INSTANCES OF DOUBLE TAXATION

1. A tax on mortgage as personal property when the mortgaged Modes of avoiding the occurrence of double taxation
property is also taxed at its full value as real estate.
2. A tax upon a corporation for its property and upon its 1. Allowing reciprocal exemption either by law or by treaty.
shareholders for their shares. 2. Allowance of tax credit for foreign taxes paid.
3. A tax upon a corporation for its capital stock as a whole and 3. Allowance of deduction for foreign taxes paid.
upon the shareholders for their shares. 4. Reduction of Philippine tax rate.
4. A tax upon depositors in a bank for their deposits and a tax
upon the bank for the property in which such deposits are
invested. MOST FAVORED NATION CLAUSE
5. An excise tax upon certain use of property and a property tax
upon the same property.  A method of establishing equality of trading opportunity
6. A tax upon the same property imposed by two different among states by guaranteeing that if one country is given
states, better trade terms by another, then all other states must get
the same terms.

PURPOSE
Domestic and International double taxation
 To grant to the contracting party treatment not less favorable
 Domestic double taxation – arises when the taxes are than that which has been or may be granted to the “most
imposed by the local or the national government. favored” among other countries. It is intended to establish
the principle of equality of international treatment by
 International double taxation – imposition of comparable providing that the citizens or subjects of the contracting
taxes in two or more states on the same taxpayer with nations may enjoy the privileges accorded by either party to
respect to the same subject matter and for an identical those of the most favored nation.
period.

Allowed because they are imposed by different taxing authorities

(domestic and international) CAPITALIZATION

Measures allowed by the government are tax refund or credit but  The reduction in the price of the taxed object equal to the
not to declare it invalid. capitalized value of future taxes which the purchaser expects
to be called upon to pay. It occurs hen the tax falls on an
 DECIDED CASES: ONLY INDIRECT DOUBLE TAXATION income-producing property, i.e. commercial building.

 A. Taxpayers with warehousing business although carried on  The buyer naturally takes into account the taxes that he will
in relation to the operation of its sugar central, is a distinct be paying on the property when he becomes the owner
and separate taxable business – different subject, although thereof in determining whether the price is reasonable or
the same owner. not. The burden of the tax rests on the present owner
(seller) if he reduces the price because of the tax.
TN: There can be no double taxation where the State merely
imposes a tax on every separate and distinct business in which a Example: Buying depreciable goods (e.g. 1M car, payable every
party is engaged in. year)

 B. A license tax may be levied upon a business or occupation

although the land or the property used in connection
therewith is subject to property tax. NATURE OF TAX EXEMPTION

TN: License tax applies to the business, property tax is for the A. MERE PERSONAL PRIVILEGE OF THE GRANTEE – cannot be
land –different subject, object or purpose although the burden is assigned or transferred without the consent of the
carried by one entity. Legislature. The legislative consent to the transfer may be
given either in the original act granting the exemption or in a
 C. Both a license fee and a tax may be imposed in the same subsequent law.
business or occupation for selling the same article. B. GENERALLY REVOCABLE BY THE GOVERNMENT –
XPN: Unless founded on a contract which is protected from
TN: License fee is not a tax.
impairment. But the contract must contain the essential
 D. When every bottle or container of intoxicating beverages elements of other contracts.
is subject to local tax and at the same time the business of
selling such product is also subject to liquor’s license. XPN to XPN: A legislative franchise which is in the nature of a
contract. It may be repealed or amended pursuant to the
TN: Different taxing authority and purpose. Constitution (see Sec. 11, Art. XII).
C. IMPLIES A WAIVER ON THE PART OF THE GOVERNMENT OF
 E. A tax imposed in both the occupation of fishing and the ITS RIGHT TO CELLECT TAXES DUE TO IT, and, in this sense,
fish pond. is prejudicial thereto. Hence, it exists only by virtue of an
express grant and must be strictly construed.
TN: Different object and subject
D. NOT NECESSARILY DISCRIMINATORY, provided it has
 F. A local ordinance imposing a tax in the storage of copra reasonable foundation or rational basis. Where, however, no
where it appears that the finished products manufactured valid distinction exists, the exemption may be challenged as
out of the copra is also subject to VAT. violative of the equal protection guarantee or the uniformity
rule.
TN: Different subject matter and purpose

 G. A lessor pays real estate tax, real estate dealer’s tax and
income tax on the rentals. RATIONALE OF TAX ECCXEMPTION

TN: Different kind and character. Real estate tax is a tax on the  Such exemption will benefit the body of the people and not
property, dealer’s tax is a tax on the privilege to engage in particular individuals or private interest and that the public
business, income tax is a tax on the privilege to earn income. benefit is sufficient to offset the monetary loss entailed in the
grant of the exemption.
 Its avowed purpose is some public benefit or interest which
the lawmaking body considers sufficient to offset the
monetary loss entailed in the grant of the exemption.

GROUNDS FOR TAX EXEMPTION

A. IT MAY BE BASED ON CONTRACT.

TN: In such a case, the public which is represented by the

government is supposed to receive a full equivalent therefor,
i.e. charter of a corporation.

B. IT MAY BE BASED ON SOME GROUND OF PUBLIC POLICY

TN: To encourage new industries or to foster charitable

institutions. Here, the government need not receive any
consideration in return for the tax exemption.
C. IT MAY BE CREATED IN A TREATY ON GROUNDS OF
RECIPROCITY OR TO LESSEN THE RIGORS OF
INTERNATIONAL OR MULTIPLE TAXATION.