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TAXES, taxes, and taxes. It seems inescapable, inevitable and unavoidable that life be lived with taxes. Yet, one has to wonder whether double taxation is allowed? After all, under criminal law, there exists the principle of double jeopardy that forbids an accused from being tried twice for the same crime on the same set of facts.
Our Supreme Court has defined ?double taxation? as taxing the same property twice when it should be taxed only once; or, taxing the same person twice by the same jurisdiction for the same thing. Otherwise described as "direct duplicate taxation", the two taxes must be 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 they must be of the same kind or character.
Double taxation, in general, is not forbidden by our fundamental law, since we have not yet adopted as part thereof the injunction against double taxation found in the Constitution of the United States. Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental 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 or municipality.
In international law, double taxation usually takes place when a person is resident of a particular country and derives income from, or owns capital in another country and both states impose tax on that income or capital.
In order to eliminate double taxation in international law, a tax treaty may avail of several methods. First, it may set out the respective rights to tax of the state of source or situs and of the state of residence with regard to certain classes of income or capital. In some cases, an exclusive right to tax is conferred on one of the contracting states; however, for other items of income or capital, both states are given the right to tax, although the amount of tax that may be imposed by the state of source is limited. In negotiating tax treaties, the underlying rationale for reducing the tax rate is that the Philippines will give up a part of the tax in the expectation that the tax given up for this particular investment is not taxed by the other country.
The second method for the elimination of double taxation applies whenever the state of source is given a full or limited right to tax together with the state of residence. In this case, the treaties make it incumbent upon the state of residence to allow relief in order to avoid double taxation. This may be through a tax treaty relief ruling from the International Affairs Division of the Bureau of Internal Revenue.
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The author is a tax manager in a leading tax and auditing firm. He is from Cebu and is a graduate of theAteneo Law School (Juris Doctor in Laws, Second Honors), and UP Cebu (Bachelor of Business Management, Cum Laude). He has also completed his Masters of Law Degree from the University of California Hastings School of Law with specialization in International Business and Trade. Send feedback to rester.nonato@yahoo.com.
