Taxation is one of the main fiscal policies to generate revenue for government services, infrastructures, and programs all for public use. The Bureau of Internal Revenue (BIR) is the primary tax-collecting agency. Tax is levied upon individuals and businesses, and can be imposed on the local and national level.
There are instances wherein an entity is taxed more than once. This is called Double Taxation, which is generally disfavored in the Philippines. This happens when the same subject is being taxed twice from the same income, same jurisdiction, same purpose and taxing period. In the long run, this may generate negative repercussions on taxpayers and businesses as this is deemed unfair and burdensome. Individuals and Corporations who have businesses or other related matters and connections with foreigners are at risk for double taxation.
The two different types of double taxation are the Direct Double Taxation and Indirect Double Taxation. Direct Double Taxation is also known as the Strict Sense or Obnoxious Double Taxation and is generally disfavored. It is named as such since all conditions must be met to be considered double taxation1. These conditions are:
- Imposed by the same taxing authority
- Imposed on the same taxpayer or entity
- Imposed within the same jurisdiction
- Imposed during the same tax period
- Tax of the same kind or purpose
On the other hand, Indirect Double Taxation is also known as the Broad Sense or Permissible Double Taxation. This happens when one or some elements of the direct double taxation are not present which is why this is generally allowed as long as it is reasonable, such as when tax is imposed by different jurisdictions, and when a different type of tax is levied. An example of this would be taxing the same property for property and income tax – same entity, but different kind of tax.
The 1987 Constitution does not explicitly or outright prohibit double taxation. However, it discourages such since it requires taxation to be uniform and equitable. In the case of Villanueva vs City of Iloilo, the court ruled that double taxation is constitutional, but becomes obnoxious when the same entity is being taxed twice by the same authority, for the same purpose and period. In the aforementioned case, Eusebio Villanueva, a tenement house owner, argued that Iloilo City levied an annual license fee and property or real estate tax. The court ruled that the levied license fee and property tax did not constitute double taxation because they were for different purposes2.
Fortunately, there are several ways on how to avoid double taxation. Tax Treaties are one of the main ways to avoid double taxation. These are bilateral agreements made between countries to avoid taxing twice on income. This can come in the forms of dividends, royalties, interest, and capital gains. Similarly, another way to avoid double taxation is through tax exemptions. Some foreign-sourced income are exempted from the country’s taxation if they are covered by Double Taxation Agreements or other similar laws. Lastly, tax credits can also be utilized to avoid double taxation. This allows taxpayers to credit in the Philippines their foreign taxes paid on the same income. This prevents settling taxes in local and international jurisdictions.
- Nursery Care Corporation et al. vs. Anthony Acevedo, G.R. No. 180651, July 30, 2014 ↩︎
- Eusebio Villanueva, et al. v. City of Iloilo, G.R. No. L-26521, 26 S.C.R.A. 578 ↩︎
