]

Here, the imposition of VAT on toll fees has far-reaching implications.Its imposition would impact, not only on the more than half a million motorists who use the tollways everyday, but more so on the governments effort to raise revenue for funding various projects and for reducing budgetary deficits.

To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief both to the tax-paying public and the government.A belated declaration of nullity of the BIR action would make any attempt to refund to the motorists what they paid an administrative nightmare with no solution.Consequently, it is not only the right, but the duty of the Court to take cognizance of and resolve the issues that the petition raises.

Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement oflocus standiwhich is a mere procedural requisite.[10]B.On the Substantive Issues:

One.The relevant law in this case is Section 108 of the NIRC, as amended.VAT is levied, assessed, and collected, according to Section 108, on the gross receipts derived from the sale or exchange of services as well as from the use or lease of properties. The third paragraph of Section 108 defines sale or exchange of services as follows:

The phrase sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; sales of electricity by generation companies, transmission, and distribution companies;services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 119 of this Codeand non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties.(Underscoring supplied)

It is plain from the above that the law imposes VAT on all kinds of services rendered in thePhilippinesfor a fee, including those specified in the list.The enumeration of affected services is not exclusive.[11]By qualifying services with the words all kinds, Congress has given the term services an all-encompassing meaning.The listing of specific services are intended to illustrate how pervasive and broad is the VATs reach rather than establish concrete limits to its application.Thus, every activity that can be imagined as a form of service rendered for a fee should be deemed included unless some provision of law especially excludes it.

Now, do tollway operators render services for a fee?Presidential Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render.Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators expense.Tollways serve as alternatives to regular public highways that meander through populated areas and branch out to local roads.Traffic in the regular public highways is for this reason slow-moving.In consideration for constructing tollways at their expense, the operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover their expenses and earn reasonable returns from their investments.

When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the tollway facilities over which the operator enjoys private proprietary rights[12]that its contract and the law recognize.In this sense, the tollway operator is no different from the following service providers under Section 108 who allow others to use their properties or facilities for a fee:

1.Lessors of property, whether personal or real;

2.Warehousing service operators;

3.Lessors or distributors of cinematographic films;

4.Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;

5.Lending investors (for use of money);

6.Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; and

7.Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in thePhilippinesto another place in thePhilippines.

It does not help petitioners cause that Section 108 subjects to VAT all kinds of services rendered for a fee regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties.This means that services to be subject to VAT need not fall under the traditional concept of services, the personal or professional kinds that require the use of human knowledge and skills.

And not only do tollway operators come under the broad term all kinds of services, they also come under the specific class described in Section 108 as all other franchise grantees who are subject to VAT, except those under Section 119 of this Code.

Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television broadcasting companies with gross annual incomes of less thanP10 million and gas and water utilities) that Section 119[13]spares from the payment of VAT.The word franchise broadly covers government grants of a special right to do an act or series of acts of public concern.[14]

Petitioners of course contend that tollway operators cannot be considered franchise grantees under Section 108 since they do not hold legislative franchises.But nothing in Section 108 indicates that the franchise grantees it speaks of are those who hold legislative franchises.Petitioners give no reason, and the Court cannot surmise any, for making a distinction between franchises granted by Congress and franchises granted by some other government agency.The latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state, constitute as much a legislative franchise as though the grant had been made by Congress itself.[15]The term franchise has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress.[16]

Tollway operators are, owing to the nature and object of their business, franchise grantees. The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state.Indeed, Congress granted special franchise for the operation of tollways to the Philippine National Construction Company, the former tollway concessionaire for the North and South Luzon Expressways.Apart from Congress, tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers under P.D. 1112.[17]The franchise in this case is evidenced by a Toll Operation Certificate.[18]

Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the term sale of services under Section 108 of the Code.But, again, nothing in Section 108 supports this contention.The reverse is true.In specifically including by way of example electric utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered businesses, Section 108 opens other companies rendering public service for a fee to the imposition of VAT.Businesses of a public nature such as public utilities and the collection of tolls or charges for its use or service is a franchise.[19]

Nor can petitioners cite as binding on the Court statements made by certain lawmakers in the course of congressional deliberations of the would-be law.As the Court said inSouth African Airways v. Commissioner of Internal Revenue,[20]statements made by individual members of Congress in the consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of law.The congressional will is ultimately determined by the language of the law that the lawmakers voted on.Consequently, the meaning and intention of the law must first be sought in the words of the statute itself, read and considered in their natural, ordinary, commonly accepted and most obvious significations, according to good and approved usage and without resorting to forced or subtle construction.

Two.Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is tantamount to taxing a tax.[21]Actually, petitioners base this argument on the following discussion inManila International Airport Authority (MIAA) v. Court of Appeals:[22]No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, likeroads, canals, rivers, torrents, ports and bridges constructed by the State,are owned by the State. The term ports includes seaports and airports. TheMIAAAirportLandsand Buildings constitute a port constructed by the State. Under Article 420 of the Civil Code, theMIAAAirportLandsand Buildings are properties of public dominion and thus owned by the State or the Republic of thePhilippines.x x x The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road.The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.The charging of fees to the public does not determine the character of the property whether it is for public dominion or not. Article 420 of the Civil Code defines property of public dominion as one intended for public use.Even if the government collects toll fees, the road is still intended for public use if anyone can use the road under the same terms and conditions as the rest of the public.The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road.The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA.The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed users tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A users tax is more equitable a principle of taxation mandated in the 1987 Constitution.[23](Underscoring supplied)

Petitioners assume that what the Court said above, equating terminal fees to a users tax must also pertain to tollway fees.But the main issue in theMIAAcase was whether or notParaaqueCitycould sell airport lands and buildings under MIAA administration at public auction to satisfy unpaid real estate taxes. Since local governments have no power to tax the national government, the Court held that the City could not proceed with the auction sale.MIAA forms part of the national government although not integrated in the department framework.[24]Thus, its airport lands and buildings are properties of public dominion beyond the commerce of man under Article 420(1)[25]of the Civil Code and could not be sold at public auction.

As can be seen, the discussion in theMIAAcase on toll roads and toll fees was made, not to establish a rule that tollway fees are users tax, but to make the point that airport lands and buildings are properties of public dominion and that the collection of terminal fees for their use does not make them private properties.Tollway fees are not taxes.Indeed, they are not assessed and collected by the BIR and do not go to the general coffers of the government.

It would of course be another matter if Congress enacts a law imposing a users tax, collectible from motorists, for the construction and maintenance of certain roadways.The tax in such a case goes directly to the government for the replenishment of resources it spends for the roadways.This is not the case here.What the government seeks to tax here are fees collected from tollways that are constructed, maintained, and operated by private tollway operators at their own expense under the build, operate, and transfer scheme that the government has adopted for expressways.[26]Except for a fraction given to the government, the toll fees essentially end up as earnings of the tollway operators.

In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the taxing power of the government principally for the purpose of raising revenues to fund public expenditures.[27]Toll fees, on the other hand, are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public facilities, therefore, they are not government exactions that can be properly treated as a tax.Taxes may be imposed only by the government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an attribute of ownership.[28]

Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the sellers liability but merely the burden of the VAT.[29]Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of VAT paid by the former is added to the selling price. Once shifted, the VAT ceases to be a tax[30]and simply becomes part of the cost that the buyer must pay in order to purchase the good, property or service.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the Code,[31]VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll fees.

For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a users tax. VAT is assessed against the tollway operators gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll fees that one has to pay in order to use the tollways.[32]

Three.Petitioner Timbol has no personality to invoke the non-impairment of contract clause on behalf of private investors in the tollway projects. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments that may result from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in and right to recover investments solely belongs to the private tollway investors.

Besides, her allegation that the private investors rate of recovery will be adversely affected by imposing VAT on tollway operations is purely speculative. Equally presumptuous is her assertion that a stipulation in the TOAs known as the Material Adverse Grantor Action will be activated if VAT is thus imposed. The Court cannot rule on matters that are manifestly conjectural. Neither can it prohibit the State from exercising its sovereign taxing power based on uncertain, prophetic grounds.

Four.Finally, petitioners assert that the substantiation requirements for claiming input VAT make the VAT on tollway operations impractical and incapable of implementation. They cite the fact that, in order to claim input VAT, the name, address and tax identification number of the tollway user must be indicated in the VAT receipt or invoice.The manner by which the BIR intends to implement the VAT by rounding off the toll rate and putting any excess collection in an escrow account is also illegal, while the alternative of giving change to thousands of motorists in order to meet the exact toll rate would be a logistical nightmare. Thus, according to them, the VAT on tollway operations is not administratively feasible.[33]Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of the canon, however, will not render a tax imposition invalid except to the extent that specific constitutional or statutory limitations are impaired.[34]Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement, it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.

Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations. Any declaration by the Court that the manner of its implementation is illegal or unconstitutional would be premature. Although the transcript of the August 12, 2010 Senate hearing provides some clue as to how the BIR intends to go about it,[35]the facts pertaining to the matter are not sufficiently established for the Court to pass judgment on. Besides, any concern about how the VAT on tollway operations will be enforced must first be addressed to the BIR on whom the task of implementing tax laws primarily and exclusively rests. The Court cannot preempt the BIRs discretion on the matter, absent any clear violation of law or the Constitution.

For the same reason, the Court cannot prematurely declare as illegal, BIR RMC 63-2010 which directs toll companies to record an accumulated input VAT of zero balance in their books as of August 16, 2010, the date when the VAT imposition was supposed to take effect. The issuance allegedly violates Section 111(A)[36]of the Code which grants first time VAT payers a transitional input VAT of 2% on beginning inventory.

In this connection, the BIR explained that BIR RMC 63-2010 is actually the product of negotiations with tollway operators who have been assessed VAT as early as 2005, but failed to charge VAT-inclusive toll fees which by now can no longer be collected. The tollway operators agreed to waive the 2% transitional input VAT, in exchange for cancellation of their past due VAT liabilities. Notably, the right to claim the 2% transitional input VAT belongs to the tollway operators who have not questioned the circulars validity. They are thus the ones who have a right to challenge the circular in a direct and proper action brought for the purpose.

Conclusion

In fine, the Commissioner of Internal Revenue did not usurp legislative prerogative or expand the VAT laws coverage when she sought to impose VAT on tollway operations.Section 108(A) of the Code clearly states that services of all other franchise grantees are subject to VAT, except as may be provided under Section 119 of the Code.Tollway operators are not among the franchise grantees subject to franchise tax under the latter provision.Neither are their services among the VAT-exempt transactions under Section 109 of the Code.

If the legislative intent was to exempt tollway operations from VAT, as petitioners so strongly allege, then it would have been well for the law to clearly say so.Tax exemptions must be justified by clear statutory grant and based on language in the law too plain to be mistaken.[37]But as the law is written, no such exemption obtains for tollway operators.The Court is thus duty-bound to simply apply the law as it is found.

Lastly, the grant of tax exemption is a matter of legislative policy that is within the exclusive prerogative of Congress.The Courts role is to merely uphold this legislative policy, as reflected first and foremost in the language of the tax statute.Thus, any unwarranted burden that may be perceived to result from enforcing such policy must be properly referred to Congress.The Court has no discretion on the matter but simply applies the law.

The VAT on franchise grantees has been in the statute books since 1994 when R.A. 7716 or the Expanded Value-Added Tax law was passed.It is only now, however, that the executive has earnestly pursued the VAT imposition against tollway operators.The executive exercises exclusive discretion in matters pertaining to the implementation and execution of tax laws.Consequently, the executive is more properly suited to deal with the immediate and practical consequences of the VAT imposition.WHEREFORE, the CourtDENIESrespondents Secretary of Finance and Commissioner of Internal Revenues motion for reconsideration of its August 24, 2010 resolution,DISMISSESthe petitioners Renato V. Diaz and Aurora Ma. F. Timbols petition for lack of merit, andSETS ASIDEthe Courts temporary restraining order dated August 13, 2010.

SO ORDERED.Ernesto Maceda vs Executive Secretary Catalino Macaraig, Jr.

Facts:The National Power Corporation (NAPOCOR) was created by Commonwealth Act No. 120. In 1949, it was given tax exemption by Republic Act No. 358. In 1984, Presidential Decree No. 1931 was passed removing the tax exemption of NAPOCOR and other government owned and controlled corporations (GOCCs). There was a reservation, however, that the president or the Minister of Finance, upon recommendation by the Fiscal Incentives Review Board (FIRB), may restore or modify the exemption.

In 1985, the tax exemption was revived. It was again removed in 1987 by virtue of Executive Order 93 which again provided that upon FIRB recommendation it can again be restored. In the same year, FIRB resolved to restore the exemption. The same was approved by President Corazon Aquinothrough Executive SecretaryCatalino Macaraig, Jr. acting as her alter ego. Ernesto Maceda assailedthe FIRB resolution averring that the power granted to the FIRB is an undue delegation of legislative power. Macedasclaim was strengthened by Opinion 77 issued by then DOJ Secretary Sedfrey Ordoez. Macaraig however did not give credence to the opinion issued by the DOJ secretary.

ISSUE:Whether or not the Executive Secretary can validly ignore the legal opinion of the Justice Secretary.

HELD:Yes.The Supreme Court first ruled that there is no undue delegation of legislative power. First of all, since the NAPOCORis a GOCC and is non-profit it can be exempt from taxation. Also, Opinion 77 issued by DOJ Secretary Ordoez was validly overruled by Macaraig. This action by Macaraig is valid because the Executive Secretary, by authority of the President, has the power to modify, alter or reverse the construction of a statute given by a department secretary pursuant to the presidents control power.

Hydro Resources Contractors Corporation v CTA

Facts:

National Irrigation Administration (NIA) entered into an agreement with Hydro Resources for the construction of the Magat River Multipurpose Project in Isabela. Under their contract, Hydro was allowed to procure new construction equipment, the payment for which will be advanced by NIA. Hydro shall repay NIA the costs incurred and the manner of repayment shall be through deductions from each monthly payment due to Hydro. Hydro shall repay NIA the full value of the construction before the eventual transfer of ownership.

Upon transfer, Hydro was assessed an additional 3% ad valorem duty which it paid under protest. The Collector of Customs then ordered for the refund of the ad valorem duty in the form of tax credit. This was then reversed by the Deputy Minister of Finance.

Issue:

Whether or not the imposition of the 3% ad valorem tax on importations is valid.

Held:

No. EO 860 which was the basis for the imposition of the ad valorem duty took effect December 1982. The importations were effected in 1978 and 1979 by NIA. It is a cardinal rule that laws shall have no retroactive effect unless contrary is provided. EO 860 does not provide for its retroactivity. The Deputy Minister of Finance even clarified that letters of credit opened prior to the effectivity of EO 860 are not subject to its provisions.

In the case, the procurement of the equipment was not on a tax exempt basis as the import liabilities have been secured to paid under a financial scheme. It is a matter of implementing a pre-existing agreement, hence, the imported articles can only be subject to the rates of import duties prevailing at the time of entry or withdrawal from the customs custody.

Commissioner of Internal Revenue v Ayala Securities Corporation

Facts:

Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged with 25% surtax by the Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the Commissioners decision and held that the assessment made against Ayala was beyond the 5-yr prescriptive period as provided in section 331 of the National Internal Revenue Code. Commissioner now files a motion for reconsideration of this decision. Ayala invokes the defense of prescription against the right of the Commissioner to assess the surtax.

Issue:

Whether or not the right to assess and collect the 25% surtax has prescribed after five years.

Held:

No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is no express statutory provision limiting such right or providing for its prescription. Hence, the collection of surtax is imprescriptible. The underlying purpose of the surtax is to avoid a situation where the corporation unduly retains its surplus earnings instead of declaring and paying dividends to its shareholders. SC reverses the ruling of the CTA.

Villanueva v City v IloiloGR No L-26521, December 28, 1968

FACTS:On September 30, 1946, the Municipal Board of Iloilo City enacted Ordinance 86 imposing license tax fees upontenement houses. The validity of such ordinance was challenged by Eusebio and Remedios Villanueva, owners of four tenement houses containing 34 apartments. The Supreme Court held the ordinance to be ultra views. On January 15, 1960, however, the municipal board, believing that it acquired authority to enact an ordinance of the same nature pursuant to the Local Autonomy Act, enacted Ordinance 11, Eusebio and Remedios Villanueva assailed the ordinance anew.

ISSUE:Does Ordinance 11 violate the rule of uniformity of taxation?

RULING:No. The Court has ruled the tenement houses constitute a distinct class of property and that taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority.The fact that the owners of the other classes of buildings in Iloilo are not imposed upon by the ordinance, or that tenement taxes are imposed in other cities do not violate the rule of equality and uniformity. The rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time. So long as the burden of tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity is accomplished. The presumption that tax statutes are intended to operate uniformly and equally was not overthrown therein.G.R. No. L-7521 October 18, 1955

VERONICA SANCHEZ, plaintiff-appellant,vs.THE COLLECTOR OF INTERNAL REVENUE,defendant-appellee.

Benjamin C. Yatco for appellant.Office of the Solicitor General Ambrocio Padilla and Solicitors Esmeraldo Umali and Roman Cansino, Jr. for appellee.REYES, J.B.L.,J.:Appellant Veronica Sanchez is the owner of a two-story, four-door "accessoria" building at 181 Libertad Street, Pasay City, which she constructed in 1947. The building has an assessed value of P21,540 and the land is assessed at P7,980, or a total value of P29,540 (Exhibit 2). While appellant lives in one of the apartments, she is renting the rest to other persons. In 1949, she derived an income therefrom of P7,540 (Exhibit 1). Appellant also runs a small dry goods store in the Pasay market, from which she derives an annual income of about P1,300 (also Exhibit 1).

In the early part of 1951, the Collector of Internal Revenue made demand upon appellant for the payment of P163.51 as income tax for the year 1950, and P637 as real estate dealer's tax for the year 1946 to 1950, plus the sum of P50 as compromise (Exhibit 4). Appellant paid the taxes demanded under protest, and on October 16, 1951 filed action in the Court of First Instance of Manila (C. C. No. 14957) against the Collector of Internal Revenue for the refund of the taxes paid, claiming that she is not a real estate dealer. The lower Court, after trial, found appellant to be such a dealer, as defined by section 194 (s) of the National Internal Revenue Code, as amended by Republic Act Nos. 42 and 588, and declared the collection of the taxes in question legal and in accordance with said provision. Wherefore, Veronica Sanchez appealed to this Court.

At the outset, it should be noted that while appellant claims the refund of the amount of P825 allegedly paid by her to the Collector of Internal Revenue as real estate dealer's tax, it appears that the sum of P163.31 thereof corresponds to her income tax for the year 1949 (Exhibit 4), so that the amount of tax actually involved herein is only P687, paid by appellant as real estate dealer's tax for the year 1946 to 1950. We notice also that the lower Court, in deciding this case, applied the definition of "real estate dealer" in section 194 (s) of the National Internal Revenue Code, as amended by Republic Acts Nos. 42 and 588. Republic Act No. 588 took effect only on September 22, 1950, while the tax in question was paid by appellant for the year 1946 to 1950. Hence, the law applicable to this case is section 194 (s) of the Tax Code before it was amended by Republic Act No. 588, which defines real estate dealers as follows:

"Real estate dealers" includes all persons who for their own account areengagedin the sale of lands, buildings or interests therein orin leasingreal estate. (R. A. No. 42)

Does appellant fall within the above definition? We are of the opinion that she does. The kind of nature of the building constructed by herwhich is a four-door "accessoria"shows that it was from the beginning intended for lease as a source of income or profit to the owner; and while appellant resides in one of the apartments, it appears that she always rented the other apartments to other persons from the time the building was constructed up to the time of the filing of this case.

The case of Argellies vs. Meer*G. R. No. L-3730, promulgated on April 25, 1952, cited by appellant in support of her appeal, is not in point. In that case, Argellies had always resid d outside the Philippines, and his properties in Manila were administered and managed by a local real estate company. We held that Argellies could not be considered as engaged in business of letting real estate, because he did not appear to have reinvested the rents received by him from this country, nor to have taken part in the management of his local holdings. In the case at bar, however, it was appellant who had the apartment in question constructed, purposely for lease or profit, and she manages the property herself. While she runs a small store in Pasay market, it is unlikely and the evidence does not show, that she devotes all her personal time and labor to such store, considering its size and the fact that she derives little income therefrom. On the other hand, the work of attending to her leased property and her tenants would not take much of her time and attention, especially since she lives in the premises herself. And the leasing of her apartment appears to be her principal means of livelihood, for the income she derives therefrom amounts to more than five times that which she makes from her store.

Considering, therefore, that appellant constructed her four-door "accesoria" purposely for rent or profit; that she has been continuously leasing the same to third persons since its construction in 1947; that she manages her property herself; and that said leased holding appears to be her main source of livelihood, we conclude that appellant is engaged in the leasing of real estate, and is a real estate dealer as defined by section 194 (s) of the Internal Revenue Code, as amended by Republic Act No. 42.

Appellant argues that she is already paying real estate taxes on her property, as well as income tax on the income derive therefrom, so that to further subject its rentals to the "real estate dealers' tax" amounts to double taxation. This argument has already been rejected by this Court in the case ofPeople vs. Mendaros, et al.,L-6975, promulgated May 27, 1955, wherein we held that "it is a well settled rule that license tax may be levied upon a business or occupation although the land or property used there in is subject to property tax", and that "the state may collect anad valoremtax on property used in a calling, and at the same time impose a license tax on the pursuit of that calling", the imposition of the latter kind of tax being in no sense a double tax.

The evidence shows, however, that the apartment house in question was constructed only in 1947, while the real estate dealer's tax demanded of and paid by appellant was for the year 1946 to 1950 (see Exhibit 4). Wherefore, appellant is entitled to a refund of the tax paid for the year 1946, amounting to P37.50.

With the modification that the appellee Collector of Internal Revenue is ordered to refund to appellant Veronica Sanchez the amount of P37.50 paid as real estate dealer's tax for the year 1946, the decision appealed from is, in all other respects, affirmed. Costs against appellants. So ordered.

PUNSALAN VS. MUNICIPAL BOARD OF MANILA [95 PHIL 46; NO.L-4817; 26 MAY 1954]Saturday, January 31, 2009 Posted byCoffeeholic Writes

Facts:Petitioners, who are professionals in the city, assailOrdinanceNo. 3398 together with the law authorizing it (Section 18 of the Revised Charter of the City of Manila). Theordinanceimposesa municipal occupation tax on persons exercising various professions in the city and penalizes non-payment of the same. The law authorizing saidordinanceempowersthe Municipal Board of the city to impose a municipal occupation tax on persons engaged in various professions. Petitioners, having already paid their occupation tax under section 201 of the NationalInternal Revenue Code, paid the tax under protest as imposed byOrdinanceNo. 3398. The lower court declared theordinanceinvalid and affirmed the validity of the law authorizing it.

Issue:Whether or Not theordinanceand law authorizing it constitute class legislation, andauthorizewhat amounts todouble taxation.

Held:The Legislature may, in its discretion,selectwhat occupations shall be taxed, and in its discretion may tax all, orselectclasses of occupation for taxation, and leave others untaxed. It is not for the courts to judge which cities ormunicipalitiesshouldbe empoweredto impose occupation taxes aside from that imposed by the National Government. That matter is within the domain of political departments. The argument againstdouble taxationmay not be invoked if one tax is imposed by the state and the other is imposed by the city. It is widely recognized that there is nothing inherently terrible in therequirementthat taxes be exacted with respect to the same occupation by both the state and the political subdivisions thereof. Judgment of the lower court is reversed with regards to theordinanceand affirmed as to the law authorizing it.

CITY OF MANILA vs. COCA-COLA BOTTLERS PHILIPPINES, INC.- CTA, Double Taxation

FACTS:

Respondent paid the local business tax only as a manufacturers as it was expressly exempted from the business tax under a different section and which applied to businesses subject to excise, VAT or percentage tax under the Tax Code. The City of Manila subsequently amended the ordinance by deleting the provision exempting businesses under the latter section if they have already paid taxes under a different section in the ordinance. This amending ordinance was later declared by the Supreme Court null and void. Respondent then filed a protest on the ground of double taxation. RTC decided in favor of Respondent and the decision was received by Petitioner on April 20, 2007. On May 4, 2007, Petitioner filed with the CTA a Motion for Extension of Time to File Petition for Review asking for a 15-day extension or until May 20, 2007 within which to file its Petition. A second Motion for Extension was filed on May 18, 2007, this time asking for a 10-day extension to file the Petition. Petitioner finally filed the Petition on May 30, 2007 even if the CTA had earlier issued a resolution dismissing the case for failure to timely file the Petition.

ISSUES:

(1) Has Petitioners the right to appeal with the CTA lapsed?(2) Does the enforcement of the latter section of the tax ordinance constitute double taxation?

HELD:

(1) NO. Petitioner complied with the reglementary period for filing the petition. From April 20, 2007, Petitioner had 30 days, or until May 20, 2007, within which to file their Petition for Review with the CTA. The Motion for Extension filed by the petitioners on May 18, 2007, prior to the lapse of the 30-day period on 20 May 2007, in which they prayed for another extended period of 10 days, or until 30 May 2007, to file their Petition for Review was, in reality, only the first Motion for Extension of petitioners. Thus, when Petitioner filed their Petition via registered mail their Petition for Review on 30 May 2007, they were able to comply with the period for filing such a petition.

(2) YES. There is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of the tax ordinance since these are being imposed: (1) on the same subject matter the privilege of doing business in the City of Manila; (2) for the same purpose to make persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing authority petitioner City of Manila; (4) within the same taxing jurisdiction within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods per calendar year; and (6) of the same kind or character a local business tax imposed on gross sales or receipts of the business.

CIR V SC JOHNSON INC. June 25, 1999Monday, January 26, 2009 Posted byCoffeeholic WritesLabels:Case Digests,Taxation

Facts:Respondent is adomesticcorporation organized and operating under the Philippine Laws, entered into a licensed agreement with the SC Johnson and Son, USA, a non-resident foreign corporation based in the USA pursuant to which the respondent was granted the right to use thetrademark, patents and technology owned by the later including the right to manufacture, package and distributethe productscovered by the Agreement and secure assistance in management, marketing and production from SC Johnson and Son USA.

For the use oftrademarkor technology, respondent was obliged to pay SC Johnson and Son, USA royalties based on a percentage of net sales and subjected the same to 25%withholding taxon royalty payments which respondent paid for the period covering July 1992 to May 1993 in the total amount of P1,603,443.00.

On October 29, 1993, respondent filed with theInternational TaxAffairs Division (ITAD) of the BIR a claim for refund of overpaidwithholding taxon royalties arguing that, the antecedent facts attending respondents case fall squarely within the same circumstances under which said MacGeorge andGilletterulings were issued. Since the agreement was approved by the Technology Transfer Board, the preferentialtax rateof 10% should apply to the respondent. So, royalties paid by the respondent to SC Johnson and Son, USA is only subject to 10%withholding tax.

The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son, Inc. then filed apetitionfor review before the CTA, to claim a refund of the overpaidwithholding taxon royalty payments from July 1992 to May 1993.

On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to issue a tax credit certificate in the amount of P163,266.00 representing overpaidwithholding taxon royalty payments beginning July 1992 to May 1993.

The CIR thus filed apetitionfor review with the CA which rendered the decision subject of this appeal on November 7, 1996 finding nomeritin thepetitionand affirming in toto the CTA ruling.

Issue:Whether or not tax refunds are considered as tax exemptions.

Held:It bears stress that tax refunds are in the nature of tax exemptions. As such they areregisteredas in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming theexemption. The burden of proof is upon him who claims the exemptionin his favor and he must be able to justify his claim by the clearest grant of organic or statute law. Private respondent is claiming for a refund of the alleged overpayment of tax on royalties; however there is nothing on record to support a claim that the tax on royalties under the RP-US Treaty is paid under similar circumstances as the tax on royalties under the RP-West Germany Tax Treaty.CIR vs Lednicky

Principle/s:

- Alien residents deduction of Income Taxation from Gross Income paid in their home country

- Double Taxation

Commissioner of Internal Revenue vs W.E. Lednicky and Maria Lednicky

GR Nos. L-18262 and L-21434, 1964

FACTS:

Spouses are both American citizens residing in the Philippines and have derived all their income from Philippine sources for taxable years in question.

On March, 1957, filed their ITR for 1956, reporting gross income of P1,017,287.65 and a net income of P 733,809.44.On March 1959, file an amended claimed deduction of P 205,939.24 paid in 1956 to the United States government as federal income tax of 1956.

ISSUE:

Whether a citizen of the United States residing in the Philippines, who derives wholly from sources within the Philippines, may deduct his gross income from the income taxes he has paid to the United States government for the said taxable year?

HELD:

An alien resident who derives income wholly from sources within the Philippines may not deduct from gross income the income taxes he paid to his home country for the taxable year. The right to deduct foreign income taxes paid given only wherealternative right to tax credit exists.

Section 30 of the NIRC, Gross Income Par. C (3): Credits against tax per taxes of foreign countries.

If the taxpayersignifies in his return his desire to have the benefits of this paragraph, the tax imposed by this shall be credited with: Paragraph (B),Alien resident of the Philippines; and, Paragraph C (4),Limitation on credit.

An alien resident not entitled to tax credit for foreign income taxes paid when his income is derived wholly from sources within the Philippines.

Double taxationbecomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity. In the present case, although the taxpayer would have to pay two taxes on the same income but the Philippine government only receives the proceeds of one tax, there is no obnoxious double taxation.