Tio v. Videogram Regulatory Board

Facts: Tio, owner of Omi Enterprises, assails the constitutionality of P.D. 1987 which created the Videogram Regulatory Board in order to regulate and supervise the videogram industry. Afterwards, P.D. 1994 amended the NIRC to impose a tax on locally manufactured or imported blank video tapes and a 5 pesos annual tax on each processed video tape. Tio assails it as harsh and oppressive, confiscatory, and in restraint of trade. Issue: Was the P.D. unconstitutional? Held: No. The SC said that the tax is valid. A tax does not cease to be valid merely because it regulates, discourages, or even deters the activities taxed. The power to impose taxes is one so unlimited in force and so searching in extent. In imposing a tax, the Legislature acts upon its constituents, which is, in general, a sufficient security against erroneous and oppressive taxation. The tax imposed is no only regulatory but also a revenue measure prompted by the fact that the industry has not been subjected to tax, thereby depriving the Government of additional revenue. The tax is for a public purpose imposed as answer to need for regulating the video industry, particularly film piracy and proliferation of pornography. And while it was also an objective of the P.D. to protect the movie industry, the tax remains a valid imposition. The public purpose of tax may legally exist even if the motive which impelled the Legislature to impose that tax was to favor one industry over another. Also, it is inherent in the power to tax that a state be free to select the subjects of taxation and it has been held that inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation.

Luzon Stevedoring v. CTA

Facts: Luzon Stevedoring imported various engine parts and equipment for the repair and maintenance of its tugboats. They paid compensating tax under protest and are now claiming refund in the CIR and the CTA which were denied. Issue: Can the tugboats be included in the term cargo vessels for purposes of tax exemption? (See Sec. 190) Held: No. Luzon argues that in legal contemplation, the tugboat and a barge loaded with cargoes with the former towing the latter for loading and unloading a vessel in part, constitutes a single vessel, and accordingly they are exempt from compensating tax. This does not hold. The general rule is that any claim for exemption should be strictly construed against the tax payer. In this case, it is indispensable that the amendatory law be complied in order for the importations to be exempted: (1) engine and spare parts must be used by the importer himself as a passenger and/or cargo vessel; and (2) that said passenger/cargo vessel must be used in coastwise or oceangoing navigation. The tugboats clearly do not fall under the categories of passenger and/or cargo vessels. Further, the Legislature intended to provide incentives to bolster the shipping industry and not stevedoring which Luzon is engaged in.

NPC v. Albay

Facts: The City of Albay published a notice of auction sale of NAPOCOR and Philippine Geothermal Inc.s properties in Albay as payment for their tax delinquencies. NAPOCOR opposed this by claiming that under a Fiscal Incentives Review Boards (FIRB) Resolution and the Executive Secretarys Memorandum they were exempt from paying taxes. The court issued a TRO but it failed to reach the City of Albay on time thus, the properties were sold to the Province of Albay. NPC now questions the power of Albay. Note that P.D. 1931 was issued which withdrew all tax exemptions. The FIRB was later on tasked to determine and recommend what subsidies and tax exemptions should be modified. They issued 3 resolitions which restored the tax exemption of NPC. EO 93 was later on promulgated to withdraw all tax and duty incentives granted to government and private entities. The EO also granted FIRB the power to restore tax exemptions. Issue: Were the various tax exemptions granted by the FIRB valid and constitutional? Held: No. The FIRB, under its charter, was only empowered to merely recommend tax exemptions. The fact that under the EO the FIRB has been given the power to grant tax exemptions is of no moment because the provisions are prospective in character and cannot affect the Boards past acts. Albay admits that although NPCs exemption has been restored, it questions now NPCs liability during the period of 1984-1987 (period were tax exemptions were withdrawn and purportedly restored). Considering NPC had no tax exemptions during the period, they must be held liable during the intervening years. Also, as a rule claims of tax exemptions are construed strongly against the claimant. They must also be shown to exist clearly and categorically, and supported by clear legal provisions.

Pepsi v. City of Butuan

Facts: Pepsi owns a warehouse in Butuan serving as a storage area for their commercial soft drink products. These drinks are bottled in Cebu and are shipped to Butuan for distribution and sale. Pepsi now seeks to recover the sums it paid to the City of Butuan pursuant to Municipal Ordinance which imposed taxes on merchants selling liquor, who are agents and/or consignees of another dealer. They assail the Ordinance as null and void because it (1) partakes the nature of an import tax, (2) excessive, oppressive, and confiscatory, and (3) highly unjust and discriminatory. Issue: Is the ordinance valid? Held: No. Although legislative powers may be delegated to local governments in respect of matters of local concern, the classification made must be valid. The tax is discriminatory and hence violative of the requirement of uniformity, since only sales by agents or consignees of outside dealers would be subject to tax. Sales by local dealers, not acting for other merchants, would be exempt from the disputed tax. The uniformity essential to the valid exercise does not require equality in cases. It must be reasonable though. The Ordinance is unreasonable for there is no reason why sales by sellers other than agents or consignees must be exempt from tax considering that the purpose of the law is levy a burden upon the sale of soft drinks or carbonated drinks. Also, the merchants engaged in the sale of drinks are not subject to tax, UNLESS they are agents and/or consignees of another dealer, who, in the nature of things must be one engaged in business outside the City. The intention to be limit the application of the Ordinance to drinks brought into the City becomes apparent tax here partakes the nature of an import duty, which is beyond the Citys authority to impose. Vegetable Oil Corporation v. Trinidad

Facts: Vegetable Oil is a foreign corporation engaged in the purchase of copra in the Philippines and shipment of such to its mills in the US for manufacturing into vegetable oil. It is licensed to transact business in the Philippines. Trinidad is the CIR. VOC wants to recovery the taxes it paid the taxes were levied on consignments (1% tax of the value of the shipments of the copra). VOC claims that it was a consignor and thus NOT engaged in the sale, barter, or exchange of personal property in the Philippines, that it is not a merchant within the statutory definition of the term, and that therefore cannot be required to pay consignment tax. Issue: Is the consignment of copra subject to consignment tax? Held: No. The tax was lawfully collected by the CIR. THE SC said that the statute itself does not provide that the sale, barter, or exchange must take place in the Philippines in order to make a person engaged in such business as a merchant. As far as the statute is concerned, a person may do his selling, bartering, or exchanging wherever he pleases, but if he consigns merchandise abroad from the Philippines, he must pay consignment tax. A consignment tax is not a sales tax. The tax on consignments is a privilege tax tax on the business of consigning commodities abroad from these Islands. The Government may not collect privilege tax on sales taking place in foreign countries, but what it can do is to levy taxes on consignments from Philippine ports. This is what the Government has done in this case it imposed tax on local transactions.

Tax on Persons

Section 156.Community Tax.- Cities or municipalities may levy a community tax in accordance with the provisions of this Article.

Section 157.Individuals Liable to Community Tax. (1) Every inhabitant of the Philippines eighteen (18) years of age or over a. who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year, or b. who is engaged in business or occupation, or c. who owns real property with an aggregate assessed value of One thousand pesos (P1,000.00) or more, or d. who is required by law to file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of income regardless of whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P5,000.00).(2) In the case of husband and wife, the additional tax herein imposed shall be based upon the total property owned by them and the total gross receipts or earnings derived by them.

Section 158.Juridical Persons Liable to Community Tax.- Every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00) in accordance with the following schedule:(1) For every Five thousand pesos (P5,000.00) worth of real property in the Philippines owned by it during the preceding year based on the valuation used for the payment of real property tax under existing laws, found in the assessment rolls of the city or municipality where the real property is situated - Two pesos (P2.00); and(2) For every Five thousand pesos (P5,000.00) of gross receipts or earnings derived by it from its business in the Philippines during the preceding year - Two pesos (P2.00).The dividends received by a corporation from another corporation however shall, for the purpose of the additional tax, be considered as part of the gross receipts or earnings of said corporation.

Section 159.Exemptions.- The following are exempt from the community tax:(1) Diplomatic and consular representatives; and(2) Transient visitors when their stay in the Philippines does not exceed three (3) months.

Section 160.Place of Payment.- The community tax shall be paid in the place of residence of the individual, or in the place where the principal office of the juridical entity is located.

Section 161.Time for Payment; Penalties for Delinquency.-(a) The community tax shall accrue on the first (1st) day of January of each year which shall be paid not later than the last day of February of each year. If a person reaches the age of eighteen (18) years or otherwise loses the benefit of exemption on or before the last day of June, he shall be liable for the community tax on the day he reaches such age or upon the day the exemption ends. However, if a person reaches the age of eighteen (18) years or loses the benefit of exemption on or before the last day of March, he shall have twenty (20) days to pay the community tax without becoming delinquent.Persons who come to reside in the Philippines or reach the age of eighteen (18) years on or after the first (1st) day of July of any year, or who cease to belong to an exempt class or after the same date, shall not be subject to the community tax for that year.(b) Corporations established and organized on or before the last day of June shall be liable for the community tax for that year. But corporations established and organized on or before the last day of March shall have twenty (20) days within which to pay the community tax without becoming delinquent. Corporations established and organized on or after the first day of July shall not be subject to the community tax for that year.

If the tax is not paid within the time prescribed above, there shall be added to the unpaid amount an interest of twenty-four percent (24%) per annum from the due date until it is paid.

Wells Fargo Bank v. Collector Facts: Birdie Lillian Eye died in L.A., California - allegedly her last place of residence and domicile. She left a will, the properties among which are 1/2 of her conjugal shares of stock in Benguet Consolidated Mining, Co. and an anonymous partnership organized under Philippine laws. Her will was duly admitted to probate in California where her estate was administered and settled. Wells Fargo was appointed as trustee of the trust by the said will. The Federal and California States inheritance taxes due were paid. The CIR of the Philippines wants to subject the shares of stock to inheritance tax which Well Fargo is objecting to. Issue: Are the share of stock subject to Philippine inheritance tax considering that the decedent was domiciled in California? Held/Ratio: Yes. Originally, US Law provides that intangibles (shares of stocks) have only situs for the purpose of inheritance tax which is domicile of the decedent at the time of his/her death. However, his has been relaxed because of (1) the recognition of the inherent power of each government to tax things or persons within its jurisdiction and enjoying, thus, the protection of its laws, and (2) upon the principle that as for intangibles, a single location is hardly possible considering the many distinct relationships which it may be entered into. In this case, the actual situs of the stocks is in the Philippines because the corporation is domiciled therein. The certificates of stocks also remained in the Philippines they were under the possession of the corporate secretary/ The owner residing in California has extended her activities in the Philippines so as to avail the benefit and protection of Philippine laws.

Meralco v. Yatco

Facts: Meralco insured their properties in the Philippines with New York Insurance Company and United States Guaranty Company foreign insurance companies not licensed to do any business in the Philippines and have no agents here. The insurance policies were entered into by a Meralco broker based in New York. The broker paid insurance premiums to the companies worth about 90k. Yatco, the CIR, assessed and levied a tax of 1% on the premiums, using Sec. 192 of Act 2427. So, Meralco paid the taxes under protest. The protest was overruled, and they now want to recover the tax. Issue: Was the tax assessed and levied upon improper, the contract being beyond the jurisdiction of the Philippines? Held/Ratio: No. The Tax was proper because the insured properties, the risk insured against, and certain incidents of the contract are within the territorial jurisdiction of the Philippines. Thus, they are taxable by the Philippine government, regardless of whether the contract was executed in a foreign country and with a foreign corporation. Substantial elements of the contract are in situated in the Philippines, so as to give its government the power to tax. Even if assuming that the tax imposed will constitute as indirect tax upon a foreign corporation, it would still be valid because the foreign corporations subjected themselves to the taxing jurisdiction of the Philippines. It would also be discriminatory against domestic corporations to hold the tax valid when the policy is given by them and invalid when issued by foreign corporations.

Phil. Match Co., Ltd. V. Cebu

Facts: Phil. Match Co. had a storage facility in Cebu where it kept matches to be sold and delivered outside the City and other provinces. Cebu City passed an ordinance which imposed a 1% tax on the gross sales of various commodities sold, bartered, or manufactured IN THE CITY in excess of P2000 a quarter. A section in the ordinance provides that all deliveries of goods stored in Cebu are considered as sales. Because of this, Phil. Match was taxed around P12k. It paid under protest, after which it asked for a refund. They alleged that they were taxed improperly for transactions that were done outside the city. The RTC ruled that the transfer of matches to newsmen and the shipments to customers pursuant to the salesmens instructions do not fall within the ordinance. Instead they should fall under storage taxes. As to those levied on the matches booked and paid for in Cebu because they were consummated in there the delivery to the carrier in the city are considered as delivery to the customers. Issue: Does Cebu have jurisdiction to tax the matches paid within the city but delivered to customers outside the city? Held: Yes. Phil. Match cited the case of Shell Company to support their case. However, that case in not applicable because the price of oil was paid outside Sipocot. In the instant case, the sale took place in the city and the matches were stored in the City. Moreover, the sellers place of business is within the city. Thus, the city has jurisdiction and power to tax the sale of those matches. The city has the power to impose taxes on any person engaged in business within the City.

CIR v. BOAC (British Overseas Airways Corporation)

Facts: BOAC is a British government-owned corporation engaged in the international airline business. From 1959-1972, BOAC had not landing rights in the Philippines. However, it maintained a general sales agent in the Philippines Warner Barnes & Co. and subsequently Qantas. The CIR assessed deficiency income taxes against BOAC. This involved two prior cases, and the difference between them is the date of assessment only. The CTA held that the income from transportation is income from services, so that the place where services are rendered determines the source. Thus, proceeds of the ticket sales in the Philippines do not constitute BOAC income from Philippine services because no service of carrying passengers was performed by BOAC in the Philippines. Issue: (1) Does income derived from sales, while having no landing rights here, constitute taxable income? (2) Is BOAC a resident foreign corporation doing business here in the Philippines or only has a place of business in the Philippines? Or is it a non-resident foreign corporation liable to 35% income tax? Held: Yes because gross income as defined by the Tax Code is broad and comprehensive enough to include proceeds from sales of transport of documents. And also, as used in our income tax law, income means flow of wealth. The source of income is the property, activity, or service that produced such income. For it to be considered as income coming from the Philippines, it is sufficient that income is derived from activity within the Philippines. In the instant case, it is the sale of tickets in the Philippines that produced the income. As to the second issue, BOAC is a resident foreign corporation. Although there is no specific criterion as to what constitutes doing or engaging business in the Philippines, the Court said that a foreign corporation may be regarded as doing business within a state, there must be continuity of conduct and intention to establish a continuous business. In this case, BOAC already had a sales agent in the Philippines that sold and issued tickets.BIR Ruling 99-90

Facts: The Ruling referred to BIR Ruling 18-80 which said that income derived from the purchase and sale of personal property is income derived from the place in which it is sold. That Case held that Time Magazines that were SOLD perfected and consummated abroad; the acceptance and rejection of the subscription order is in made in Tokyo; and that the title over the subscription copies passed to the Philippine subscriber abroad from the moment they were posted in the Hong Kong Post Office pre-addressed to Philippines the income derived by Time Inc. is deemed income from sources without the Philippines not subject to Philippine income tax, and consequently not subject to the 35% withholding tax. Issue: Are the subscription payments considered Philippine source income? Held: Yes. The BIR said that 18-80 ruling is devoid of legal basis. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from an activity within the Philippines. Thus, the filling up of the subscription form by the Philippine subscriber is the activity that produced the income consisting of the subscription payments. Because the subscription payments were made here, the source of income is this country. Test of taxability is the source and the source of an income is that activity which produced the income.

Manila Gas v. Collector

Facts: Manila Gas operates a gas plant in Manila furnishes gas service to the people within Manila and surrounding municipalities. Island Gas and Electric Company (New York company) and General Finance Company (domiciled in Switzerland) are stockholders of Manila Gas. Manila Gas religiously paid the dividends and interests on bonds it owed to Island Gas. The CIR required Manila Gas to deduct and withhold P56k from the various sums it paid to foreign corporations as dividends and interest on bonds and other indebtedness. Manila Gas paid this under protest. Issue: Were the dividends paid by Manila Gas subject to income tax and is it entitled to recover the tax paid? Held: Yes and No. Manila Gas contends that it would be oppressive and inequitable if it paid the taxes imposed by CIR. Their argument is based on the constitutional provision that no law shall be enacted that will impair the obligations of contracts. However, the SC said that a corporation has a personality distinct from its stockholders, thus enabling the taxing power to reach the stockholders when they receive dividends from the corporation. Dividends of a domestic corporation, which are paid and delivered in cash to foreign corporations as stockholders, are subject to the payment of income tax.As to the second issue, the SC said that since Manila Gas operates within the Philippines, their earnings come from local sources. Manila Gas contends that because the two companies are domiciled abroad, and as the interest on the bonds and other indebtedness were paid abroad, this was not to be considered as income from Philippine sources. The SC said, however, that a state cannot tax anything outside of its jurisdiction without violating due process. The taxing power of the state does not extend beyond its territorial limit, but within such it may tax persons, income, or business. In this case, Manila Gas gets its earnings from local sources, and because of this the place of payment even if outside the country cannot alter the fact that income was derived from within the Philippines.

Tiu v. CA

Facts: Congress enacted RA 7227 or the Bases Conversion and Development Act of 1992, which seeks to convert abandoned military bases into other productive uses. The law aims to entice foreign investors to help boost the economy. Sec. 12 of said law provides for the creation of the Subic Special Economic and Free-port Zone (SSEZ) Olongapo, Subic, and Subic Naval Base. The law provides incentives for investors within the zone such as tax-free privileges on the importation of raw materials, capital, and equipment. However, exportation of goods from the zone shall be subject to tax. Pursuant to this, EO 97-A was created wherein it delineated the area where the tax exemption will apply Subic Naval Base only. Tiu contends that the delineation made by the EO was violative of the right to equal protection because the law enumerates three areas while EO narrowed it to only one. It excluded the residents of the first two components from the zone which would enjoy the benefits. Issue: Is the EO unconstitutional? Held: No. First of all, the law itself provides that the President has the power to delineate the metes and bounds of the zone. Second, the SC found substantial and reasonable distinctions between the Secured Area and those outside. The classification satisfied the four requisites for a valid classification: Germane to the purpose of the Law: The Law aimed to convert the lands formerly occupied by the US military bases into economic zones. The Law is specific that this is the area it intends to transform. Substantial disctinctions: Those within the area are big investors who are capable of pouring money that will affect national economy. Outside the area are small investors and local business operators. The Court said that as long as there are material and actual differences between territories, there is no violation of the Constitution. Not limited to existing conditions only. Applies equally to all members of the same class.

Shell v. Vano

Facts: The Municipal Council of Cordova adopted the following ordinances: No. 10, which imposes an annual of P150 on occupation or the exercise of the privilege of installation manager; No. 9, which imposes an annual tax of P40 for local deposits in drums of combustible and inflammable materials and annual tax of P200 for tin can factories; and No. 11, which imposes an annual tax of P150 on tin can factories having a maximum output capacity of 30,000 tin cans. Shell, a foreign corporation, assails the validity of the ordinances on the ground of ultra vires. Issue: Does the ordinance violate EPC for designating specifically the installation manager as taxable? Held: No. The contention that the ordinance is discriminatory and hostile because there is no other person in the locality who exercises such "designation" or occupation is also without merit, because the fact that there is no other person in the locality who exercises such a "designation" or calling does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation named or designated as "installation manager."

City of Baguio v. de Leon

Facts: City of Baguio issued an ordinance which imposed a license fee on any person, firm, entity, or corporation doing business in Baguio City. De Leon was held liable as a real estate dealer with property more than P10k but less than P50k, and was therefore obligated to pay P50. De Leon challenged this on the ground that there was double taxation which is repugnant to the due process clause, and that it violated the requirement of uniformity. Issue: Was the Ordinance valid? Held: Yes. The Ordinance cannot be assailed as violative of the constitutional requirement of uniformity because the amount it imposed depended on the value of the property. A tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation. All thats needed for the statute or ordinance to be uniform is to apply equally to all persons, firms, and corporation placed in a similar situation.