DOUBLE TAXATION

Constitutionality, Types and Methods to Avoid It

What is Double Taxation?

Taxing

the same property twice when it should

be taxed but once

Taxing

the same person twice by the same

jurisdiction over the same thing

It

is sometimes known as duplicate taxation

Types of Double Taxation

1.

Direct double taxation

2.

Indirect double taxation

Direct double taxation

- same property is taxed twice when it should be
taxed only once and that both taxes are
imposed on the same subject matter for the
same purpose, by the same taxing authority
within the same jurisdiction during the same
taxing period and covering the same kind of tax

Elements of Direct Double Taxation

There is direct double taxation if the two taxes are
imposed:
1.

On the same subject matter

2.

For the same purpose

3.

By the same taxing authority

4.

Within the same jurisdiction

5.

During the same taxing period

6.

The taxes must be of the same kind or

character

PEPSI-COLA BOTTLING COMPANY V. MUN. OF

TANAUAN [69 SCRA 460]

Indirect double taxation

where some elements of direct double taxation

are absent

It applies to all cases in which there are two or

more pecuniary impositions

Is double taxation prohibited under the

Constitution?

It depends.

The Constitution does not prohibit the

imposition of double taxation in the broad
sense.

However, if double taxation amounts to a direct

double taxation, then it becomes legally
objectionable for being oppressive and
inequitable.

It violates the equal protection and uniformity

clauses of the Constitution

Pepsi Cola Bottling Company v. Municipality of

Tanauan, Leyte
Facts: Plaintiff-appllant has a bottling plant in
the said municipality

On Sept. 1962, Municipal Ordinance No. 23 was

approved. It levies and collects from softdrinks
producers and manufacturers tax of 1/16 of a
centavo for every bottle of softdrink corked.
Later on October of the same year, Municipal
Ordinance No. 27 was also approved. It levies
and collects on softdrinks produced or
manufactured w/in the territorial jurisdiction
of the municipality a tax of 1 centavo on each
gallon (128 fluid ounces) of volume capacity

In 1963, the plaintiff commenced a complaint

w/ preliminary injunction to declare Ordinances
No. 23 & 27, series of 1962, null and void being
constitutive of double taxation.
Issue: Do the ordinances constitute double
taxation?
Ruling: No. The thesis submitted by the plaintiffappellant that Ordinances 23 & 27 constitute
double taxation posits from its presumption
that the two ordinances cover the same subject
matter and impose practically the same rate.

This is not so. Ordinance No. 23, approved on

Sept. 1962, levies or collects from softdrinks
producers or manufacturers a tax of 1/16 of a
centavo, IRRESPECTIVE of the volume contents
of the bottle used.
When it was discovered that the
producer/manufacturer could increase the
volume contents of the bottle and still may pay
the same rate, the Municipality of Tanauan
enacted Ordinance No. 27.

Thus, it is clear that Ordinance No. 27 was

enacted as a plain substitute for the prior
Ordinance 23 and operates as a REPEAL of the
latter, even without words to that effect.
Double taxation, in general, is NOT
FORBIDDEN by our fundamental law. Double
taxation becomes obnoxious only when the
taxpayer is taxed twice for the same govt
entity or by the same jurisdiction for the same
purpose, but not in a case where one tax is
imposed by the STATE and the other by the
CITY/MUNICIPALITY.

Procter and Gamble vs. Jagna

GR L-24265, 28 December 1979
Facts:
Procter and Gamble Philippines Manufacturing
Corp. is a consolidated corporation of Procter and
Gamble Trading Company. It is engaged in the
manufacture of soap, edible oil, margarine and other
similar products; and maintains a bodega in the
municipality of Jagna, where it stores copra
purchased in the municipality and therefrom ships
the same for its manufacturing and other operations.

In 1954, the Municipal Council enacted

Ordinance 4, imposing storage fees of all
exportable copra deposit in the bodega within the
jurisdiction of the municipality of Jagna, Bohol.
From 1958 to 1963, the company paid the
municipality, allegedly under protest, storage
fees. In 1964, it filed suit, wherein it prayed that
the Ordinance be declared inapplicable to it, and
if not, that it be declared ultra vires and void.
Issue: Whether the Ordinance is void, as it
amounts to double taxation.

Ruling:
The validity of the Ordinance must be upheld
pursuant to the broad authority conferred upon
municipalities
by
Commonwealth
Act
472
(promulgated 1939), which was the prevailing law
when the Ordinance is actually a municipal license
tax or fee on persons, firms and corporations
exercising the privilege of storing copra within the
municipalitys territorial jurisdiction.

Such fees imposed do not amount to double

taxation. For double taxation to exist, the same
property must be taxed twice, when it should be
taxed but once. A tax on the companys products
is different from the tax on the privilege of storing
copra in a bodega situated within the territorial
boundary of the municipality.

Villanueva V City Of Iloilo (26 SCRA 578)

FACTS:
Relying on the passage of RA 2264 or the Local
Autonomy Act, Iloilo enacted Ordinance11 Series
of 1960, imposing a municipal license tax on
tenement houses in accordance with the schedule
of payment provided by therein.
Villanueva and the other appellees are apartment
owners from whom the city collected license
taxes by virtue of Ordinance 11.

Appellees aver that the said ordinance is

unconstitutional for RA 2264 does not empower
cities to impose apartment taxes; that
the same is oppressive and unreasonable
for it penalizes those who fail to pay
the apartment taxes; that it constitutes
not only double taxation but treble taxation;
and, that it violates uniformity of taxation.

ISSUES:

1. Does the ordinance impose double taxation?

2. Is Iloilo city empowered by RA 2264 to impose
tenement taxes?
While it is true that appellees are taxable under the
NIRC as real estate dealers, and taxable under
Ordinance 11, double taxation may not be invoked.
This is because the same tax may be imposed by
the national government as well as by the local
government. The contention that appellees are
doubly taxed because they are paying real estate
taxes and the tenement tax is also devoid of merit.

A license tax may be levied upon a

business or occupation although the land or
property used in connection therewith is
subject to property tax. In order to constitute
double taxation, both taxes must be the same
kind or character. Real estate taxes and
tenement taxes are not of the same character.
R.A. 2264 confers local governments
broad taxing powers. The imposition of the
tenement taxes does not fall within the
exceptions mentioned by the same law.

It is argued however that the said taxes

are real estate taxes and thus, the imposition
of more the 1 per centum real estate tax which
is the limit provided by CA 158, makes the said
ordinance ultra vires.
Tenement houses being offered for rent or
lease constitute a distinct form of business or
calling and as such, the imposition of municipal
tax finds support in Section2 of RA 2264.

The court ruled that the tax in question is

not a real estate tax. It does not have the
attributes of a real estate tax.
By the title and the terms of the
ordinance, the tax is a municipal tax which
means an imposition or exaction on the right to
use or dispose of property, to pursue a business,
occupation or calling, or to exercise privilege.

"Gross receipts with respect to any period means

the sum of:
(a) The total amount received or accrued during
such period from the sale, exchange, or other
disposition of x x x other property of a kind
which would properly be included in the
inventory of the taxpayer if on hand at the
close of the taxable year, or property held by
the taxpayer primarily for sale to customers in
the ordinary course of its trade or business, and

(b) The gross income, attributable to a

trade or business, regularly carried on by
the taxpayer, received or accrued during
such period x x x

Commissioner of Internal Revenue vs. V.E.

Lednicky & Ma. Valero Lednicky
Facts: Spouses Lednicky are both American
citizens residing in the Phils., and have derived
all their income from Phil. sources
In compliance with the local law, the
respondents filed their income tax return for
the years 1955,1956 and 1957

However for each income tax

returned filed, the respondents also filed
an amended income tax return and
claimed deduction based on the amount
paid by the spouses to the U.S. as federal
income tax for the years in question.
When the petitioner failed to answer
the claim for refund, the respondents
filed their petition w/ the tax court.

 SEC.

30.Deduction from gross income. In computing net

income there shall be allowed as deductions

(c) Taxes:
(1)In general. Taxes paid or accrued within the taxable
year, except
(A) The income tax provided for under this Title;
(B) Income, war-profits, and excess profits taxes imposed by
the authority of any foreign country;but this deduction
shall be allowed in the case of a taxpayer who does not
signify in his return his desire to have to any extent the
benefits of paragraph (3) of this subsection (relating to
credit for foreign countries);
(C) Estate, inheritance and gift taxes; and
(D) Taxes assessed against local benefits of a kind tending to
increase the value of the property assessed.

Par. (c) (3)Credits against tax for taxes of foreign

countries. If the taxpayer signifies in his return
his desire to have the benefits of this paragraph,
the tax imposed by this Title shall be credited with

(A) ...;
(B)Alien resident of the Philippines. In the case of
an alien resident of the Philippines, the amount of
any such taxes paid or accrued during the taxable
year to any foreign country, if the foreign country
of which such alien resident is a citizen or subject,
in imposing such taxes, allows a similar credit to
citizens of the Philippines residing in such country

Issues: (1)Whether or not a citizen of U.S.

residing in the Philippines who derives income
wholly from sources w/in the Phils., may deduct
from his gross income the income taxes he has
paid to the U.S. Govt.
(2) Are the spouses subjected to double taxation?
Ruling: (1) No. The right to deduct the income
taxes paid to foreign government from the
taxpayers gross income is given only as an
alternative or substitute to his right to claim a
tax credit for such foreign income taxes under
Sec. 30 (c) (3) and (4)

All their income is derived from Phil. Sources,

so they are not entitled to tax credit. Hence,
the option to deduct from gross income
disappears altogether.
(2) No. The spouses posit the notion if they
arent allowed to deduct the income taxes they
are required to pay to the govt of US in their
return for Phil. Income tax, they would be
subjected to double taxation

What respondents fail to observe is that double

taxation becomes obnoxious only where the
taxpayers is taxed twice for the benefit of the same
govt entity.
In the present case, while the taxpayers would
have to pay, two taxes in the same income, the
Phil. Govt only receives the proceeds of one tax.
It is indisputable that justice & equity demand
that the tax on the income should accrue to the
benefit of the Phils. Any relief from the alleged
double taxation should come from U.S. and not
from the Phils.

Methods to Avoid Double Taxation

1.

Allowing reciprocal exemption either by law or

by treaty

2.

Allowance of tax credit for foreign taxes paid

Power to tax involves power to destroy

Taxation is a destructive power which

interferes with the personal and property
rights of the people and takes from them
a portion of their property for support of
the government.

Therefore it should be exercised with

caution to minimize injury to the
proprietary rights of a taxpayer.

It must be exercised fairly, equally and

uniformly, lest the tax collector kill the
"hen that lays the golden egg".

- And, in order to maintain the general

public's trust and confidence in the
Government this power must be used
justly and not treacherously.

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y

CIA.,petitioners,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE,respondents.
G.R. No. L-25043
April 26, 1968
FACTS:
Don Pedro Roxas and Dona Carmen Ayala, Spanish
subjects, transmitted to their grandchildren by
hereditary succession several properties.

To manage the above-mentioned

properties, said children, namely, Antonio
Roxas, Eduardo Roxas and Jose Roxas,
formed a partnership called Roxas y
Compania.
At the conclusion
tenants who have all
lands in Nasugbu
expressed their desire
Roxas y Cia.

of the WW2, the

been tilling the
for generations
to purchase from

The Government, in consonance with the

constitutional mandate to acquire big landed
estates and apportion them among landless
tenants-farmers, persuaded the Roxas
brothers to part with their landholdings.
Conferences were held with the farmers in
the early part of 1948 and finally the Roxas
brothers agreed to sell 13,500 hectares to
the Government for distribution to actual
occupants.

It turned out however that the Government

did not have funds to cover the purchase price,
and so a special arrangement was made for the
Rehabilitation Finance Corporation to advance to
Roxas.
Under the arrangement, Roxas allowed the
farmers to buy the lands for the same price but
by installment, and contracted with the
Rehabilitation Finance Corporation to pay its loan
from the proceeds of the yearly amortizations
paid by the farmers.

In 1953 and 1955, Roxas y Cia derived certain

amount of net gains, 50% of which was reported for
income tax purposes as gain on the sale of capital
asset.
The CIR then demanded from Roxas the payment of
deficiency income taxes specifically the alleged
unreported 50% of the net profits for 1953 and 1955
derived from the sale of the Nasugbu farm lands to
the tenants.
According to the Commissioner, the partnership was
engaged in the business of real estate, hence 100%
of the profits derived therefrom is to be taxed.

The Roxas brothers protested the assessment but

inasmuch as said protest was denied, they
instituted an appeal in the CTA which sustained
the assessment. Hence, this appeal.
ISSUE:
Is Roxas y Cia liable for the payment of deficiency
income for the sale of Nasugbu farmlands?

RULING:
No. Although they paid for their
respective holdings in installment for a period of
10 years, it would nevertheless not make the
vendor Roxas y Cia a real estate dealer during the
10-year amortization period.
It should be borne in mind that the sale of
the Nasugbu farm lands to the very farmers who
tilled them for generations was not only
inconsonance with, but more in obedience to the
request and pursuant to the policy of our
Government to allocate lands to the landless.

It was the bounden duty of the Government to pay

the agreed compensation after it had persuaded
Roxas y Cia to sell its haciendas, and to
subsequently subdivide them among the farmers at
very reasonable terms and prices.
However, the Government could not comply with
its duty for lack of funds. Obligingly, Roxas y Cia
shouldered the Government's burden, went out of
its way and sold lands directly to the farmers in
the same way and under the same terms as would
have been the case had the Government done it
itself.

The power of taxation is sometimes

called also the power to destroy. Therefore it
should be exercised with caution to minimize
injury to the proprietary rights of a taxpayer.
It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen
that lays the golden egg". And, in order to
maintain the general public's trust and
confidence in the Government this power must
be used justly and not treacherously.

It does not conform with Our sense of

justice in the instant case for the Government
to persuade the taxpayer to lend it a helping
hand and later on to penalize him for duly
answering the urgent call.
In fine, Roxas y Cia cannot be considered a
real estate dealer for the sale in question.
Hence, pursuant to Section 34 of the Tax Code
the lands sold to the farmers are capital assets,
and the gain derived from the sale thereof is
capital gain, taxable only to the extent of 50%.

Escape from Taxation

1.

Shifting of Tax Burden

2.

Tax Avoidance

3.

Tax Evasion

1. Shifting of Tax Burden

-

is the process by which the burden of a tax is

transferred from the statutory taxpayer or the
one whom the tax was assessed or imposed to
another without violating the law

Ways of Shifting the Tax Burden

a. Forward shifting - When the burden of the
tax is transferred from a factor of production
through the factors of distribution until it
finally settles on the ultimate purchaser or
consumer.
b. Backward shifting When the burden of the
tax is transferred from the consumer or
purchaser through the factors of distribution
to the factors of production.

c. Onward shifting When the tax is shifted two

or more times either forward or backward.
2. Tax Avoidance

tax saving device within the means sanctioned

by law

This method should be used by the taxpayer in

good faith and at arms length

3. Tax Evasion

is a scheme used outside of those lawful means and

when availed of, it usually subjects the taxpayer to
further or additional civil or criminal liabilities

Three factors to be considered in determining if a

scheme is designed to evade taxes
1.

2.
3.

The end to be achieved (which is payment of less

taxes than that known by the taxpayer to be legally
due or non-payment of a tax when it is shown that a
tax is due);
An evil or deliberate state of mind; and
A course of action which is unlawful

CIR V. Pilipinas Shell Petroleum Corporation

G.R. No. 188497
April 25,2012
Facts:
Respondent is engaged in the business of processing,
treating & refining petroleum for the purpose of
producing marketable products & the subsequent sale
thereof.
In 2002 & 2003,respondent filed a formal claim for
refund or tax credit representing excise taxes it
allegedly paid on sales & deliveries of gas and fuel oils
to various international carrier.

Respondent invoke Sec. 135 of the NIRC which

provides:
Sec. 135. Petroleum Products Sold to International
Carriers and Exempt Entities or Agencies: Petroleum
products sold to the following are exempt from
excise tax:
(a.) International carriers of Philippine or foreign
registry on their use or consumption outside of the
Philippines XXXX....
Thus, respondent maintains that since petroleum
products sold to qualified international carriers are
exempt form excise tax, no taxes should be imposed
ON THE ARTICLE, to which the goods the tax attaches.

As these excise taxes have been erroneously

paid, they can be recovered.
However, the Solicitor General argues that the
grant of excise tax exemption is only to the
international carriers and exempt entities as
buyers of petroleum products and not to the
manufacturers or producers before removal of the
domestic products from the place of production.
Hence, the respondent must pay the excise tax
as manufacturer/producer of the petroleum
products.

Differently stated, regardless who the

buyer/purchaser is, the excise tax of the
petroleum products has already been attached
before their sale/delivery to international
carrier.
Issue: Whether the respondent is exempt form
the payment of the excise tax.
Ruling: No. Respondent is not exempt from
paying excise taxes.

Excise taxes, as the term is used in the

NIRC, refer to taxes applicable to certain
specified
goods/articles manufactured or
produced in the Phils for domestic sales or
consumption or for any disposition and to things
imported into the Phils. These taxes are imposed
in addition to the value-added tax.
As to petroleum products, Sec. 148 provides
that excise taxes attach to the refined &
manufactured mineral oils & motor fuel as soon
as they are in existence.

Considering that excise taxes attaches to

the petroleum products as soon as they are in
existence, there can be NO outright exemption
from the payment of excise tax in petroleum
products.
Sec. 135 deals with the tax treatment of a
specified article (petroleum products) in
relation to its buyers or consumer. Respondents
failure to make this distinction apparently led to
mistakenly assume that the tax exemption under
Sec. 135 attached to the goods themselves such
that the excise tax should not have been placed.

The exemption form excise tax payment in

petroleum products under Sec. 135 (a) is
conferred on international carriers who
purchased the same for their use or consumption
outside the Phils.
Furthermore, there is nothing in Sec. 135
(a) which explicitly grants exemption from the
payment of excise taxes in favor of oil companies
selling their petroleum products to international
carriers.

Hence, the court held that Sec. 135 (a)

should be construed as prohibiting the shifting
of tax burden of the excise tax to the
international carriers who buys petroleum
products from local manufacturers.
Such provision thus merely allow the
international carrier to purchase petroleum
products without the tax component as an added
cost in the price fixed by manufacturers or
distributors/sellers.

Delpher Trades Corporation & Delpher Pacheco

v.
Intermediate Appellate Court & Hydro Pipes Phils.
G.R. No. L-69259
Jan. 26, 1988
Facts: The defendant corporation is a family
corporation. It was organized by the children of the two
spouses (Sps. Palagia Pacheco & Benjamin Hernandez and
Sps. Delfin Pacheco and Pilar Angeles) who owned in
common the land leased to Hydro Pipes Phils in order to
perpetuate their control over the property and to avoid
tax.

By holding the property, the family will have

continuous control of the property, tax exemption
benefits among others.
In the point of taxation, since a corporation does
not die, the family can continue to hold on to the
property indefinitely for a period of at least 50
years. On the other hand, if the property is held by
the spouses, the property will be tied up in
succession proceeding and the consequential
payment of estate and inheritance taxes when an
owner dies.

Issue: Is the scheme adopted by the family to escape

taxation valid and legal?
Ruling: Yes. The scheme adopted by the family is valid
and legal.
The record does not point to anything wrong or
objectionable about the estate planning scheme
resorted to by the Pachecos. The legal right of a
taxpayer to decrease the amount of what otherwise
could be his taxes or altogether avoid them, by means
which the law permits, cannot be doubted (Liddell &
co., Inc. v. CIR, 2 SCRA 632 citing Gregory v. Helvering,
293 U.S. 465 & L. ed. 596)