Double Taxation; Methods of Avoiding DTouble Taxation

TAXATION QUESTION 1997

What are the usual methods of avoiding the occurrence of double taxation?

SUGGESTED ANSWER:

The usual methods of avoiding the occurrence of double taxation are:

1          Allowing reciprocal exemption either by law or by treaty;

2          Allowance of tax credit for foreign taxes paid;

3          Allowance of deduction for foreign taxes paid; and

4          Reduction of the Philippine tax rate.

Note: Any three of the methods shall be given full credit. 

Double Taxation; License Fee vs. Local Tax

TAXATION QUESTION 2004

A municipality, BB, has an ordinance which requires that all stores, restaurants, and other establishments selling liquor should pay a fixed annual fee of P20.000. Subsequently, the municipal board proposed an ordinance imposing a sales tax equivalent to 5% of the amount paid for the purchase or consumption of liquor in stores, restaurants and other establishments. The municipal mayor, CC, refused to sign the ordinance on the ground that it would constitute double taxation. Is the refusal of the mayor justified? Reason briefly.

SUGGESTED ANSWER:

No. The refusal of the mayor is not justified. The impositions are of different nature and character. The fixed annual fee is in the nature of a license fee imposed through the exercise of police power while the 5% tax on purchase or consumption is a local tax imposed through the exercise of taxing powers. Both a license fee and a tax may be imposed on the same business or occupation, or for selling the same article and this is not in violation of the rule against double taxation {Campania General de Tabacos de Filipinos v. City of Manila, 8 SCRA 367 [1963]). 

Double Taxation; Indirect Duplicate Taxation

TAXATION QUESTION 1997

When an item of income is taxed in the Philippines and the same income is taxed in another country, is there a case of double taxation?

SUGGESTED ANSWER:

Yes, but it is only a case of indirect duplicate taxation which is not legally prohibited because the taxes are imposed by different taxing authorities. 

Double Taxation: What Constitutes Double Taxation

TAXATION QUESTION 1996

X, a lessor of a property, pays real estate tax on the premises, a real estate dealer's tax based on rental receipts and income tax on the rentals. X claims that this is double taxation? Decide.

SUGGESTED ANSWER:

There is no double taxation. DOUBLE TAXATION means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, by the same taxing authority for the same purpose and with the same kind or character of tax. The REAL ESTATE TAX is a tax on property; the REAL ESTATE DEALER'S TAX is a tax on the privilege to engage in business; while the INCOME TAX is a tax on the privilege to earn an income. These taxes are imposed by different taxing authorities and are essentially of different kind and character (Villanueva vs. City of Iloilo, 26 SCRA 578). 

Double Taxation

TAXATION QUESTION 1997

Is double taxation a valid defense against the legality of a tax measure?

SUGGESTED ANSWER:

No, double taxation standing alone and not being forbidden by our fundamental law is not a valid defense against the legality of a tax measure (Pepsi Cola v. Tanawan, 69 SCRA 460). However, if double taxation amounts to a direct duplicate taxation,

1          in that the same subject is taxed twice when it should be taxed but once, 

2          in a fashion that both taxes are imposed for the same purpose

3          by the same taxing authority, within the same jurisdiction or taxing district, 

4          for the same taxable period and  

5          for the same kind or character of a tax 

then it becomes legally objectionable for being oppressive and inequitable

Liberal Construction; Rules of Court

REMEDIAL LAW QUESTION 1998

How shall the Rules of Court be construed?

SUGGESTED ANSWER:

The Rules of Court should be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding. (Sec. 6, Rule 1 1997 Rules of Civil Procedure.)

ADDITIONAL ANSWER:

However, strict observance of the rules is an imperative necessity when they are considered indispensable to the prevention of needless delays and to the orderly and speedy dispatch of Judicial business. (Alvero vs. Judge de la Rosa, 76 Phil. 428)

Katarungang Pambarangay; Objective

REMEDIAL LAW QUESTION 1999

What is the object of the Katarungang Pambarangay Law?

SUGGESTED ANSWER:

The object of the Katarungang Pambarangay Law is to effect an amicable settlement of disputes among family and barangay members at the barangay level without judicial recourse and consequently help relieve the courts of docket congestion. (Preamble of P.D. No. 1508, the former and the first Katarungang Pambarangay Law.)

Judicial Autonomy & Impartiality

REMEDIAL LAW QUESTION 2003

In rendering a decision, should a court take into consideration the possible effect of its verdict upon the political stability and economic welfare of the nation?

SUGGESTED ANSWER:

No, because a court is required to take into consideration only the legal issues and the evidence admitted in the case. The political stability and economic welfare of the nation are extraneous to the case. They can have persuasive influence but they are not the main factors that should be considered in deciding a case. A decision should be based on the law, rules of procedure, justice and equity. However, in exceptional cases the court may consider the political stability and economic welfare of the nation when these are capable of being taken into judicial notice of and are relevant to the case 

Judgment vs. Opinion of the Court

REMEDIAL LAW QUESTION 2006

What is the difference between a judgment and an opinion of the court?

SUGGESTED ANSWER:

The judgment or fallo is the final disposition of the Court which is reflected in the dispositive portion of the decision. A decision is directly prepared by a judge and signed by him, containing clearly and distinctly a statement of the facts proved and the law upon which the judgment is based (Etoya v. Abraham Singson, Adm. Matter No. RTJ-91-758, September 26, 1994).

An opinion of the court is the informal expression of the views of the court and cannot prevail against its final order. The opinion of the court is contained in the body of the decision that serves as a guide or enlightenment to determine the ratio decidendi of the decision. The opinion forms no part of the judgment even if combined in one instrument, but may be referred to for the purpose of construing the judgment (Contreras v. Felix, G.R. No. L-477, June 30, 1947).

Interlocutory Order

REMEDIAL LAW QUESTION 2006

What is an interlocutory order?

SUGGESTED ANSWER:

An interlocutory order refers to an order issued between the commencement and the end of the suit which is not a final decision of the whole controversy and leaves something more to be done on its merits

(Gallardo et al. v. People, G.R. No. 142030, April 21, 2005; Investments Inc. v. Court of Appeals,

G.R. No. 60036, January 27, 1987 cited in Denso Phils, v. /AC, G.R. No. 75000, Feb. 27, 1987).

Exclusive Economic Zone; Rights of the Coastal State

POLITICAL LAW QUESTION 2005

Enumerate the rights of the coastal state in the exclusive economic zone.

ALTERNATIVE ANSWER:

In the EXCLUSIVE ECONOMIC ZONE, the coastal State has sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters superjacent to the seabed and of the seabed and its subsoil, and with regard to other activities for the economic exploitation and exploration of the zone, such as the production of energy from the water, currents and winds in an area not extending more than 200 nautical miles beyond the baseline from which the territorial sea is measured. Other rights include the production of energy from the water, currents and winds, the establishment and use of artificial islands, installations and structures, marine scientific research and the protection and preservation of the marine environment. (Art. 56, U.N.Convention on the Law of the Sea)

ALTERNATIVE ANSWER:

SOVEREIGN RIGHTS — for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the seabed and subsoil and the superjacent waters, and with regard to other activities such as the production of energy from the water, currents and winds in an area not extending more than 200 nautical miles beyond the baseline from which the territorial sea is measured. (See Art. 56, UNCLOS) 

Jurisdiction, inter alia, with regard to:

(1) the establishment and use of artificial islands, installations and structures;

(2) marine scientific research; and

(3) the protection and preservation of the marine environment. 

Exclusive Economic Zone; Rights of the Coastal State

POLITICAL LAW QUESTION 1994

In the desire to improve the fishing methods of the fishermen, the Bureau of Fisheries, with the approval of the President, entered into a memorandum of agreement to allow Thai fishermen to fish within 200 miles from the Philippine sea coasts on the condition that Filipino fishermen be allowed to use Thai fishing equipment and vessels, and to learn modern technology in fishing and canning. Is the agreement valid?

SUGGESTED ANSWER:

No. the President cannot authorize the Bureau of Fisheries to enter into a memorandum of agreement allowing Thai fishermen to fish within the exclusive economic zone of the Philippines, because the Constitution reserves to Filipino citizens the use and enjoyment of the exclusive economic zone of the Philippines. Section 2. Article XII of the Constitution provides: “The State shall protect the nation's marine part in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment to Filipino citizens." Section 7, Article XIII of the Constitution provides: "The State shall protect the rights of subsistence fishermen, especially of local communities, to the preferential use of the communal marine and fishing resources, both inland and offshore. It shall provide support to such fishermen through appropriate technology and research, adequate financial, production, and marketing assistance, and other services. The State shall also protect, develop, and conserve such resources. The protection shall extend to offshore fishing grounds of subsistence fishermen against foreign intrusion. Fishworkers shall receive a just share from their labor in the utilization of marine and fishing resources.

Contiguous Zone vs. Exclusive Economic Zone

POLITICAL LAW QUESTION 2004 

Distinguish: The contiguous zone and the exclusive economic zone.

SUGGESTED ANSWER:

CONTIGUOUS ZONE is a zone contiguous to the territorial sea and extends up to 12 nautical miles from the territorial sea and over which the coastal state may exercise control necessary to prevent infringement of its customs, fiscal, immigration or sanitary laws and regulations within its territory or territorial sea. (Article 33 of the Convention on the Law of the Sea.)

The EXCLUSIVE ECONOMIC ZONE is a zone extending up to 200 nautical miles from the baselines of a state over which the coastal state has sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or nonliving, of the waters superjacent to the seabed and of the seabed and subsoil, and with regard to other activities for the economic exploitation and exploration of the zone. (Articles 56 and 57 of the Convention on the Law of the Sea.)

Archipelagic Doctrine

POLITICAL LAW QUESTION 1989

What do you understand by the archipelagic doctrine? Is this reflected in the 1987 Constitution?

SUGGESTED ANSWER:

The ARCHIPELAGIC DOCTRINE emphasizes the unity of land and waters by defining an archipelago either as a group of islands surrounded by waters or a body of waters studded with islands. For this purpose, it requires that baselines be drawn by connecting the appropriate points of the "outermost islands to encircle the islands within the archipelago. The waters on the landward side of the baselines regardless of breadth or dimensions are merely internal waters. Yes, the archipelagic doctrine is reflected in the 1987 Constitution. Article I, Section 1 provides that the national territory of the Philippines includes the Philippine archipelago, with all the islands and waters embraced therein; and the waters around, between, and connecting the islands of the archipelago, regardless of their breadth and dimensions,  form part of the internal waters of the Philippines

Government Presidential Form vs. Parliamentary Form

POLITICAL LAW QUESTION 2006

1. a) What is the principal identifying feature of a presidential form of government? Explain.

SUGGESTED ANSWER:

The principal identifying feature of a presidential form of government is embodied in the separation of powers doctrine. Each department of government exercises powers granted to it by the Constitution and may not control, interfere with or encroach upon the acts done within the constitutional competence of the others. However, the Constitution also gives each department certain powers by which it may definitely restrain the others from improvident action, thereby maintaining a system of checks and balances among them, thus, preserving the will of the sovereign expressed in the Constitution.

b) What are the essential characteristics of a parliamentary form of government?

SUGGESTED ANSWER:

The essential characteristics of a parliamentary form of government are: the fusion of the legislative and executive branches in parliament; the prime minister, who is the head of government, and the members of the cabinet, are chosen from among the members of parliament and as such are accountable to the latter; and the prime minister may be removed from office by a vote of loss of confidence of parliament. There may be a head of state who may or may not be elected.

Banks; Diligence Required

MERCANTILE LAW QUESTION 1992

Placido, a bank depositor, left his checkbook on his desk at his house. Unknown to him, a visitor at the time, noticing the same, took a check therefrom, filled it up in the amount of P3,000.00 and succeeded in encashing the check on the same day. Placido’s account was thereby debited in the same amount.

Discovering the erroneous debit, Placido demanded that the bank credit him with a like amount. The bank refused on the ground that Placido was negligent in leaving his checkbook on his desk so that he could not put up the defense of forgery or want of authority under the NIL.

The Facts disclose that even to the naked eye, there were marked differences between Placido’s signature and the one in the check forged by the visitor. As between Placido and the bank, who should bear the loss? Explain.

SUGGESTED ANSWER:

The bank should bear the loss. A drawee bank must exercise the highest diligence in safeguarding the accounts of its client-depositors. The bank is also charged with genuineness of the signatures of its current account holders. But what can be more striking is that there were marked differences between Placido’s signature and the one in the check forged by the visitor. Certainly, Placido was not negligent in leaving his checkbook in his own desk (PNB v Quimpo 158 SCRA 582)

Banks; Conservator vs. Receiver

MERCANTILE LAW QUESTION 2006

Distinguish between the role of a conservator and that of a receiver of a bank.

SUGGESTED ANSWER:

The Conservator is appointed for a period not exceeding one (1) year, to take charge of the assets, liabilities, and the management of a bank or a quasi-bank in a state of continuing inability, or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of depositors and creditors. On the other hand, the Receiver is appointed to manage a bank or quasi-bank that is unable to pay its liabilities in the ordinary course of business, or has insufficient realizable assets to meet its liabilities, or cannot continue in business without probable losses to its depositors or creditors; or has willfully violated a final cease and desist order, involving acts or transactions amounting to fraud or a dissipation of the assets of the institution. The main purpose of the Receiver is to recommend the rehabilitation or liquidation of the bank

Banks; Classifications of Banks

MERCANTILE LAW QUESTION 2002

There are six (6) classes of banks identified in the General Banking Law of 2000. Name at least four (4) of them and explain the distinguishing characteristic or function of each one.

SUGGESTED ANSWER:

Any four (4) of the following six (6) classes of banks identified in the General Banking Law of 2002, to wit:

1              Universal Banks – These are those which used to be called expanded commercial banks and the operations of which are now primarily governed by the General Banking Law of 2002. They can exercise the powers of an investment house and invest in non-allied enterprises. They have the highest capitalization requirement.

2              Commercial Banks – These are ordinary or regular commercial banks, as distinguished from a universal bank. They have a lower capitalization requirement than universal banks and cannot exercise the powers of an investment house and invest in non-allied enterprises.

3              Thrift Banks – These banks (such as savings and mortgage banks, stock savings and loan associations, and private development banks) may exercise most of the powers and functions of a commercial bank except that they cannot, among others, open current or check accounts without prior Monetary Board approval, and they cannot issue letters of credit. Their operations are governed primarily by the Thrift Banks Act of 1995 (RA 7906).

4              Rural Banks – these are those which are organized primarily to extend loans and other credit facilities to farmers, fishermen or farm families, as well as cooperatives, merchants, and private and public employees and whose operations are primarily governed by the Rural Banks Act of 1992 (RA 7353).

5              Cooperative Banks – these are those which are organized primarily to provide financial and credit services to cooperatives and whose operations are primarily governed by the Cooperative Code of the Philippines (RA 6938).

6              Islamic Banks – these are those which are organized primarily to provide financial and credit services in a manner or transaction consistent with the Islamic Shari’ah. At present, only the Al Amanah Islamic Investment Bank of the Philippines has been organized as an Islamic Bank

Banks: Secrecy of Bank Deposits; Garnishment

MERCANTILE LAW QUESTION 2004

CDC maintained a savings account with CBank. On orders of the MM Regional Trial Court, the Sheriff garnished P50,000 of his account, to satisfy the judgment in favor of his creditor, MO. CDC complained that the garnishment violated the Law on the Secrecy of Bank Deposits because the existence of his savings account was disclosed to the public. Is CDC's complaint meritorious or not? Reason briefly.

SUGGESTED ANSWER:

No. CDC's complaint is not meritorious. It was held in China Banking Corporation v. Ortega, 49 SCRA 355 (1973) that peso deposits may be garnished and the depositary bank can comply with the order of garnishment without violating the Law on the Secrecy of Bank Deposits. Execution is the goal of litigation as it is its fruit. Garnishment is part of the execution process. Upon service of the notice of garnishment on the bank where the defendant deposited funds, such funds become part of the subject matter of litigation. 

Banks: Collateral Security

MERCANTILE LAW QUESTION 2002

Andrew is engaged in the business of building low-cost housing units under contracts with real estate developers. He applied for a loan of P3 Million from Ready Credit Bank (the Bank), which required Andrew to provide collateral security for it. Andrew offered to assign to the Bank his receivables amounting to P4 million from Home Builders Development Corporation (the Obligor). The Bank accepted the offer. Accordingly, Andrew obtained the loan and he executed a promissory note undertaking to pay the loan in full in one lump sum on September 1, 2002, together with interest thereon at the rate of 20% per annum. At the same time, Andrew executed a Deed of Assignment in favor of the Bank assigning to the Bank his receivables from the Obligor. The deed of assignment read:

 “I, Andrew Lee, hereby assign, transfer and convey, absolutely and unconditionally, to Ready Credit Bank (hereinafter called the Bank) all of my right, title and interest in and to my accounts receivable from Home Builders Development Corporation (hereinafter called the Obligor) arising from delivery of housing units with a total contract price of P4,000,000.00, the description and contract value of which are attached hereto as Annex A (hereinafter called the Receivables).”

“In the event that I shall be unable to pay my outstanding indebtedness owned to the Bank, the Bank shall have the right, without any further formality or act on its part, to collect the Receivables from the Obligor and to apply the proceeds thereof toward payment of my said indebtedness.”

Andrew failed to pay the loan on its due date on September 1, 2002. When the Bank attempted to collect from the Obligor, the Bank discovered that the latter had already closed operations and liquidated all its assets. The Bank sued Andrew for collection, but Andrew moved to dismiss the complaint on the ground that the debt had already been paid by reason of his execution of the aforesaid Deed of Assignment which, being absolute and unconditional, was in essence a dacion en pago. The Bank opposed the motion, contending that the Deed of Assignment was only  a security for a loan. If you were the Judge, how would you resolve the motion to dismiss filed by Andrew? Explain 

SUGGESTED ANSWER:

(Since the question is outside the scope of the Bar Examination, it is recommended that the candidate be given full credit of 5%, whatever may be his answer, and he be given a bonus if he made an answer in the following manner:)

The motion to dismiss should be granted. The simple absolute and unconditional conveyance embodied in the deed of assignment would be operative, and the assignment would constitute essentially a mode of payment or dacion en pago.