BarQs Flashcards
Briefly explain the following doctrines: lifeblood doctrine; necessity theory, benefits received principle; and, doctrine of symbiotic relationship (10%)
1.Necessity Theory
The existence of the government is a necessity; that it cannot continue without the means to pay its expenses; and that for those means, it has the right to compel all citizens and properties within its limits to contribute.
Lifeblood Theory
Taxes are the lifeblood of the government,
being such, their prompt and certain availability is an imperious need. (Collector of Internal Revenue vs. Goodrich International Rubber Co., Sept. 6, 1965) Without taxes, the government would be paralyzed for lack of motive power to activate and operate it.
Benefits-protection theory
on between the state and its inhabitants. In return for the contributions, the taxpayer receives the general advantages and protection which the government affords the taxpayer and his property.
Doctrine of symbiotic relationship
Patrick is a successful businessman in the United States and he is a sole proprietor of a supermarket which has a gross sales of $10 million and an annual income of $3million. He went to the Philippines on a visit and, in a party, he saw Atty. Agaton who boasts of being a tax expert. Patrick asks Atty. Agaton: if he (Patrick) decides to reacquire his Philippine citizenship under RA 9225, establish residence in this country, and open a supermarket
advice will you give Patrick? (10%)
In Makati City, will the BIR tax him on the income he earns from his US business? If you were Atty Agadon, what will you give Patrick?
The concept of situs of taxation refers to the physical or legal location where income, property, or transactions are subject to taxation. In the case of Patrick, the situs of taxation would play a role in determining which country has the right to tax his income from the U.S. business.
United States:
The situs of taxation for income derived from Patrick’s U.S. supermarket would primarily be in the United States since the business operates there and generates income from sales within the country.
As a U.S. citizen, Patrick would be subject to U.S. taxation on his worldwide income, including income from his U.S. business, regardless of his residence status.
Philippines:
If Patrick establishes residence in the Philippines and opens a supermarket there, any income derived from the operation of the Philippine supermarket would have its situs of taxation in the Philippines.
The Philippine government may also assert its right to tax income earned by its citizens, even if derived from foreign sources, once Patrick becomes a resident of the Philippines.
In summary, while the United States would tax income generated from Patrick’s U.S. business due to its situs of taxation being primarily in the U.S., the Philippines may also impose taxes on this income once Patrick becomes a resident of the Philippines, depending on its laws and tax treaties with the United States.
International double taxation occurs when the same income is subject to taxation in two or more countries. In Patrick’s case, he may face the risk of double taxation on his income from the U.S. business if he becomes a resident of the Philippines and operates a business there.
United States Taxation:
As a U.S. citizen, Patrick is subject to U.S. taxation on his worldwide income, including income from his U.S. business.
The situs of taxation for income generated from his U.S. business is primarily in the United States.
Philippines Taxation:
If Patrick establishes residence in the Philippines and operates a business there, any income derived from the Philippine business would be subject to Philippine taxation.
The Philippine government may also assert its right to tax Patrick’s worldwide income once he becomes a resident of the Philippines.
To mitigate the risk of double taxation, Patrick can explore the following options:
a. Tax Treaties: The United States and the Philippines may have a tax treaty in place to prevent double taxation. Patrick should consult tax experts to understand the provisions of the treaty and how they apply to his situation.
b. Foreign Tax Credit: Patrick may be able to claim a foreign tax credit in the United States for taxes paid to the Philippines on income earned from his Philippine business. This helps offset the U.S. tax liability on the same income.
Explain the concept of pre-emption rule in double taxation.
Jennifer is the only daughter of Janina who was a resident in Los Angeles California, U.S.A. Janina died in the U.S. leaving to Jennifer one million shares of Sun Life (Philippines), Inc., a corporation organized and existing under the laws of the Republic of the Philippines. Said shares were held in trust for Janina by the Corporate Secretary of Sun Life and the latter can vote the shares and receive dividends for Janina. The Internal Revenue
Service (IRS) of the U.S. taxed the shares on the ground that Janina was domiciled in the U.S, at the time of her death. (A) Can the CIR of the Philippines also tax the same shares? Explain. (5%); (B) Explain the concept of double taxation. (5%)
Can the Commissioner of Internal Revenue (CIR) of the Philippines tax the same shares?
The taxation of the shares of Sun Life (Philippines), Inc. by the Commissioner of Internal Revenue (CIR) of the Philippines depends on whether they are considered situated in the Philippines.
Situs of Taxation:
Situs of taxation refers to the location or jurisdiction where the property or income is subject to taxation.
In this case, the shares of Sun Life (Philippines), Inc. are held in trust by the Corporate Secretary of Sun Life. They represent ownership in a Philippine corporation and are registered under Philippine laws.
Philippine Taxation:
Generally, under Philippine tax laws, shares of stock of a Philippine corporation are considered situated in the Philippines and are subject to Philippine taxation, regardless of the residence or domicile of the owner.
Since the shares are held in trust for Janina by a Philippine corporation and are subject to Philippine laws, the CIR of the Philippines has the authority to tax the shares based on Philippine tax laws.
Therefore, yes, the CIR of the Philippines can tax the same shares because they are considered situated in the Philippines.
(B) Explain the concept of double taxation:
Double taxation occurs when the same income, property, or financial transaction is subject to taxation by two or more jurisdictions. In this case:
U.S. Taxation:
The IRS taxed the shares of Sun Life (Philippines), Inc. based on the domicile of Janina, who was a resident of Los Angeles, California, U.S.A., at the time of her death.
Philippine Taxation:
The shares of Sun Life (Philippines), Inc. are also subject to taxation by the CIR of the Philippines based on Philippine tax laws, as they are considered situated in the Philippines.
This situation exemplifies double taxation because the same shares are being taxed by both the United States and the Philippines. To address double taxation and mitigate its impact on taxpayers, countries often enter into tax treaties or agreements to allocate taxing rights and provide relief mechanisms such as tax credits or exemptions.
The BIR filed on July 29, 1969 a motion for allowance of claim and for payment of taxes representing the estate’s tax deficiencies in 1963 to 1964 In the intestate proceedings of Luis Tongoy. The administrator opposed arguing that the claim was already barred by the statute of limitation, Section 2 and Section 5 of Rule 86 of the Rules of Court which provides that all claims for money against the decedent, arising from contracts, express or implied, whether the same be due, not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the decedent, and judgment for money against the decedent, must be filed within the time limited in the notice; otherwise they are barred forever. Does the statute of non-claims of the Rules of Court bar the claim of the govemment for unpaid taxes?
Give at least three (3) inherent limitations of taxation.
① exemption of the Government form
② International comity
③ nm-delegability of taxing power
Distinguish Taxation from Police Power.
Distinguish Taxation from Eminent Domain.
Distinguish Tax from Debt.
Tax is based on law, debt is based on contract
Tax generally cannot be assigned debt may be assigned
Tax is generally payable in money debt may be paid in kind
Tax is generally not subject to set-off or compensation while debt may be subject to compensation
Imprisonment is a sanction for nonpayment except poll tax while no imprisonment for non payment of debt
Tax is governed by special prescriptive periods in the tax code while debt is governed by ordinary prescriptive periods of prescription in the civil code
Tax does not draw interest except only when delinquent while debt draws interest upon stipulation of the parties or in case of default
Classify tax as to subject matter.
1) personal, poll, capitation tax –
(a) fixed amount (b) individuals residing within specified
territory
c) without regard to their property,
occupation or business Ex. Community Tax (Cedula)
2) property tax –
(a) imposed on property, real or personal
(b) in proportion to its value or other
reasonable
of apportionment Ex. Real estate tax
3) excise tax -
(a) imposed upon performance of an act, the
enjoyment of a privilege or the engaging in an occupation, profession or business
Ex. Income tax, VAT, estate tax, donor’s tax
Give at least five (5) constitutional limitations of taxation and explain each limitation.
What are the exceptions to the Non-Delegation Rule? Explain each exception
① Delegation to the President (Art.VI. Sec. 28(2) 1987 Constitution) The power granted to Congress under this
constitutional provision to authorize the President to fix within specified limits and subject to such limitations and restrictions as it may impose, tariff rates and other duties and imposts include tariffs rates even for revenue purposes only. Customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue- raising and regulatory purposes (Garcia vs Executive Secretary, et. al., G.R. No. 101273, July 3, 1992)
② Delegations to the Local Government (Art. X. Sec. 5, 1987 Constitution) It has been held that the general principle
against the delegation of legislative powers as a consequence of the theory of separation of powers is subject to one well-established exception, namely, that legislative power may be delegated to local governments. The theory of non-delegation of legislative powers does not apply in maters of local concern. (Pepsi-Cola Bottling Co. of the Phil, Inc. vs City of Butuan, et . al., L-22814, Aug. 28, 1968)
Explain the difference between issuances which are legislative in nature and issuances in the nature of an interpretative rule.
What are the powers of the Commissioner under the Tax Code?
