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DOCTRINES IN TAXATION - Coggle Diagram

- - - - METHODS OF AVOIDING THE OCCURENCE OF DOUBLE TAXATION
        
        A. TAX TREATY
        
        ELIMINATE IMPOSITION OF COMPARABLE TAXES BY TWO OR MORE STATES ON SAME TAXPAYER, SUBJECT MATTER, & PERIODS
        Tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods.
        
        MFNC = NO LESSER TAX TREATMENT THAN THE MOST FAVORED NATION
        Most favored nation clause
        The purpose of the clause in a tax treaty is to grant to the other Contracting State a tax treatment that is no less favorable than that which is granted to the “most favored” among other countries.
        
        SAME FAVORABLE TERMS FOR EVERY PARTY
        It means each party to the treaty pledges that any tax concession given to any other treaty country will also be extended to the other party to the treaty; that is, it will not grant more favorable terms to other treaty countries without granting the same.
        
        SAME SUBJECT OF TAX BUT DIFFERENT CIRCUMSTANCES WITH DIFFERENT CORRESPONDING BURDENS
        (CIR v. SC Johnson and Son, Inc.)
        S.C. Johnson and Son paid a 25% tax on royalties paid to SC Johnson and Son, USA. They later sought a refund, claiming that the 10% rate in the RP-West Germany Tax Treaty should be applied in view of the most favored nation clause of the RP-US Tax Treaty.
        Under that clause, the tax imposed should not exceed the lowest rate that may be imposed on royalties of the same kind paid under similar circumstances to a resident of a third State (which in this case is West Germany).
        The Court ruled against S.C. Johnson and Son, holding that while the subject of the tax may be the same (royalties), the circumstances under which these taxes are paid are different.
        In particular, the West German treaty grants a matching tax credit of 20%; a feature absent in the RP-US treaty.
        The Court held that in view of the underlying intent of the most favored nation clause to establish equality of international treatment, the West German tax rate cannot be applied since the circumstances surrounding the method of payment and the corresponding tax burdens are different.
        
        RATIONALE: TO ENCOURAGE FREE FLOW FOR THE ECONOMY
        The apparent rationale for doing away with double taxation is [to] encourage the free flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies.
        [CIR v. SC Johnson and Son, Inc.]
        
        TAX CREDIT - EXEMPTIONS OR ALLOWANCE OF DEDUCTION OR TAX CREDIT FOR FOREIGN TAXES
        
        ONE IS ONLY ENTITLED TO DEDUCT IF ONE IS ENTITLED TO TAX CREDIT
        The right to deduct from gross income the income taxes he paid to a foreign government is given only as an alternative or substitute to his right to claim a tax credit for such foreign income taxes.
        Such alternative to deduct may only be availed of if he is entitled to tax credit.
        
        NOT ENTITLED TO TAX CREDIT IF TAXES PAID WERE OF ANOTHER STATE'S
        An alien resident is not entitled to tax credit for the foreign income taxes he paid, if his income is derived wholly from sources within the Philippines.
        Hence, he may not deduct from gross income the income taxes he paid to his home country for the taxable year.
        [CIR v. Lednicky]
        
        PAYING THE TAXES OF ONE STATE, DOES NOT ENTITLE ONE TO DEDUCTIONS FROM THE TAX OF A DIFFERENT STATE
        CIR v. Lednicky Respondents, American citizens living in the Philippines, claim deductions from their gross income because they already paid the U.S. government on the said income.
        The SC disallowed said deductions because they were not entitled to tax credit, their income being derived wholly from sources within the Philippines. It is only when they are entitled to tax credit that they may choose the alternative of having their income tax deducted.
        Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity.
        Here, although the taxpayer would have to pay 2 taxes on the same income. the Philippine government only receives the proceeds of one tax.
        Any relief from the alleged double taxation should come from the US, not the Philippines, since the former’s right to burden the taxpayer is solely predicated on his citizenship, without contributing to the production of the wealth that is being taxed.
      - DOUBLE TAXATION DEFINED
        Taxing twice the SAME TAXPAYER for the SAME TAX PERIOD upon the SAME THING OR ACTIVITY, when it should be taxed but once, for the same purpose and with the same kind of character of tax.
        
        STRICT SENSE:
        DIRECT DUPLICATE TAXATION
        Strict sense (Direct Duplicate Taxation)
        The same property must be taxed twice when it should be taxed once;
        Both taxes must be imposed:
        
        SAME PROPERTY/SUBJECT MATTER
        On the same property subject/matter;
        
        SAME PURPOSE
        For the same purpose;
        
        SAME STATE/GOVERNMENT
        By the same State, Government, or taxing authority;
        
        SAME JURISDICTION/TAXING DISTRICT
        Within the same jurisdiction or taxing district;
        
        SAME TAXING PERIOD
        During the same taxing period; and
        
        SAME KIND/CHARACTER OF TAX
        They must be the same kind or character of tax
        [Villanueva v. City of Iloilo]
        
        Is there an instance where a tax is not imposed?
        
        BROAD SENSE:
        INDIRECT DUPLICATE TAXATION;
        HAPPENS IF 1 ELEMENT OF DDT IS MISSING
        Broad Sense (Indirect Duplicate Taxation)
        If any of the elements for direct duplicate taxation is absent.
        Extends to all cases in which there is a burden of two or more pecuniary impositions.
        For example, a tax upon the same property imposed by two different states.
        
        CONSTITUTIONALITY OF DOUBLE TAXATION:
        THERE IS NO CONSTITUTIONAL PROHIBITION; THOUGH UNFAVORED, IT IS PERMISSIBLE IF A CONSTITUTIONAL REQ IS NOT VIOLATED
        There is no constitutional prohibition against double taxation in the Philippines.
        It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated. [Villanueva v. City of Iloilo]
        
        NO DOUBLE TAXATION IN REAL ESTATE TAX, LICENSE TAX ON THE SAME REAL PROPERTY
        There is no double taxation in the following cases:
        
        REAL ESTATE TAX & LICENSE TAX COLLECTED ON THE SAME
        REAL PROPERTY:
        
        2 more items...
        
        Is this prohibited?
    - - UNLESS OTHERWISE PROVIDED
      - THE 5-YEAR LIMIT PROVIDED FOR BY
        SEC. 331 OF THE NIRC DOES NOT APPLY SINCE THE LATTER APPLIES TO ASSESSMENTS, NOT TAXES
        CIR v. Ayala Securities Corp The CIR assessed Ayala Securities Corp. 25% surtax on its unreasonable income surplus in 1961 pertaining to the fiscal year of 1955.
        Ayala Securities raised the defense of prescription, invoking Sec. 331 of the NIRC which provided a 5- year time limit. The CTA and CA held that the assessment was made beyond the prescriptive period, hence not binding.
        The SC reversed since there is no express provision of law limiting the CIR’s right to assess and collect the 25% tax on unreasonably accumulated surplus, thus, the right is imprescriptible.
        Secs. 331 and 332 relied upon by respondents are not applicable because they pertain to assessments which require the filing of returns. Sec. 25 (basis of surtax), on the other hand, does not require a return.