C2. Taxpayers

7/23/2019 C2. Taxpayers

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Pg Topic Case Title

1 Aliens Garrison v CA, July 19, 19904 Domestic Corporations CIR v British Overseas Airways, April 30, 198

!" Ree#eri$ %A&ster#a&' an# Royal Intero(ean )ines v CIR, June *3, 198810 +arueni Corp v CIR, -ept 14, 198914 A((enture v Cir, July 11, *01*

*0 Partnerships Gat(halian v CIR*4 .as(ual v CIR*8 CIR v -C Johnson an# -on, June */, 1999

34 Reyes v CIR3 van2elista v CIR

Royal Intero(ean )ines v CIR, June *3, 198840 Oa v CIR, +ay */, 19*

G.R. Nos. L-44501-05 July 19 1990

J!"N L. G#RR$%!N FR#N& R!'(RT%!N R!'(RT ". C#T"() J#*(% +. R!'(RT%!N F(L$C$T#% ,(G*#N an/ (,+#R, *cGR& petitioners,

vs C!RT !F #PP(#L% an/ R(P'L$C !F T"( P"$L$PP$N(% respon#ents

N#R#%# J.:

-ou2ht to e overturne# in these appeals is the $u#2&ent o5 the Court o5 Appeals, 1 whi(h a55ir&e# the #e(ision o5

the Court o5 6irst Instan(e o5 7a&ales at Olon2apo City (onvi(tin2 the petitioners o5 violation o5 -e(tion 4/ a:

1: : o5 the !ational Internal Revenue Co#e, as a&en#e#, y not 5ilin2 their respe(tive in(o&e ta; returns 5or the

year 199 an# senten(in2 ea(h o5 the& to pay a 5ine o5 <wo <housan# .*,00000: .esos, with susi#iary

i&prison&ent in (ase o5 insolven(y, an# to pay the (osts proportionately

<he petitioners have a#opte# the 5a(tual 5in#in2s o5 the Court o5 Appeals, 2 viz =

1 JO>! ) GARRI-O! was orn in the .hilippines an# live# in this (ountry sin(e irth up to

194/, when he was repatriate# an# returne# to the ?nite# -tates >e staye# in the ?nite# -tates5or the 5ollowin2 twenty years until +ay /, 19/, when he entere# the .hilippines throu2h the Clar@

Air Base <he sai# a((use# live# in the .hilippines sin(e his return on +ay , 19/ >e lives with his

6ilipino wi5e an# their (hil#ren at !o 4 Corpus -treet, est <apina(, Olon2apo City, an# they own

the house an# lot on whi(h they are presently resi#in2 >is wi5e a(uire# y inheritan(e si;

he(tares o5 a2ri(ultural lan# in ueDon .rovin(e

* JA+- ROBR<-O! was orn on Ee(e&er **, 191/ in Olon2apo, 7a&ales an# he 2rew up

in this (ountry >e an# his 5a&ily were repatriate# to the ?nite# -tates in 194/ <hey staye# in

)on2 Bea(h, Cali5ornia until the latter part o5 194 or the early part o5 194, when he was reF

assi2ne# overseas, parti(ularly to the .a(i5i( area with ho&e ase in Gua& >is ne;t arrival in the

.hilippines was in 19/8 an# he staye# in this (ountry 5ro& that ti&e up to the present >e is

presently resi#in2 at !o */ li(ao, -treet, ast Ba$a(FBa$a(, Olon2apo City, an# his house an# lotare #e(lare# in his na&e 5or ta; purposes

3 6RA! ROBR<-O! was orn in the .hilippines an# he live# in this (ountry up to 194/, when

he was repatriate# to the ?nite# -tates alon2 with his rother, his (oFa((use# Ja&es Roertson

>e staye# in the ?nite# -tates 5or aout one year, #urin2 whi(h ti&e he resi#e# in +a2nolia

Avenue, )on2 Bea(h, Cali5ornia -o&eti&e in 194 or early 194, he was assi2ne# to wor@ in the

.a(i5i( Area, parti(ularly >awaii At that ti&e he ha# een visitin2 the .hilippines o55 an# on in

(onne(tion with his wor@ In 19*, he returne# on(e &ore to the .hilippines an# he has een

resi#in2 here ever sin(e >e is &arrie# to a 6ilipino (itiDen na&e# Generosa Jui(o an# they live at

!o 3 !ational Roa#, )ower ala@lan, Olon2apo City <he resi#ential lot on whi(h they are presently

resi#in2 is #e(lare# in his wi5eHs na&e 5or ta; purposes, while the house (onstru(te# thereon was

ori2inally #e(lare# in his na&e an# the sa&e was trans5erre# in his wi5eHs na&e only in 6eruary,191

4 ROBR< > CA<> was orn in <ennessee, ?nite# -tates, on April 8, 191 his 5irst arrival in the

.hilippines, as a &e&er o5 the lieration 5or(es o5 the ?nite# -tates, was in 1944 >e staye# in the

.hilippines until April, 19/0, when he returne# to the ?nite# -tates, an# he (a&e a(@ to the

.hilippines in 19/1 >e staye# in the .hilippines sin(e 19/1 up to the present

/ 6)ICI<A- E G?7+A! was orn in the .hilippines in 193/ an# her 5ather was a naturaliDe#

A&eri(an (itiDen hile she was stu#yin2 at the ?niversity o5 -to <o&as, +anila, she was re(ruite#



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to wor@ in the ?nite# -tates !aval Base, -ui( Bay, .hilippines A5terwar#s, she le5t the .hilippines

to wor@ in the ?nite# -tates !aval Base, >onolulu, >awaii, an# she returne# to the .hilippines on or

aout April *1, 19 <he sai# a((use# has not le5t the .hilippines sin(e then -he is &arrie# to

Jose #e GuD&an, a 6ilipino (itiDen, an# they an# their (hil#ren live at !o 9 6en#ler -treet, ast

<apina(, Olon2apo City >er husan# is e&ploye# in the ?nite# -tates !aval Base, Olon2apo City,

an# he also wor@s as an insuran(e &ana2er o5 the <ravellerHs )i5e

EARE +(G?R (a&e to the .hilippines on July 11, 19 an# he staye# in this (ountry

(ontinuously up to the present ti&e

A)) <> .<I<IO!R- are ?nite# -tates (itiDens, entere# this (ountry un#er -e(tion 9 a: o5 the .hilippine

I&&i2ration A(t o5 1940, as a&en#e#, an# presently e&ploye# in the ?nite# -tates !aval Base, Olon2apo City 6or

the year 199 John ) Garrison earne# K1/,*8800 6ran@ Roertson, K1*,04/84 Roert > Cathey, K9,8//*0

Ja&es Roertson, K14,98//4 6eli(itas #e GuD&an, K 8,/0*40 an# #war# +(Gur@ K1*,4099

A)) -AIE .<I<IO!R- re(eive# separate noti(es 5ro& )a#islao 6ir&a(ion, Eistri(t Revenue O55i(er, statione# at

Olon2apo City, in5or&in2 the& that they ha# not 5ile# their respe(tive in(o&e ta; returns 5or the year 199, as

reuire# y -e(tion 4/ o5 the !ational Internal Revenue Co#e, an# #ire(tin2 the& to 5ile the sai# returns within ten

#ays 5ro& re(eipt o5 the noti(e But the a((use# re5use# to 5ile their in(o&e ta; returns, (lai&in2 that they are not

resi#ent aliens ut only spe(ial te&porary visitors, havin2 entere# this (ountry un#er -e(tion 9 a: o5 the .hilippine

I&&i2ration A(t o5 1940, as a&en#e# <he a((use# also (lai&e# e;e&ption 5ro& 5ilin2 the return in the .hilippines

y virtue o5 the provisions o5 Arti(le LII, para2raph * o5 the ?-FR. +ilitary Bases A2ree&ent

<he petitioners (onten# that 2iven these 5a(ts, they &ay not un#er the law e #ee&e# resi#ent aliens reuire# to

5ile in(o&e ta; returns >en(e, they ar2ue, it was error 5or the Court o5 Appeals M

1: to (onsi#er their physi(al or o#ily presen(e in the (ountry as su55i(ient y itsel5 to uali5y the&: as

resi#ent aliens #espite the 5a(t that they were not Hresi#entsH o5 the .hilippines i&&e#iately e5ore their

e&ploy&ent y the ?- Govern&ent at -ui( !aval Base an# their presen(e here #urin2 the perio# (on(erne# was

#i(tate# y their respe(tive wor@ as e&ployees o5 the ?nite# -tates !aval Base in the .hilippines, an#

*: to re5use to re(o2niDe their ta;Fe;e&pt status un#er the pertinent provisions o5 the R.F?- +ilitary Bases

A2ree&ent

<he provision alle2e# to have een violate# y the petitioners, -e(tion 4/ o5 the !ational Internal Revenue Co#e, as

a&en#e#, rea#s as 5ollows=

-C 4/ M In#ivi#ual returns a: Reuire&ents 1: <he 5ollowin2 in#ivi#uals are reuire# to 5ile

an in(o&e ta; return, i5 they have a 2ross in(o&e o5 at least One <housan# i2ht >un#re# .esos 5or

the ta;ale

year

: I5 alien resi#in2 in the .hilippines, re2ar#less o5 whether the 2ross in(o&e was #erive# 5ro&sour(es within or outsi#e the .hilippines

<he san(tion 5or rea(h thereo5 is pres(rie# y -e(tion 3 o5 the sa&e (o#e, to wit=

-C 3 .enalty 5or 5ailure to 5ile return nor to pay ta; M Anyone liale to pay the ta;, to &a@e a

return or to supply in5or&ation reuire# un#er this (o#e, who re5uses or ne2le(ts to pay su(h ta;,

to &a@e su(h return or to supply su(h in5or&ation at the ti&e or ti&es herein spe(i5ie# ea(h year,

shall e punishe# y a 5ine o5 not &ore than <wo <housan# .esos or y i&prison&ent 5or not &ore

than si; &onths, or

oth

<he provision un#er whi(h the petitioners (lai& e;e&ption, on the other han#, is (ontaine# in the +ilitary BasesA2ree&ent etween the .hilippines an# the ?nite# -tates, 4 rea#in2 as 5ollows=

* !o national o5 the ?nite# -tates servin2 in or e&ploye# in the .hilippines in (onne(tion with

(onstru(tion, &aintenan(e, operation or #e5ense o5 the ases an# resi#e in the .hilippines y

reason only o5 su(h e&ploy&ent, or his spouse an# &inor (hil#ren an# #epen#ents, parents or her

spouse, shall e liale to pay in(o&e ta; in the .hilippines e;(ept in re2ar# to in(o&e #erive# 5ro&

.hilippine sour(es or sour(es other than the ?- sour(es



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<he petitioners (lai& that they are (overe# y this e;e&ptin2 provision o5 the Bases A2ree&ent sin(e, as is

a#&itte# on all si#es, they are all ?- nationals, all e&ploye# in the A&eri(an !aval Base at -ui( Bay involve# in

so&e way or other in (onstru(tion, &aintenan(e, operation or #e5ense thereo5:, an# re(eive salary there5ro&

e;(lusively an# 5ro& no other sour(e in the .hilippines an# it is their intention, as is shown y the unreutte#

evi#en(e, to return to the ?nite# -tates on ter&ination o5 their e&ploy&ent

<hat (lai& ha# een re$e(te# y the Court o5 Appeals with the terse state&ent that the Bases A2ree&ent spea@s

o5 e;e&ption 5ro& the payment o5 in(o&e ta;, not 5ro& the filing o5 the in(o&e ta; returns 5

<o e sure, the Bases A2ree&ent very plainly I#enti5ies the persons !O< liale to pay in(o&e ta; in the .hilippines

e;(ept in re2ar# to in(o&e #erive# 5ro& .hilippine sour(es or sour(es other than the ?- sour(es <hey are the

persons in who& (on(ur the 5ollowin2 reuisites, to wit=

1: nationals o5 the ?nite# -tates servin2 in or e&ploye# in the .hilippines

*: their servi(e or e&ploy&ent is in (onne(tion with (onstru(tion, &aintenan(e, operation or #e5ense o5 the

ases

3: they resi#e in the .hilippines y reason only o5 su(h e&ploy&ent an#

4: their in(o&e is #erive# e;(lusively 5ro& ?- sour(es

!ow, there is no uestion 1: that the petitioners are ?- nationals servin2 or e&ploye# in the .hilippines *: that

their e&ploy&ent is in (onne(tion with (onstru(tion, &aintenan(e, operation or #e5ense o5 a ase, -ui( Bay

!aval Base 3: they resi#e in the .hilippines y reason only o5 su(h e&ploy&ent sin(e, as is un#ispute#, they all

inten# to #epart 5ro& the (ountry on ter&ination o5 their e&ploy&ent an# 4: they earn no in(o&e 5ro& .hilippine

sour(es or sour(es other than the ?- sour(es <here5ore, y the e;pli(it ter&s o5 the Bases A2ree&ent, none o5

the& shall e liale to pay in(o&e ta; in the .hilippines In#ee#, the petitionersH (lai& 5or e;e&ption pursuant

to this A2ree&ent ha# een sustaine# y the Court o5 <a; Appeals whi(h set asi#e an# (an(elle# the assess&ents

&a#e a2ainst sai# petitioners y the BIR 5or #e5i(ien(y in(o&e ta;es 5or the ta;ale years 199F19* 3 <he

#e(ision o5 the Court o5 <a; Appeals to this e55e(t was (onteste# in this Court y the Co&&issioner o5 InternalRevenue, ut the sa&e was nonetheless a55ir&e# on Au2ust 1*, 198

But even i5 e;e&pt 5ro& paying income tax , sai# petitioners were, it is (onten#e# y the respon#ents, not e;(use#

5ro& 5ilin2 in(o&e ta; returns 6or the Internal Revenue Co#e -e( 4/, supra: reuires the 5ilin2 o5 an in(o&e ta;

return also y any alien resi#in2 in the .hilippines, re2ar#less o5 whether the 2ross in(o&e was #erive# 5ro&

sour(es within or outsi#e the .hilippines an# sin(e the petitioners, althou2h aliens resi#in2 within the .hilippines,

ha# 5aile# to #o so, they ha# een properly prose(ute# an# (onvi(te# 5or havin2 thus violate# the Co#e

hat the law reuires, states the (hallen2e# $u#2&ent o5 the Court o5 Appeals, is &erely physi(al or o#ily

presen(e in a 2iven pla(e 5or a perio# o5 ti&e, not the intention to &a@e it a per&anent pla(e o5 ao#e It is on this

proposition, ta@en in the li2ht o5 the estalishe# 5a(ts on re(or# to the e55e(t that al&ost all o5 the appellants were

orn here, repatriate# to the ?- an# to (o&e a(@, in the latest in 19, an# to stay in the .hilippines up to thepresent ti&e, that &a@es appellants resi#ent aliens not &erely transients or so$ourners whi(h resi#en(e 5or uite a

lon2 perio# o5 ti&e, (ouple# with the a&ount an# sour(e o5 in(o&e within the .hilippines, ren#ers i&&aterial, 5or

purposes o5 5ilin2 the in(o&e ta; returns as (ontraF#istin2uishe# 5ro& the pay&ent o5 in(o&e ta;, their intention to

2o a(@ to the ?nite# -tates

a(h o5 the petitioners #oes in#ee# 5all within the letter o5 the (o#al pre(ept that an alien resi#in2 in the

.hilippines is oli2e# to 5ile an in(o&e ta; return !one o5 the& &ay e (onsi#ere# a nonFresi#ent alien, a &ere

transient or so$ourner, who is not un#er any le2al #uty to 5ile an in(o&e ta; return un#er the .hilippine <a; Co#e

<his is &a#e (lear y Revenue Relations !o * o5 the Eepart&ent o5 6inan(e o5 6eruary 10, 1940, 9 whi(h lays

#own the relevant stan#ar#s on the &atter=

An alien a(tually present in the .hilippines who is not a &ere transient or so$ourner is a resi#ent o5the .hilippines 5or purposes o5 in(o&e ta; hether he is a transient or not is #eter&ine# y his

intentions with re2ar#s to the len2th an# nature o5 his stay A &ere 5loatin2 intention in#e5inite as

to ti&e, to return to another (ountry is not su55i(ient to (onstitute hi& as transient I5 he lives in the

.hilippines an# has no #e5inite intention as to his stay, he is a resi#ent One who (o&es to the

.hilippines 5or a #e5inite purpose whi(h in its nature &ay e pro&ptly a((o&plishe# is a transient

But i5 his purpose is o5 su(h a nature that an e;ten#e# stay &ay e ne(essary to its

a((o&plish&ent, an# to that en# the alien &a@es his ho&e te&porarily in the .hilippines, he

e(o&es a resi#ent, thou2h it &ay e his intention at all ti&es to return to his #o&i(ile aroa#

when the purpose 5or whi(h he (a&e has een (onsu&&ate# or aan#one#



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<he petitioners (on(e#e that the 5ore2oin2 stan#ar#s have een a 2oo# yar#sti(@, an# are in 5a(t not at

sustantial varian(e 5ro& A&eri(an $urispru#en(e 10 <hey a(@nowle#2e, too, that their e;e&ption un#er the Bases

A2ree&ent relates si&ply to nonFliaility 5or the pay&ent o5 in(o&e ta;, not to the 5ilin2 o5 a return: But,

they ar2ue 11M

a5ter havin2 e;pressly re(o2niDe# that petitioners nee# not pay in(o&e ta; here, there appears

to e no lo2i( in reuirin2 the& to 5ile in(o&e ta; returns whi(h anyhow woul# serve no pra(ti(al

purpose sin(e their liaility on the a&ounts state# thereon (an har#ly e e;a(te# <he &ore

pra(ti(al view, ta@in2 into a((ount poli(y (onsi#erations that pro&pte# the Govern&ent o5 the

Repuli( o5 the .hilippines to e;e&pt the petitioners, as well as other A&eri(an (itiDens si&ilarly

situate#, 5ro& the pay&ent o5 in(o&e ta; here, is to re(o2niDe the lesser a(t o5 5ilin2 within the

e;e&ption 2rante# <his is si&ply ein2 (onsistent with the reason ehin# the 2rant o5 ta;Fe;e&pt

status to petitioners

.ointin2 out 5urther to what they (onsi#er the a#&inistrative i&ple&entation o5 that ta;Fe;e&ption:

provision o5 the Bases A2ree&ent: y oth 2overn&ents 5or aout ** years whi(h #i# not reuire the

5ilin2 o5 in(o&e ta; returns y A&eri(an (itiDenFe&ployees hol#in2 9FA spe(ial visas li@e petitioners:, an# to

the hi2her plane o5 politi(al realities whi(h pro&pte# the .hilippine Govern&ent to partially surren#er its

inherent ri2ht to ta;, petitioners su&it that the parti(ular prole& involve# in these (ases is a &atter

that has to 5in# solution an# ou2ht to e #ealt with in (on5eren(e tales rather than e5ore the (ourt o5 law

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uite apart 5ro& the evi#ently #istin(t an# #i55erent (hara(ter o5 the reuire&ent to pay in(o&e ta; in (ontrast to

the reuire&ent to 5ile a ta; return, it appears that the e;e&ption 2rante# to the petitioners y the Bases

A2ree&ent 5ro& pay&ent o5 in(o&e ta; is not asolute By the e;pli(it ter&s o5 the Bases A2ree&ent, it e;ists only

as re2ar#s in(o&e #erive# 5ro& their e&ploy&ent in the .hilippines in (onne(tion with (onstru(tion, &aintenan(e,

operation or #e5ense o5 the ases it #oes not e;ist in respe(t o5 other in(o&e, ie, in(o&e #erive# 5ro&

.hilippine sour(es or sour(es other than the ?- sour(es Oviously, with respe(t to the latter 5or& o5 in(o&e, ie,

that otaine# or pro(ee#in2 5ro& .hilippine sour(es or sour(es other than the ?- sour(es, the petitioners, an# all

other A&eri(an nationals who are resi#ents o5 the .hilippines, are le2ally oun# to pay ta; thereon In other wor#s,

so that A&eri(an nationals resi#in2 in the (ountry &ay e relieve# o5 the #uty to pay in(o&e ta; 5or any 2iven year,

it is in(u&ent on the& to show the Bureau o5 Internal Revenue that in that year they ha# #erive# in(o&ee;(lusively 5ro& their e&ploy&ent in (onne(tion with the ?- ases, an# none whatever 5ro& .hilippine sour(es

or sour(es other than the ?- sour(es <hey have to &a@e this @nown to the Govern&ent authorities It is not in

the 5irst instan(e the latterHs #uty or ur#en to &a@e unai#e# veri5i(ation o5 the sour(es o5 in(o&e o5 A&eri(an

resi#ents <he #uty rests on the ?- nationals (on(erne# to invo@e an# prima facie estalish their ta;Fe;e&pt

status It (annot si&ply e presu&e# that they earne# no in(o&e 5ro& any other sour(es than their e&ploy&ent in

the A&eri(an ases an# are there5ore totally e;e&pt 5ro& in(o&e ta; <he situation is no #i55erent 5ro& that o5

6ilipino an# other resi#ent in(o&eFearners in the .hilippines who, y reason o5 the personal e;e&ptions an#

per&issile #e#u(tions un#er the <a; Co#e, &ay not e liale to pay in(o&e ta; year 5or any parti(ular year that

they are not liale to pay in(o&e ta;, no &atter how plain or irre5utale su(h a proposition &i2ht e, #oes not

e;e&pt the& 5ro& the #uty to 5ile an in(o&e ta; return

<hese (onsi#erations i&pel a55ir&an(e o5 the $u#2&ents o5 the Court o5 Appeals an# the <rial Court

>R6OR, the petition 5or review on certiorari is E!IE, an# the (hallen2e# #e(ision o5 the Court o5 Appeals is

A66IR+E Costs a2ainst petitioners -O ORERE

G.R. No. L-352-4 #p6il 20 19

C!**$%%$!N(R !F $NT(RN#L R((N( petitioner,

vs 'R$T$%" !(R%(#% #$R+#)% C!RP!R#T$!N an/ C!RT !F T#7 #PP(#L% respon#ents

*(L(NC$!-"(RR(R# J.:

.etitioner Co&&issioner o5 Internal Revenue CIR: see@s a review on (ertiorari o5 the $oint Ee(ision o5 the Court o5

<a; Appeals C<A: in C<A Cases !os *33 an# */1, #ate# * January 1983, whi(h set asi#e petitionerHs

assess&ent o5 #e5i(ien(y in(o&e ta;es a2ainst respon#ent British Overseas Airways Corporation BOAC: 5or the

5is(al years 19/9 to 19, 198F9 to 190F1, respe(tively, as well as its Resolution o5 18 !ove&er, 1983

#enyin2 re(onsi#eration

BOAC is a 100N British Govern&entFowne# (orporation or2aniDe# an# e;istin2 un#er the laws o5 the ?nite#

in2#o& It is en2a2e# in the international airline usiness an# is a &e&erFsi2natory o5 the Interline Air <ransport

Asso(iation IA<A: As su(h it operates air transportation servi(e an# sells transportation ti(@ets over the routes o5

the other airline &e&ers Eurin2 the perio#s (overe# y the #ispute# assess&ents, it is a#&itte# that BOAC ha#



5

no lan#in2 ri2hts 5or tra55i( purposes in the .hilippines, an# was not 2rante# a Certi5i(ate o5 puli( (onvenien(e an#

ne(essity to operate in the .hilippines y the Civil Aeronauti(s Boar# CAB:, e;(ept 5or a nineF&onth perio#, partly

in 191 an# partly in 19*, when it was 2rante# a te&porary lan#in2 per&it y the CAB Conseuently, it #i# not

(arry passen2ers an#or (ar2o to or 5ro& the .hilippines, althou2h #urin2 the perio# (overe# y the assess&ents, it

&aintaine# a 2eneral sales a2ent in the .hilippines M a&er Barnes an# Co&pany, )t#, an# later antas Airways

M whi(h was responsile 5or sellin2 BOAC ti(@ets (overin2 passen2ers an# (ar2oes 1

G.R. No. 65! C<A Case !o *33, the 6irst Case:

On +ay 198, petitioner Co&&issioner o5 Internal Revenue CIR, 5or revity: assesse# BOAC the a22re2ate

a&ount o5 .*,498,3/8/ 5or #e5i(ien(y in(o&e ta;es (overin2 the years 19/9 to 193 <his was proteste# y

BOAC -useuent investi2ation resulte# in the issuan(e o5 a new assess&ent, #ate# 1 January 190 5or the years

19/9 to 19 in the a&ount o5 .8/8,309 BOAC pai# this new assess&ent un#er protest

On O(toer 190, BOAC 5ile# a (lai& 5or re5un# o5 the a&ount o5 .8/8,309, whi(h (lai& was #enie# y the

CIR on 1 6eruary 19* But e5ore sai# #enial, BOAC ha# alrea#y 5ile# a petition 5or review with the <a; Court on

* January 19*, assailin2 the assess&ent an# prayin2 5or the re5un# o5 the a&ount pai#

G.R. No. 65" C<A Case !o */1, the -e(on# Case:

On 1 !ove&er 191, BOAC was assesse# #e5i(ien(y in(o&e ta;es, interests, an# penalty 5or the 5is(al years

198F199 to 190F191 in the a22re2ate a&ount o5 ./49,3*43, an# the a##itional a&ounts o5 .1,00000 an#

.1,80000 as (o&pro&ise penalties 5or violation o5 -e(tion 4 reuirin2 the 5ilin2 o5 (orporation returns: penaliDe#

un#er -e(tion 4 o5 the !ational Internal Revenue Co#e !IRC:

On */ !ove&er 191, BOAC reueste# that the assess&ent e (ounter&an#e# an# set asi#e In a letter, #ate# 1

6eruary 19*, however, the CIR not only #enie# the BOAC reuest 5or re5un# in the 6irst Case ut also reFissue# in

the -e(on# Case the #e5i(ien(y in(o&e ta; assess&ent 5or ./34,13*08 5or the years 199 to 190F1 plus

.1,00000 as (o&pro&ise penalty un#er -e(tion 4 o5 the <a; Co#e BOACHs reuest 5or re(onsi#eration was #enie#

y the CIR on *4 Au2ust 193 <his pro&pte# BOAC to 5ile the -e(on# Case e5ore the <a; Court prayin2 that it e

asolve# o5 liaility 5or #e5i(ien(y in(o&e ta; 5or the years 199 to 191

<his (ase was suseuently trie# $ointly with the 6irst Case

On * January 1983, the <a; Court ren#ere# the assaile# $oint Ee(ision reversin2 the CIR <he <a; Court hel# that

the pro(ee#s o5 sales o5 BOAC passa2e ti(@ets in the .hilippines y arner Barnes an# Co&pany, )t#, an# later y

antas Airways, #urin2 the perio# in uestion, #o not (onstitute BOAC in(o&e 5ro& .hilippine sour(es sin(e no

servi(e o5 (arria2e o5 passen2ers or 5rei2ht was per5or&e# y BOAC within the .hilippines an#, there5ore, sai#

in(o&e is not su$e(t to .hilippine in(o&e ta; <he C<A position was that in(o&e 5ro& transportation is in(o&e

5ro& servi(es so that the pla(e where servi(es are ren#ere# #eter&ines the sour(e <hus, in the #ispositive portion

o5 its Ee(ision, the <a; Court or#ere# petitioner to (re#it BOAC with the su& o5 .8/8,309, an# to (an(el the

#e5i(ien(y in(o&e ta; assess&ents a2ainst BOAC in the a&ount o5 ./34,13*08 5or the 5is(al years 198F9 to

190F1

>en(e, this .etition 5or Review on (ertiorari o5 the Ee(ision o5 the <a; Court

<he -oli(itor General, in representation o5 the CIR, has aptly #e5ine# the issues, thus=

1 hether or not the revenue #erive# y private respon#ent British Overseas Airways Corporation

BOAC: 5ro& sales o5 ti(@ets in the .hilippines 5or air transportation, while havin2 no lan#in2 ri2hts

here, (onstitute in(o&e o5 BOAC 5ro& .hilippine sour(es, an#, a((or#in2ly, ta;ale

* hether or not #urin2 the 5is(al years in uestion BOAC s a resi#ent 5orei2n (orporation #oin2

usiness in the .hilippines or has an o55i(e or pla(e o5 usiness in the .hilippines

3 In the alternative that private respon#ent &ay not e (onsi#ere# a resi#ent 5orei2n (orporation

ut a nonFresi#ent 5orei2n (orporation, then it is liale to .hilippine in(o&e ta; at the rate o5 thirtyF

5ive per (ent 3/N: o5 its 2ross in(o&e re(eive# 5ro& all sour(es within the .hilippines

?n#er -e(tion *0 o5 the 19 <a; Co#e=

h: the ter& resi#ent 5orei2n (orporation en2a2e# in tra#e or usiness within the .hilippines or

havin2 an o55i(e or pla(e o5 usiness therein



6

i: <he ter& nonFresi#ent 5orei2n (orporation applies to a 5orei2n (orporation not en2a2e# in tra#e

or usiness within the .hilippines an# not havin2 any o55i(e or pla(e o5 usiness therein

It is our (onsi#ere# opinion that BOAC is a resi#ent 5orei2n (orporation <here is no spe(i5i( (riterion as to what

(onstitutes #oin2 or en2a2in2 in or transa(tin2 usiness a(h (ase &ust e $u#2e# in the li2ht o5 its pe(uliar

environ&ental (ir(u&stan(es <he ter& i&plies a (ontinuity o5 (o&&er(ial #ealin2s an# arran2e&ents, an#

(onte&plates, to that e;tent, the per5or&an(e o5 a(ts or wor@s or the e;er(ise o5 so&e o5 the 5un(tions nor&ally

in(i#ent to, an# in pro2ressive prose(ution o5 (o&&er(ial 2ain or 5or the purpose an# o$e(t o5 the usiness

or2aniDation In or#er that a 5orei2n (orporation &ay e re2ar#e# as #oin2 usiness within a -tate, there &ust

e (ontinuity o5 (on#u(t an# intention to estalish a (ontinuous usiness, su(h as the appoint&ent o5 a lo(al a2ent,

an# not one o5 a te&porary (hara(ter 2

BOAC, #urin2 the perio#s (overe# y the su$e(t F assess&ents, &aintaine# a 2eneral sales a2ent in the

.hilippines, <hat 2eneral sales a2ent, 5ro& 19/9 to 191, was en2a2e# in 1: sellin2 an# issuin2 ti(@ets *:

rea@in2 #own the whole trip into series o5 trips M ea(h trip in the series (orrespon#in2 to a #i55erent airline

(o&pany 3: re(eivin2 the 5are 5ro& the whole trip an# 4: (onseuently allo(atin2 to the various airline

(o&panies on the asis o5 their parti(ipation in the servi(es ren#ere# throu2h the &o#e o5 interline settle&ent as

pres(rie# y Arti(le "I o5 the Resolution !o 8/0 o5 the IA<A A2ree&ent 4 <hose a(tivities were in e;er(ise o5 the

5un(tions whi(h are nor&ally in(i#ent to, an# are in pro2ressive pursuit o5, the purpose an# o$e(t o5 its

or2aniDation as an international air (arrier In 5a(t, the re2ular sale o5 ti(@ets, its &ain a(tivity, is the very li5eloo#

o5 the airline usiness, the 2eneration o5 sales ein2 the para&ount o$e(tive <here shoul# e no #out then that

BOAC was en2a2e# in usiness in the .hilippines throu2h a lo(al a2ent #urin2 the perio# (overe# y the

assess&ents A((or#in2ly, it is a resi#ent 5orei2n (orporation su$e(t to ta; upon its total net in(o&e re(eive# in the

pre(e#in2 ta;ale year 5ro& all sour(es within the .hilippines 5

-e( *4 Rates o5 ta; on (orporations M

: <a; on 5orei2n (orporations M

*: Resi#ent (orporations M A (orporation or2aniDe#, authoriDe#, or e;istin2 un#er the laws o5 any

5orei2n (ountry, e;(ept a 5orei2n 5i5e insuran(e (o&pany, en2a2e# in tra#e or usiness within the

.hilippines, shall e ta;ale as provi#e# in suse(tion a: o5 this se(tion upon the total net in(o&e

re(eive# in the pre(e#in2 ta;ale year 5ro& all sources #ithin the Philippines. &phasis supplie#:

!e;t, we a##ress ourselves to the issue o5 whether or not the revenue 5ro& sales o5 ti(@ets y BOAC in the

.hilippines (onstitutes in(o&e 5ro& .hilippine sour(es an#, a((or#in2ly, ta;ale un#er our in(o&e ta; laws

<he <a; Co#e #e5ines 2ross in(o&e thus=

Gross in(o&e in(lu#es 2ains, pro5its, an# in(o&e #erive# 5ro& salaries, wa2es or (o&pensation

5or personal servi(e o5 whatever @in# an# in whatever 5or& pai#, or 5ro& pro5ession, vo(ations,

tra#es,$usiness% commerce, sales, or #ealin2s in property, whether real or personal, 2rowin2 out o5

the ownership or use o5 or interest in su(h property also 5ro& interests, rents, #ivi#en#s,

se(urities, or the transactions of any $usiness carrie& on for gain or profile% or 2ains, pro5its,

an# income &erive& from any source #hatever -e( *9P3Q &phasis supplie#:

<he #e5inition is roa# an# (o&prehensive to in(lu#e pro(ee#s 5ro& sales o5 transport #o(u&ents <he wor#s

Hin(o&e 5ro& any sour(e whateverH #is(lose a le2islative poli(y to in(lu#e all in(o&e not e;pressly e;e&pte# within

the (lass o5 ta;ale in(o&e un#er our laws In(o&e &eans (ash re(eive# or its euivalent it is the a&ount o5

&oney (o&in2 to a person within a spe(i5i( ti&e it &eans so&ethin2 #istin(t 5ro& prin(ipal or (apital 6or, while

(apital is a 5un#, in(o&e is a 5low As use# in our in(o&e ta; law, in(o&e re5ers to the 5low o5 wealth 3

<he re(or#s show that the .hilippine 2ross in(o&e o5 BOAC 5or the 5is(al years 198F9 to 190F1 a&ounte# to

.10,4*8,38 00

Ei# su(h 5low o5 wealth (o&e 5ro& sour(es within the .hilippines,

<he sour(e o5 an in(o&e is the property, a(tivity or servi(e that pro#u(e# the in(o&e 6or the sour(e o5 in(o&e to

e (onsi#ere# as (o&in2 5ro& the .hilippines, it is su55i(ient that the in(o&e is #erive# 5ro& a(tivity within the

.hilippines In BOACHs (ase, the sale o5 ti(@ets in the .hilippines is the a(tivity that pro#u(es the in(o&e <he

ti(@ets e;(han2e# han#s here an# pay&ents 5or 5ares were also &a#e here in .hilippine (urren(y <he site o5 the

sour(e o5 pay&ents is the .hilippines <he 5low o5 wealth pro(ee#e# 5ro&, an# o((urre# within, .hilippine territory,

en$oyin2 the prote(tion a((or#e# y the .hilippine 2overn&ent In (onsi#eration o5 su(h prote(tion, the 5low o5

wealth shoul# share the ur#en o5 supportin2 the 2overn&ent



7

A transportation ti(@et is not a &ere pie(e o5 paper hen issue# y a (o&&on (arrier, it (onstitutes the (ontra(t

etween the ti(@etFhol#er an# the (arrier It 2ives rise to the oli2ation o5 the pur(haser o5 the ti(@et to pay the

5are an# the (orrespon#in2 oli2ation o5 the (arrier to transport the passen2er upon the ter&s an# (on#itions set

5orth thereon <he or#inary ti(@et issue# to &e&ers o5 the travelin2 puli( in 2eneral e&ra(es within its ter&s all

the ele&ents to (onstitute it a vali# (ontra(t, in#in2 upon the parties enterin2 into the relationship 9

<rue, -e(tion 3a: o5 the <a; Co#e, whi(h enu&erates ite&s o5 2ross in(o&e 5ro& sour(es within the .hilippines,

na&ely= 1: interest, *1: #ivi#en#s, 3: servi(e, 4: rentals an# royalties, /: sale o5 real property, an# : sale o5

personal property, #oes not &ention in(o&e 5ro& the sale o5 ti(@ets 5or international transportation >owever, that

#oes not ren#er it less an in(o&e 5ro& sour(es within the .hilippines -e(tion 3, y its lan2ua2e, #oes not inten#

the enu&eration to e e;(lusive It &erely #ire(ts that the types o5 in(o&e liste# therein e treate# as in(o&e 5ro&

sour(es within the .hilippines A (ursory rea#in2 o5 the se(tion will show that it #oes not state that it is an allF

in(lusive enu&eration, an# that no other @in# o5 in(o&e &ay e so (onsi#ere# 10

BOAC, however, woul# i&press upon this Court that in(o&e #erive# 5ro& transportation is in(o&e 5or servi(es, with

the result that the pla(e where the servi(es are ren#ere# #eter&ines the sour(e an# sin(e BOACHs servi(e o5

transportation is per5or&e# outsi#e the .hilippines, the in(o&e #erive# is 5ro& sour(es without the .hilippines an#,

there5ore, not ta;ale un#er our in(o&e ta; laws <he <a; Court uphol#s that stan# in the $oint Ee(ision un#er

review

<he asen(e o5 5li2ht operations to an# 5ro& the .hilippines is not #eter&inative o5 the sour(e o5 in(o&e or the site

o5 in(o&e ta;ation A#&itte#ly, BOAC was an o55Fline international airline at the ti&e pertinent to this (ase <he test

o5 ta;aility is the sour(e an# the sour(e o5 an in(o&e is that a(tivity whi(h pro#u(e# the

in(o&e 11?nuestionaly, the passa2e #o(u&entations in these (ases were sol# in the .hilippines an# the revenue

there5ro& was #erive# 5ro& a a(tivity re2ularly pursue# within the .hilippines usiness a An# even i5 the BOAC

ti(@ets sol# (overe# the transport o5 passen2ers an# (ar2o to an# 5ro& 5orei2n (ities, 1it (annot alter the 5a(t

that in(o&e 5ro& the sale o5 ti(@ets was #erive# 5ro& the .hilippines <he wor# sour(e (onveys one essential

i#ea, that o5 ori2in, an# the ori2in o5 the in(o&e herein is the .hilippines 12

It shoul# e pointe# out, however, that the assess&ents uphel# herein apply only to the 5is(al years (overe# y the

uestione# #e5i(ien(y in(o&e ta; assess&ents in these (ases, or, 5ro& 19/9 to 19, 198F9 to 190F1 6or,

pursuant to .resi#ential Ee(ree !o 9, pro&ul2ate# on *4 !ove&er, 19*, international (arriers are now ta;e# as

5ollows=

.rovi#e#, however, <hat international (arriers shall pay a ta; o5 *F per (ent on their (ross

.hilippine illin2s -e( *4PQ P*1, <a; Co#e:

.resi#ential Ee(ree !o 13//, pro&ul2ate# on *1 April, 198, provi#e# a statutory #e5inition o5 the ter& 2ross

.hilippine illin2s, thus=

Gross .hilippine illin2s in(lu#es 2ross revenue realiDe# 5ro& upli5ts anywhere in the worl# y

any international (arrier #oin2 usiness in the .hilippines o5 passa2e #o(u&ents sol# therein,

whether 5or passen2er, e;(ess a22a2e or &ail provi#e# the (ar2o or &ail ori2inates 5ro& the

.hilippines

<he 5ore2oin2 provision ensures that international airlines are ta;e# on their in(o&e 5ro& .hilippine sour(es <he *F

N ta; on 2ross .hilippine illin2s is an in(o&e ta; I5 it ha# een inten#e# as an e;(ise or per(enta2e ta; it

woul# have een pla(e un#er <itle " o5 the <a; Co#e (overin2 <a;es on Business

)astly, we 5in# as untenale the BOAC ar2u&ent that the #is&issal 5or la(@ o5 &erit y this Court o5 the appeal

in 'A( vs. Commissioner of )nternal Revenue GR !o )F30041: on 6eruary 3, 199, is res *u&icata to the present

(ase <he rulin2 y the <a; Court in that (ase was to the e55e(t that the &ere sale o5 ti(@ets, una((o&panie# y the

physi(al a(t o5 (arria2e o5 transportation, #oes not ren#er the ta;payer therein su$e(t to the (o&&on (arrierHs ta;

As elu(i#ate# y the <a; Court, however, the (o&&on (arrierHs ta; is an e;(ise ta;, ein2 a ta; on the a(tivity o5

transportin2, (onveyin2 or re&ovin2 passen2ers an# (ar2o 5ro& one pla(e to another It purports to ta; the

usiness o5 transportation 14 Bein2 an e;(ise ta;, the sa&e (an e levie# y the -tate only when the a(ts,

privile2es or usinesses are #one or per5or&e# within the $uris#i(tion o5 the .hilippines <he su$e(t &atter o5 the

(ase un#er (onsi#eration is in(o&e ta;, a #ire(t ta; on the in(o&e o5 persons an# other entities o5 whatever @in#

an# in whatever 5or& #erive# 5ro& any sour(e -in(e the two (ases treat o5 a #i55erent su$e(t &atter, the #e(ision

in one (annot e res *u&icata to the other

>R6OR, the appeale# $oint Ee(ision o5 the Court o5 <a; Appeals is herey -< A-IE .rivate respon#ent, the

British Overseas Airways Corporation BOAC:, is herey or#ere# to pay the a&ount o5 ./34,13*08 as #e5i(ien(y

in(o&e ta; 5or the 5is(al years 198F9 to 190F1 plus /N sur(har2e, an# 1N &onthly interest 5ro& April 1,



8

19* 5or a perio# not to e;(ee# three 3: years in a((or#an(e with the <a; Co#e <he BOAC (lai& 5or re5un# in the

a&ount o5 .8/8,309 is herey #enie# ithout (osts -O ORERE

G.R. No. L-4309 June 2 19

N.. R((,(R$J 8#*%T(R,#*8 an/ R!)#L $NT(R!C(#N L$N(% petitioners,

vs C!**$%%$!N(R !F $NT(RN#L R((N( respon#ent

G#NC#)C! J.:

<he issue pose# in this petition is the in(o&e ta; liaility o5 a 5orei2n shippin2 (orporation whi(h (alle# on .hilippine

ports to loa# (ar2oes 5or 5orei2n #estination on two o((asions in 193 an# 194, respe(tively, an# whi(h (olle(te#

5rei2ht 5ees on these transa(tions

6ro& +ar(h * to April 30, 193, +" A&stel&eer an# 5ro& -epte&er *4 to O(toer *8, 194, +" A&stel@roon,

oth o5 whi(h are vessels o5 petitioner !B Ree#eri$ A+-<REA+, (alle# on .hilippine ports to loa# (ar2oes 5or

5orei2n #estination <he 5rei2ht 5ees 5or these transa(tions were pai# aroa# in the a&ount o5 ?- K98,1/00 in

193 an# ?- K13,19300 in 194 In these two instan(es, petitioner Royal Intero(ean )ines a(te# as husan#in2

a2ent 5or a 5ee or (o&&ission on sai# vessels !o in(o&e ta; appears to have een pai# y petitioner !" Ree#eri$

A+-<REA+ on the 5rei2ht re(eipts

Respon#ent Co&&issioner o5 Internal Revenue, throu2h his e;a&iners, 5ile# the (orrespon#in2 in(o&e ta; returns

5or an# in ehal5 o5 the 5or&er un#er -e(tion 1/ o5 the !ational Internal Revenue Co#e Applyin2 the then

prevailin2 &ar@et (onversion rate o5 .390 to the ?- K100, the 2ross re(eipts o5 petitioner !" Ree#eri$

A&ster#a& 5or 193 an# 194 a&ounte# to .38*,88*/0 an# ./3/,0/*00, respe(tively On June 30, 19,

respon#ent Co&&issioner assesse# sai# petitioner in the a&ounts o5 .193,93*0 an# .**,90494 as #e5i(ien(y

in(o&e ta; 5or 193 an# 194, respe(tively, as a nonFresi#ent 5orei2n (orporation not en2a2e# in tra#e or

usiness in the .hilippines un#er -e(tion *4 : 1: o5 the <a; Co#e

On the assu&ption that the sai# petitioner is a 5orei2n (orporation en2a2e# in tra#e or usiness in the .hilippines,

on Au2ust *8, 19, petitioner Royal Intero(ean )ines 5ile# an in(o&e ta; return o5 the a5ore&entione# vessels(o&pute# at the e;(han2e rate o5 .*00 to ?-s100 1 an# pai# the ta; thereon in the a&ount o5 .1,83//* an#

.9,44894, respe(tively, pursuant to -e(tion *4 : *: in relation to -e(tion 3 B: e: o5 the !ational Internal

Revenue Co#e an# -e(tion 13 o5 Revenue Re2ulations !o * On the sa&e two #ates, petitioner Royal Intero(ean

)ines as the husan#in2 a2ent o5 petitioner !" Ree#eri$ A+-<REA+ 5ile# a written protest a2ainst the

aove&entione# assess&ent &a#e y the respon#ent Co&&issioner whi(h protest was #enie# y sai# respon#ent

in a letter #ate# +ar(h 3, 199= On +ar(h 31, 199, petitioners 5ile# a petition 5or review with the respon#ent

Court o5 <a; Appeals prayin2 5or the (an(ellation o5 the su$e(t assess&ent A5ter #ue hearin2, the respon#ent

(ourt, on Ee(e&er 1, 19, ren#ere# a #e(ision &o#i5yin2 sai# assess&ents y eli&inatin2 the /0N 5rau#

(o&pro&ise penalties i&pose# upon petitioners .etitioners 5ile# a &otion 5or re(onsi#eration o5 sai# #e(ision ut

this was #enie# y the respon#ent (ourt

>en(e, this petition 5or review where petitioners raise# the 5ollowin2 issues=

A ><>R !" RERIJ A+-<REA+ !O< >A"I!G A! O66IC OR .)AC O6 B?-I!-- I!

<> .>I)I..I!-, >O- "--)- CA))E O! <> .>I)I..I! .OR<- 6OR <> .?R.O- O6

)OAEI!G CARGO- O!) <ICFO! I! 193 A!E A!O<>R I! 194 M ->O?)E B <ALE A- A

6ORIG! COR.ORA<IO! !O< !GAGE I! <RAE OR B?-I!-- I! <> .>I)I..I!- ?!ER

-C<IO! *4: 1: O6 <> <AL COE OR ->O?)E B <ALE A- A 6ORIG! COR.ORA<IO!

!GAGE I! <RAE OR B?-I!-- I! <> .>I)I..I!- ?!ER -C<IO! *4: *: I! R)A<IO!

<O -C<IO! 3 e: O6 <> -A+ COE A!E

B ><>R <> 6ORIG! LC>A!G RCI.<- O6 !" RERIJ A+-<REA+ ->O?)E B

CO!"R<E I!<O .>I)I .I! .-O- A< <> O66ICIA) RA< O6 .*00 <O ?- K100, OR A< .390

<O ?- K100

.etitioners (onten# that respon#ent (ourt erre# in hol#in2 that petitioner !" Ree#eri$ A+-<REA+ is a nonF

resi#ent 5orei2n (orporation e(ause it alle2e#ly #isre2ar#e# -e(tion 13 o5 Revenue Re2ulations !o * provi#in2

5or the #eter&ination o5 the net in(o&e o5 5orei2n (orporations #oin2 usiness in the .hilippines: an# in hol#in2

that the 5orei2n e;(han2e an2 e re(eipts o5 sai# petitioner 5or purposes o5 (o&putin2 its in(o&e ta; shoul# e

(onverte# into .hilippine pesos at the rate o5 .390 to ?- K100 instea# o5 .*00 to ?- K100

<he petition is #evoi# o5 &erit



9

.etitioner !" Ree#eri$ A+-<REA+ is a 5orei2n (orporation not authoriDe# or li(ense# to #o usiness in the

.hilippines It #oes not have a ran(h o55i(e in the .hilippines an# it &a#e only two (alls in .hilippine ports, one in

193 an# the other in 194 In or#er that a 5orei2n (orporation &ay e (onsi#ere# en2a2e# in tra#e or usiness, its

usiness transa(tions &ust e (ontinuous A (asual usiness a(tivity in the .hilippines y a 5orei2n (orporation, as

in the present (ase, #oes not a&ount to en2a2in2 in tra#e or usiness in the .hilippines 5or in(o&e ta; purposes

<he Court repro#u(es with approval the 5ollowin2 #isuisition o5 the respon#ent (ourt M

A (orporation is itsel5 a ta;payin2 entity an# spea@in2 2enerally, 5or purposes o5 in(o&e ta;,

(orporations are (lassi5ie# into a: #o&esti( (orporations an# : 5orei2n (orporations -e( *4a:

an# :, <a; Co#e: 6orei2n (orporations are 5urther (lassi5ie# into 1: resi#ent 5orei2n (orporations

an# *: nonFresi#ent 5orei2n (orporations -e( *4: 1: an# *: <a; Co#e: A resi#ent 5orei2n

(orporation is a 5orei2n (orporation en2a2e# in tra#e or usiness within the .hilippines or havin2 an

o55i(e or pla(e o5 usiness therein -e( 842:, <a; Co#e: while a nonF resi#ent 5orei2n (orporation

is a 5orei2n (orporation not en2a2e# in tra#e or usiness within the .hilippines an# not havin2 any

o55i(e or pla(e o5 usiness therein -e( 84h:, <a; Co#e:

A #o&esti( (orporation is ta;e# on its in(o&e 5ro& sour(es within an# without the .hilippines, ut a

5orei2n (orporation is ta;e# only on its in(o&e 5ro& sour(es within the .hilippines -e( *4a:, <a;

Co#e -e( 1, Rev Re2s !o *: >owever, while a 5orei2n (orporation #oin2 usiness in the

.hilippines is ta;ale on in(o&e solely 5ro& sour(es within the .hilippines, it is per&itte# to

#e#u(tions 5ro& 2ross in(o&e ut only to the e;tent (onne(te# with in(o&e earne# in the

.hilippines -e(s *4: *: an# 3, <a; Co#e: On the other han#, 5orei2n (orporations not #oin2

usiness in the .hilippines are ta;ale on in(o&e 5ro& all sour(es within the .hilippines, as interest,

#ivi#en#s, rents, salaries, wa2es, pre&iu&s, annuities Co&pensations, re&unerations,

e&olu&ents, or other 5i;e# or #eter&inale annual or perio#i(al or (asual 2ains, pro5its an# in(o&e

an# (apital 2ains <he ta; is 30N now 3/N: o5 su(h 2ross in(o&e -e( *4 : 1:, <a; Co#e:

At the ti&e &aterial to this (ase, (ertain (orporations were 2iven spe(ial treat&ent, na&ely,

uil#in2 an# loan asso(iations operatin2 as su(h in a((or#an(e with -e(tion 11 o5 the Corporation

)aw, e#u(ational institutions, #o&esti( li5e insuran(e (o&panies an# 5or 5orei2n li5e insuran(e

(o&panies #oin2 usiness in the .hilippines -e( *4a: S (:, <a; Co#e: It ears e&phasis,

however, that 5orei2n li5e insuran(e (o&panies whi(h were not #oin2 usiness in the .hilippines

were ta;ale as other 5orei2n (orporations not authoriDe# to #o usiness in the .hilippines -e(

*4(: <a; Co#e:

!ow to the (ase at ar >ere, petitioner !" Ree#eri$ A&ster#a& is a nonFresi#ent 5orei2n

(orporation, or2aniDe# an# e;istin2 un#er the laws o5 <he !etherlan#s with prin(ipal o55i(e in

A&ster#a& an# not li(ense# to #o usiness in the .hilippines pp 8F81, C<A re(or#s: As a nonF

resi#ent 5orei2n (orporation, it is thus a 5orei2n (orporation, not en2a2e# in tra#e or usiness within

the .hilippines an# not havin2 any o55i(e or pla(e o5 usiness therein -e( 84h:, <a; Co#e: As

state# aove, it is there5ore ta;ale on in(o&e 5ro& all sour(es within the .hilippines, as interest,

#ivi#en#s, rents, salaries, wa2es, pre&iu&s, annuities, (o&pensations, re&unerations,

e&olu&ents, or other 5i;e# or #eter&inale annual or perio#i(al or (asual 2ains, pro5its an# in(o&e

an# (apital 2ains, an# the ta; is eual to thirty per centum o5 su(h a&ount, un#er -e(tion *4: 1:

o5 the <a; Co#e <he a((ent is on the wor#s o5FFTsu(h a&ount A((or#in2ly, petitioner ! "

Ree#eri$ A&ster#a& ein2 a nonFresi#ent 5orei2n (orporation, its ta;ale in(o&e 5or purposes o5

our in(o&e ta; law (onsists o5 its 2ross in(o&e 5ro& all sour(es within the .hilippines

<he law see&s (lear an# spe(i5i( It thus (alls 5or its appli(ation as wor#e# as it leaves no leeway

5or interpretation <he appli(ale provision i&poses a ta; on 5orei2n (orporations 5allin2 un#er the

(lassi5i(ation o5 nonFresi#ent (orporations without any e;(eptions or (on#itions, unli@e in the (ase o5

5orei2n (orporations en2a2e# in tra#e or usiness within the .hilippines whi(h (ontaine# at the

ti&e &aterial to this (ase: an e;(eption with respe(t to 5orei2n li5e insuran(e (o&panies A#heren(e

to the provision o5 the law, whi(h spe(i5ies an# #eter&ines the ta;ale in(o&e o5, an# the rate o5

in(o&e ta; appli(ale to, nonFresi#ent 5orei2n (orporations, without &entionin2 any e;(eptions,woul# there5ore lea# to the (on(lusion that petitioner !" Ree#eri$ A&ster#a& is su$e(t to

in(o&e ta; on 2ross in(o&e 5ro& all sour(es within the .hilippines

A 5orei2n (orporation en2a2e# in tra#e or usiness within the .hilippines, or whi(h has an o55i(e or pla(e o5 usiness

therein, is ta;e# on its total net in(o&e re(eive# 5ro& all sour(es within the .hilippines at the rate o5 */N upon the

a&ount ut whi(h ta;ale net in(o&e #oes not e;(ee# .100,00000, an# 3/N upon the a&ount ut whi(h ta;ale

net in(o&e e;(ee#s .100,00000 On the other han#, a 5orei2n (orporation not en2a2e# in tra#e or usiness

within the .hilipp&es an# whi(h #oes not have any o55i(e or pla(e o5 usiness therein is ta;e# on in(o&e re(eive#

5ro& all sour(es within the .hilippines at the rate o5 3/N o5 the 2ross in(o&e 2



10

.etitioner relies on -e(tion *4 : *: an# -e(tion 3 B: e: o5 the <a; Co#e an# i&ple&entin2 -e(tion 13 o5 the

In(o&e <a; Re2ulations ut these provisions re5er to a 5orei2n (orporation en2a2e# in tra#e or usiness in the

.hilippines an# not to a 5orei2n (orporation not en2a2e# in tra#e or usiness in the .hilippines li@e petitionerFshipF

owner herein <hus, the respon#ent (ourt aptly rule#=

It &ust e stresse#, however, that -e(tion 3 e: o5 the Co#e, as i&ple&ente# y -e(tion 13 o5

the Re2ulations, provi#es the rule o5 the #eter&ination o5 the net in(o&e ta;ale in the .hilippines

o5 a 5orei2n stea&ship (o&pany #oin2 usiness in the .hilippines <o assure that nonFresi#ent

5orei2n stea&ship (o&panies not en2a2e# in usiness in the .hilippines an# not havin2 any o55i(e

or pla(e o5 usiness herein are not (overe# therein, the re2ulations e;pli(itly an# (learly provi#e

that the net in(o&e o5 a 5orei2n stea&ship (o (o&pany #oin2 usiness in or 5ro& this (ountry is

as(ertaine#, un#er the 5or&ula (ontaine# therein, 5or the purpose o5 the in(o&e ta;U <he reason

is easily #is(ernile As state# aove, the ta;ale in(o&e o5 nonFresi#ent 5orei2n (orporations

(onsists o5 its 2ross in(o&e 5ro& all sour(es within the .hilippines A((or#in2ly, a 5orei2n

stea&2ship (orporation #erives in(o&e partly 5ro& sour(es within an# partly 5ro& sour(es without

the .hilippines i5 it iscarrying on a $usiness of transportation service etween points in the

.hilippines an# points outsi#e the .hilippines "ol 3, 19/, 6e#eral <a;es, .ar 1389: Only then

#oes -e(tion 3 e: o5 the <a; Co#e, are i&ple&ente# y -e(tion 13 o5 the Re2ulations, apply in

(o&putin2 net in(o&e su$e(t to ta; <here is no asis there5ore 5or an assertion that -e(tion 3

e: #oes not #istin2uish etween a 5orei2n (orporation en2a2e# in usiness in the .hilippines an# a5orei2n (orporation not en2a2e# in usiness in the .hilippines p 84, C<A re(or#s: Ee(ision, pp

11F1*:

<he (onversion rate o5 .*00 to ?- K100 whi(h petitioners (lai& shoul# e appli(ale to the in(o&e o5 petitioners

5or in(o&e ta; purposes instea# o5 .390 to s100 is li@ewise untenale <he transa(tions involve# in this (ase are

5or the ta;ale years 193 an# 194 ?n#er Rep A(t !o *09, the &onetary oar# was authoriDe# to 5i; the le2al

(onversion rate 5or 5orei2n e;(han2e <he 5ree &ar@et (onversion rate #urin2 those years was .390 to ?- K100

<his (onversion rate issue was #e5initely settle# y this Court in the (ase o5

Commissioner of )nternal Revenue vs.

Royal )nterocean (ines an& the Court of +ax Appeals 4 to wit=

It shoul# e note# that on July 1 , 19/9, the poli(y in(orporate# in Cir(ular !o *0 an#

i&ple&ente# in suseuent (ir(ulars was rela;e# with the ena(t&ent o5 Repuli( A(t !o *09

whi(h #ire(te# the &onetary authorities to ta@e steps 5or the a#option o5 a 5ourFyear pro2ra& o5

2ra#ual #e(ontrol, #urin2 whi(h the +onetary Boar#, with the approval o5 the .resi#ent, (oul# an#

#i# 5i; the (onversion rate o5 the .hilippine peso to the ?- #ollar at a ratio other than that

pres(rie# in -e(tion 48 o5 Repuli( A(t */ Eurin2 the perio# involve# in the (ase at ar, the 5ree

&ar@et (onversion rate ran2e# 5ro& .34 to .3/ to a ?- #ollar at whi(h rate the 5rei2ht 5ees in

uestion were (o&pute# in the (onteste# assess&ent Inas&u(h sai# 5rees were revenues #erive#

5ro& 5orei2n e;(han2e transa(tions, it 5ollows ne(essarily that the petitioner was 5ully $usti5ie# in

(o&putin2 the ta;payerHs re(eipts at I# 5ree &ar@et rates

;;; ;;; ;;;

<he (ase o5 the ?nite# -tates )ines, on whi(h the appeale# #e(ision o5 the Court o5 <a; Appeals is

an(hore#, re5ers to transa(tions that too@ pla(e $efore the approval o5 Repuli( A(t *09 on July

1, 19/9 when the only le2al rate o5 e;(han2e otainin2 in the .hilippines was .* to ?- K1, an# all

5orei2n e;(han2e ha# to e surren#ere# to the Central Ban@ su$e(t to its #isposition pursuant to

its own rules an# re2ulations ?pon the other han#, the present (ase re5ers to transa(tions that

too@ pla(e #urin2 the e55e(tivity o5 Repuli( A(t *09 when there was, apart 5ro& the parity rate, a

le2al 5ree &ar@et (onversion rate 5or 5orei2n e;(han2e transa(tions, whi(h rate ha# een 5i;e# in

open tra#in2, su(h as those involve# in the (ase at ar

In#ee#, in the (ourse o5 the investi2ation (on#u(te# y the Co&&issioner on the a((ountin2 re(or#s o5 petitioner

Royal Intero(ean )ines, it was veri5ie# that when sai# petitioner pai# its a2en(y 5ees 5or servi(es ren#ere# as

husan#in2 a2ent o5 the sai# vessels, it use# the (onversion rate o5 .390 to ?- K100 5 It is now estoppe# 5ro&

(lai&in2 otherwise in this (ase >R6OR, the petition is E!IE with (osts a2ainst petitioners <his #e(ision is

i&&e#iately e;e(utory an# no e;tension o5 ti&e to 5ile &otion 5or re(onsi#eration shall e entertaine# -O

ORERE



11

G.R. No. 352 %epte:e6 14 199

*#R'(N$ C!RP!R#T$!N ;<o6e6ly *a6u:eni = $i/a Co. Lt/.> petitioner,vs C!**$%%$!N(R !F $NT(RN#L R((N( #N, C!RT !F T#7 #PP(#L% respon#ents

F(RN#N C.J.:

.etitioner, +arueni Corporation, representin2 itsel5 as a 5orei2n (orporation #uly or2aniDe# an# e;istin2 un#er thelaws o5 Japan an# #uly li(ense# to en2a2e in usiness un#er .hilippine laws with ran(h o55i(e at the 4th 6loor,6+I Buil#in2, A#uana -treet, Intra&uros, +anila see@s the reversal o5 the #e(ision o5 the Court o5 <a;Appeals 1 #ate# 6eruary 1*, 198 #enyin2 its (lai& 5or re5un# or ta; (re#it in the a&ount o5 .**9,4*440representin2 alle2e# overpay&ent o5 ran(h pro5it re&ittan(e ta; withhel# 5ro& #ivi#en#s y Atlanti( Gul5 an#.a(i5i( Co o5 +anila AGS.:

<he 5ollowin2 5a(ts are un#ispute#= +arueni Corporation o5 Japan has euity invest&ents in AGS. o5 +anila 6orthe 5irst uarter o5 1981 en#in2 +ar(h 31, AGS. #e(lare# an# pai# (ash #ivi#en#s to petitioner in the a&ount o5.849,*0 an# withhel# the (orrespon#in2 10N 5inal #ivi#en# ta; thereon -i&ilarly, 5or the thir# uarter o5 1981en#in2 -epte&er 30, AGS. #e(lare# an# pai# .849,*0 as (ash #ivi#en#s to petitioner an# withhel# the(orrespon#in2 10N 5inal #ivi#en# ta; thereon

AGS. #ire(tly re&itte# the (ash #ivi#en#s to petitionerHs hea# o55i(e in <o@yo, Japan, net not only o5 the 10N 5inal#ivi#en# ta; in the a&ounts o5 .4,48 5or the 5irst an# thir# uarters o5 1981, ut also o5 the withhel# 1/N pro5itre&ittan(e ta; ase# on the re&ittale a&ount a5ter #e#u(tin2 the 5inal withhol#in2 ta; o5 10N A s(he#ule o5#ivi#en#s #e(lare# an# pai# y AGS. to its sto(@hol#er +arueni Corporation o5 Japan, the 10N 5inal inter(orporate#ivi#en# ta; an# the 1/N ran(h pro5it re&ittan(e ta; pai# thereon, is shown elow=

1981 6IR-<?AR<R

three &onthsen#e# 33181:

In .esos:

<>IRE?AR<R

three &onthsen#e# 93081:

<O<A) O66IR-< an#

<>IRE uarters

Cash Eivi#en#s .ai# 849,*044 849,*000 1,99,44000

10N Eivi#en# <a;ithhel#

84,9*00 84,9*00 19,94400

Cash Eivi#en# net o510N Eivi#en# <a;

ithhel#

4,4800 4,4800 1,/*9,4900

1/N Bran(h .ro5itRe&ittan(e <a; ithhel#

114,1**0 114,1**0 **9,4*440 2

!et A&ount Re&itte# to.etitioner

/0,03/80 /0,03/80 1,300,010

<he 10N 5inal #ivi#en# ta; o5 .84,9* an# the 1/N ran(h pro5it re&ittan(e ta; o5 .114,1**0 5or the 5irstuarter o5 1981 were pai# to the Bureau o5 Internal Revenue y AGS. on April *0, 1981 un#er Central Ban@ Re(eipt!o /880 )i@ewise, the 10N 5inal #ivi#en# ta; o5 .84,9* an# the 1/N ran(h pro5it re&ittan(e ta; o5.114,1* 5or the thir# uarter o5 1981 were pai# to the Bureau o5 Internal Revenue y AGS. on Au2ust 4, 1981un#er Central Ban@ Con5ir&ation Re(eipt !o 90/930 4

<hus, 5or the 5irst an# thir# uarters o5 1981, AGS. as withhol#in2 a2ent pai# 1/N ran(h pro5it re&ittan(e on(ash #ivi#en#s #e(lare# an# re&itte# to petitioner at its hea# o55i(e in <o@yo in the total a&ount o5 .**9,4*440 onApril *0 an# Au2ust 4, 1981 5



12

In a letter #ate# January *9, 1981, petitioner, throu2h the a((ountin2 5ir& -y(ip, Gorres, "elayo an# Co&pany,sou2ht a rulin2 5ro& the Bureau o5 Internal Revenue on whether or not the #ivi#en#s petitioner re(eive# 5ro& AGS.are e55e(tively (onne(te# with its (on#u(t or usiness in the .hilippines as to e (onsi#ere# ran(h pro5its su$e(tto the 1/N pro5it re&ittan(e ta; i&pose# un#er -e(tion *4 : *: o5 the !ational Internal Revenue Co#e asa&en#e# y .resi#ential Ee(rees !os 10/ an# 13

In reply to petitionerHs uery, A(tin2 Co&&issioner Ruen An(heta rule#=

.ursuant to -e(tion *4 : *: o5 the <a; Co#e, as a&en#e#, only pro5its re&itte# aroa# y aran(h o55i(e to its hea# o55i(e whi(h are e55e(tively (onne(te# with its tra#e or usiness in the.hilippines are su$e(t to the 1/N pro5it re&ittan(e ta; <o e e55e(tively (onne(te# it is notne(essary that the in(o&e e #erive# 5ro& the a(tual operation o5 ta;payerF(orporationHs tra#e orusiness it is su55i(ient that the in(o&e arises 5ro& the usiness a(tivity in whi(h the (orporation isen2a2e# 6or e;a&ple, i5 a resi#ent 5orei2n (orporation is en2a2e# in the uyin2 an# sellin2 o5&a(hineries in the .hilippines an# invests in so&e shares o5 sto(@ on whi(h #ivi#en#s aresuseuently re(eive#, the #ivi#en#s thus earne# are not (onsi#ere# He55e(tively (onne(te#H with itstra#e or usiness in this (ountry Revenue +e&oran#u& Cir(ular !o //F80:

In the instant (ase, the #ivi#en#s re(eive# y +arueni 5ro& AGS. are not in(o&e arisin2 5ro& theusiness a(tivity in whi(h +arueni is en2a2e# A((or#in2ly, sai# #ivi#en#s i5 re&itte# aroa# arenot (onsi#ere# ran(h pro5its 5or purposes o5 the 1/N pro5it re&ittan(e ta; i&pose# y -e(tion *4

: *: o5 the <a; Co#e, as a&en#e# 3

Conseuently, in a letter #ate# -epte&er *1, 1981 an# 5ile# with the Co&&issioner o5 Internal Revenue on-epte&er *4, 1981, petitioner (lai&e# 5or the re5un# or issuan(e o5 a ta; (re#it o5 .**9,4*440 representin2pro5it ta; re&ittan(e erroneously pai# on the #ivi#en#s re&itte# y Atlanti( Gul5 an# .a(i5i( Co o5 +anila AGS.:on April *0 an# Au2ust 4, 1981 to hea# o55i(e in <o@yo

On June 14, 198*, respon#ent Co&&issioner o5 Internal Revenue #enie# petitionerHs (lai& 5or re5un#(re#it o5.**9,4*440 on the 5ollowin2 2roun#s=

hile it is true that sai# #ivi#en#s re&itte# were not su$e(t to the 1/N pro5it re&ittan(e ta; asthe sa&e were not in(o&e earne# y a .hilippine Bran(h o5 +arueni Corporation o5 Japan an#neither is it su$e(t to the 10N inter(orporate #ivi#en# ta;, the re(ipient o5 the #ivi#en#s, ein2 a

nonFresi#ent sto(@hol#er, nevertheless, sai# #ivi#en# in(o&e is su$e(t to the */ N ta; pursuant toArti(le 10 *: : o5 the <a; <reaty #ate# 6eruary 13, 1980 etween the .hilippines an# Japan

Inas&u(h as the (ash #ivi#en#s re&itte# y AGS. to +arueni Corporation, Japan is su$e(t to */N ta;, an# that the ta;es withhel# o5 10 N as inter(orporate #ivi#en# ta; an# 1/ N as pro5itre&ittan(e ta; totals si(: */ N, the a&ount re5un#ale o55sets the liaility, hen(e, nothin2 is le5t toe re5un#e#

.etitioner appeale# to the Court o5 <a; Appeals whi(h a55ir&e# the #enial o5 the re5un# y the Co&&issioner o5Internal Revenue in its assaile# $u#2&ent o5 6eruary 1*, 198 9

In support o5 its re$e(tion o5 petitionerHs (lai&e# re5un#, respon#ent <a; Court e;plaine#=

hatever the #iale(ti(s e&ploye#, no a&ount o5 sophistry (an i2nore the 5a(t that the #ivi#en#s inuestion are in(o&e ta;ale to the +arueni Corporation o5 <o@yo, Japan <he sai# #ivi#en#s were#istriutions &a#e y the Atlanti(, Gul5 an# .a(i5i( Co&pany o5 +anila to its sharehol#er out o5 itspro5its on the invest&ents o5 the +arueni Corporation o5 Japan, a nonFresi#ent 5orei2n (orporation<he invest&ents in the Atlanti( Gul5 S .a(i5i( Co&pany o5 the +arueni Corporation o5 Japan were#ire(tly &a#e y it an# the #ivi#en#s on the invest&ents were li@ewise #ire(tly re&itte# to an#re(eive# y the +arueni Corporation o5 Japan .etitioner +arueni Corporation .hilippine Bran(hhas no parti(ipation or intervention, #ire(tly or in#ire(tly, in the invest&ents an# in the re(eipt o5the #ivi#en#s An# it appears that the 5un#s investe# in the Atlanti( Gul5 S .a(i5i( Co&pany #i# not(o&e out o5 the 5un#s in5use# y the +arueni Corporation o5 Japan to the +arueni Corporation.hilippine Bran(h As a &atter o5 5a(t, the Central Ban@ o5 the .hilippines, in authoriDin2 there&ittan(e o5 the 5orei2n e;(han2e euivalent o5 si(: the #ivi#en#s in uestion, treate# the+arueni Corporation o5 Japan as a nonFresi#ent sto(@hol#er o5 the Atlanti( Gul5 S .a(i5i( Co&panyase# on the supportin2 #o(u&ents su&itte# to it

-u$e(t to (ertain e;(eptions not pertinent hereto, in(o&e is ta;ale to the person who earne# itA#&itte#ly, the #ivi#en#s un#er (onsi#eration were earne# y the +arueni Corporation o5 Japan,an# hen(e, ta;ale to the sai# (orporation hile it is true that the +arueni Corporation .hilippineBran(h is #uly li(ense# to en2a2e in usiness un#er .hilippine laws, su(h #ivi#en#s are not thein(o&e o5 the .hilippine Bran(h an# are not ta;ale to the sai# .hilippine ran(h e see nosi2ni5i(an(e thereto in the i#entity (on(ept or prin(ipalFa2ent relationship theory o5 petitionere(ause su(h #ivi#en#s are the in(o&e o5 an# ta;ale to the Japanese (orporation in Japan an# notto the .hilippine ran(h 10

>en(e, the instant petition 5or review



13

It is the ar2u&ent o5 petitioner (orporation that 5ollowin2 the prin(ipalFa2ent relationship theory, +arueni Japan isli@ewise a resi#ent 5orei2n (orporation su$e(t only to the 10 N inter(orporate 5inal ta; on #ivi#en#s re(eive# 5ro&a #o&esti( (orporation in a((or#an(e with -e(tion *4(: 1: o5 the <a; Co#e o5 19 whi(h states=

Eivi#en#s re(eive# y a #o&esti( or resi#ent 5orei2n (orporation liale to ta; un#er this Co#e M 1:-hall e su$e(t to a 5inal ta; o5 10N on the total a&ount thereo5, whi(h shall e (olle(te# an# pai#as provi#e# in -e(tions /3 an# /4 o5 this Co#e

.uli( respon#ents, however, are o5 the (ontrary view that +arueni, Japan, ein2 a nonFresi#ent 5orei2n(orporation an# not en2a2e# in tra#e or usiness in the .hilippines, is su$e(t to ta; on in(o&e earne# 5ro&.hilippine sour(es at the rate o5 3/ N o5 its 2ross in(o&e un#er -e(tion *4 : 1: o5 the sa&e Co#e whi(h rea#s=

: +ax on foreign corporations M 1: !onFresi#ent (orporations M A 5orei2n (orporation noten2a2e# in tra#e or usiness in the .hilippines shall pay a ta; eual to thirtyF5ive per (ent o5 the2ross in(o&e re(eive# #urin2 ea(h ta;ale year 5ro& all sour(es within the .hilippines as #ivi#en#s

ut e;pressly &a#e su$e(t to the spe(ial rate o5 */N un#er Arti(le 10*: : o5 the <a; <reaty o5 1980 (on(lu#e#etween the .hilippines an# Japan 11 <hus=

Arti(le 10 1: Eivi#en#s pai# y a (o&pany whi(h is a resi#ent o5 a Contra(tin2 -tate to a resi#ento5 the other Contra(tin2 -tate &ay e ta;e# in that other Contra(tin2 -tate

*: >owever, su(h #ivi#en#s &ay also e ta;e# in the Contra(tin2 -tate o5 whi(h the (o&panypayin2 the #ivi#en#s is a resi#ent, an# a((or#in2 to the laws o5 that Contra(tin2 -tate, ut i5 there(ipient is the ene5i(ial owner o5 the #ivi#en#s the ta; so (har2e# shall not e;(ee#

a:

: */ per (ent o5 the 2ross a&ount o5 the #ivi#en#s in all other (ases

Central to the issue o5 +arueni JapanHs ta; liaility on its #ivi#en# in(o&e 5ro& .hilippine sour(es is there5ore the#eter&ination o5 whether it is a resi#ent or a nonFresi#ent 5orei2n (orporation un#er .hilippine laws

?n#er the <a; Co#e, a resi#ent 5orei2n (orporation is one that is en2a2e# in tra#e or usiness within the.hilippines .etitioner (onten#s that pre(isely e(ause it is en2a2e# in usiness in the .hilippines throu2h its.hilippine ran(h that it &ust e (onsi#ere# as a resi#ent 5orei2n (orporation .etitioner reasons that sin(e the.hilippine ran(h an# the <o@yo hea# o55i(e are one an# the sa&e entity, whoever &a#e the invest&ent in AGS.,+anila #oes not &atter at all A sin2le (orporate entity (annot e oth a resi#ent an# a nonFresi#ent (orporation#epen#in2 on the nature o5 the parti(ular transa(tion involve# A((or#in2ly, whether the #ivi#en#s are pai# #ire(tlyto the hea# o55i(e or (ourse# throu2h its lo(al ran(h is o5 no &o&ent 5or a5ter all, the hea# o55i(e an# the o55i(eran(h (onstitute ut one (orporate entity, the +arueni Corporation, whi(h, un#er oth .hilippine ta; an#(orporate laws, is a resi#ent 5orei2n (orporation e(ause it is transa(tin2 usiness in the .hilippines

<he -oli(itor General has a#euately re5ute# petitionerHs ar2u&ents in this wise=

<he 2eneral rule that a 5orei2n (orporation is the sa&e $uri#i(al entity as its ran(h o55i(e in the.hilippines (annot apply here <his rule is ase# on the pre&ise that the usiness o5 the 5orei2n(orporation is (on#u(te# throu2h its ran(h o55i(e, 5ollowin2 the prin(ipal a2ent relationship theoryIt is un#erstoo# that the ran(h e(o&es its a2ent here -o that when the 5orei2n (orporationtransa(ts usiness in the .hilippines in#epen#ently o5 its ran(h, the prin(ipalFa2ent relationship isset asi#e <he transa(tion e(o&es one o5 the 5orei2n (orporation, not o5 the ran(h Conseuently,the ta;payer is the 5orei2n (orporation, not the ran(h or the resi#ent 5orei2n (orporation

Corollarily, i5 the usiness transa(tion is (on#u(te# throu2h the ran(h o55i(e, the latter e(o&esthe ta;payer, an# not the 5orei2n (orporation 1

In other wor#s, the alle2e# overpai# ta;es were in(urre# 5or the re&ittan(e o5 #ivi#en# in(o&e to the hea# o55i(e inJapan whi(h is a separate an# #istin(t in(o&e ta;payer 5ro& the ran(h in the .hilippines <here (an e no otherlo2i(al (on(lusion (onsi#erin2 the un#ispute# 5a(t that the invest&ent totallin2 *83*0 shares in(lu#in2 that o5

no&inee: was &a#e 5or purposes pe(uliarly 2er&ane to the (on#u(t o5 the (orporate a55airs o5 +arueni Japan, ut(ertainly not o5 the ran(h in the .hilippines It is thus (lear that petitioner, havin2 &a#e this in#epen#entinvest&ent attriutale only to the hea# o55i(e, (annot now (lai& the in(re&ents as or#inary (onseuen(es o5 itstra#e or usiness in the .hilippines an# avail itsel5 o5 the lower ta; rate o5 10 N

But while puli( respon#ents (orre(tly (on(lu#e# that the #ivi#en#s in #ispute were neither su$e(t to the 1/ Npro5it re&ittan(e ta; nor to the 10 N inter(orporate #ivi#en# ta;, the re(ipient ein2 a nonFresi#ent sto(@hol#er,they 2rossly erre# in hol#in2 that no re5un# was 5orth(o&in2 to the petitioner e(ause the ta;es thus withhel#totalle# the */ N rate i&pose# y the .hilippineFJapan <a; Convention pursuant to Arti(le 10 *: :



14

<o si&ply a## the two ta;es to arrive at the */ N ta; rate is to #isre2ar# a asi( rule in ta;ation that ea(h ta; hasa #i55erent ta; asis hile the ta; on #ivi#en#s is #ire(tly levie# on the #ivi#en#s re(eive#, the ta; ase uponwhi(h the 1/ N ran(h pro5it re&ittan(e ta; is i&pose# is the pro5it a(tually re&itte# aroa# 12

.uli( respon#ents li@ewise erre# in auto&ati(ally i&posin2 the */ N rate un#er Arti(le 10 *: : o5 the <a; <reatyas i5 this were a 5lat rate A (loser loo@ at the <reaty reveals that the ta; rates 5i;e# y Arti(le 10 are the &a;i&u&rates as re5le(te# in the phrase shall not e;(ee# <his &eans that any ta; i&posale y the (ontra(tin2 state(on(erne# shoul# not e;(ee# the */ N li&itation an# that sai# rate woul# apply only i5 the ta; i&pose# y our lawse;(ee#s the sa&e In other wor#s, y reason o5 our ilateral ne2otiations with Japan, we have a2ree# to have ourri2ht to ta; li&ite# to a (ertain e;tent to attain the 2oals set 5orth in the <reaty

.etitioner, ein2 a nonFresi#ent 5orei2n (orporation with respe(t to the transa(tion in uestion, the appli(aleprovision o5 the <a; Co#e is -e(tion *4 : 1: iii: in (on$un(tion with the .hilippineFJapan <reaty o5 1980 -ai#se(tion provi#es=

: +ax on foreign corporations. M 1: !onFresi#ent (orporations M iii: On #ivi#en#s re(eive#5ro& a #o&esti( (orporation liale to ta; un#er this Chapter, the ta; shall e 1/N o5 the #ivi#en#sre(eive#, whi(h shall e (olle(te# an# pai# as provi#e# in -e(tion /3 #: o5 this Co#e, su$e(t to the(on#ition that the (ountry in whi(h the nonFresi#ent 5orei2n (orporation is #o&i(ile# shall allow a(re#it a2ainst the ta; #ue 5ro& the nonFresi#ent 5orei2n (orporation, ta;es #ee&e# to have eenpai# in the .hilippines euivalent to *0 N whi(h represents the #i55eren(e etween the re2ular ta;

3/ N: on (orporations an# the ta; 1/ N: on #ivi#en#s as provi#e# in this -e(tion

.ro(ee#in2 to apply the aove se(tion to the (ase at ar, petitioner, ein2 a nonFresi#ent 5orei2n (orporation, as a2eneral rule, is ta;e# 3/ N o5 its 2ross in(o&e 5ro& all sour(es within the .hilippines P-e(tion *4 : 1:Q

>owever, a #is(ounte# rate o5 1/N is 2iven to petitioner on #ivi#en#s re(eive# 5ro& a #o&esti( (orporation AGS.:on the (on#ition that its #o&i(ile state Japan: e;ten#s in 5avor o5 petitioner, a ta; (re#it o5 not less than *0 N o5the #ivi#en#s re(eive# <his *0 N represents the #i55eren(e etween the re2ular ta; o5 3/ N on nonFresi#ent5orei2n (orporations whi(h petitioner woul# have or#inarily pai#, an# the 1/ N spe(ial rate on #ivi#en#s re(eive#5ro& a #o&esti( (orporation

Conseuently, petitioner is entitle# to a re5un# on the transa(tion in uestion to e (o&pute# as 5ollows=

<otal (ash #ivi#en# pai# .1,99,44000less 1/N un#er -e( *4: 1: iii : */4,9100FFFFFFFFFFFFFFFFFF

Cash #ivi#en# net o5 1/ N ta;#ue petitioner .1,444/*400less net a&ounta(tually re&itte# 1,300,010FFFFFFFFFFFFFFFFFFF

A&ount to e re5un#e# to petitionerrepresentin2 overpay&ent o5

ta;es on #ivi#en#s re&itte# . 144 4/*40VVVVVVVVVVV

It is rea#ily apparent that the 1/ N ta; rate i&pose# on the #ivi#en#s re(eive# y a 5orei2n nonFresi#entsto(@hol#er 5ro& a #o&esti( (orporation un#er -e(tion *4 : 1: iii: is easily within the &a;i&u& (eilin2 o5 */ No5 the 2ross a&ount o5 the #ivi#en#s as #e(ree# in Arti(le 10 *: : o5 the <a; <reaty

<here is one 5inal point that &ust e settle# Respon#ent Co&&issioner o5 Internal Revenue is laorin2 un#er thei&pression that the Court o5 <a; Appeals is (overe# y Batas .a&ansa Bl2 1*9, otherwise @nown as the Ju#i(iaryReor2aniDation A(t o5 1980 >e alle2es that the instant petition 5or review was not per5e(te# in a((or#an(e withBatas .a&ansa Bl2 1*9 whi(h provi#es that the perio# o5 appeal 5ro& 5inal or#ers, resolutions, awar#s, $u#2&ents, or #e(isions o5 any (ourt in all (ases shall e 5i5teen 1/: #ays (ounte# 5ro& the noti(e o5 the 5inalor#er, resolution, awar#, $u#2&ent or #e(ision appeale# 5ro&

<his is (o&pletely untenale <he (ite# B. Bl2 1*9 #oes not in(lu#e the Court o5 <a; Appeals whi(h has een(reate# y virtue o5 a spe(ial law, Repuli( A(t !o 11*/ Respon#ent (ourt is not a&on2 those (ourts spe(i5i(ally&entione# in -e(tion * o5 B. Bl2 1*9 as 5allin2 within its s(ope

<hus, un#er -e(tion 18 o5 Repuli( A(t !o 11*/, a party a#versely a55e(te# y an or#er, rulin2 or #e(ision o5 theCourt o5 <a; Appeals is 2iven thirty 30: #ays 5ro& noti(e to appeal there5ro& Otherwise, sai# or#er, rulin2, or#e(ision shall e(o&e 5inal

Re(or#s show that petitioner re(eive# noti(e o5 the Court o5 <a; AppealsHs #e(ision #enyin2 its (lai& 5or re5un# onApril 1/, 198 On the 30th #ay, or on +ay 1/, 198 the last #ay 5or appeal:, petitioner 5ile# a &otion 5orre(onsi#eration whi(h respon#ent (ourt suseuently #enie# on !ove&er 1, 198, an# noti(e o5 whi(h was



15

re(eive# y petitioner on !ove&er *, 198 <wo #ays later, or on !ove&er *8, 198, petitioner si&ultaneously5ile# a noti(e o5 appeal with the Court o5 <a; Appeals an# a petition 5or review with the -upre&e Court 14 6ro& the5ore2oin2, it is evi#ent that the instant appeal was per5e(te# well within the 30F#ay perio# provi#e# un#er RA !o11*/, the whole 30F#ay perio# to appeal havin2 e2un to run a2ain 5ro& noti(e o5 the #enial o5 petitionerHs &otion5or re(onsi#eration

>R6OR, the uestione# #e(ision o5 respon#ent Court o5 <a; Appeals #ate# 6eruary 1*, 198 whi(h a55ir&e#the #enial y respon#ent Co&&issioner o5 Internal Revenue o5 petitioner +arueni CorporationHs (lai& 5or re5un# isherey R"R-E <he Co&&issioner o5 Internal Revenue is or#ere# to re5un# or 2rant as ta; (re#it in 5avor o5petitioner the a&ount o5 .144,4/*40 representin2 overpay&ent o5 ta;es on #ivi#en#s re(eive# !o (osts -oor#ere#

G.R. No. 19010 July 11 01

#CC(NTR( $NC. .etitioner,vs C!**$%%$!N(R !F $NT(RN#L R((N( Respon#ent

%(R(N! J.:

<his is a .etition 5ile# un#er Rule 4/ o5 the 199 Rules o5 Civil .ro(e#ure, prayin2 5or the reversal o5 the Ee(ision o5the Court o5 <a; Appeals n Ban( C<A n Ban( : #ate# ** -epte&er *009 an# its suseuent Resolution #ate# *3O(toer *0091

A((enture, In( A((enture: is a (orporation en2a2e# in the usiness o5 provi#in2 &ana2e&ent (onsultin2, usinessstrate2ies #evelop&ent, an# sellin2 an#or li(ensin2 o5 so5tware* It is #uly re2istere# with the Bureau o5 InternalRevenue BIR: as a "alue A##e# <a; "A<: ta;payer or enterprise in a((or#an(e with -e(tion *3 o5 the !ationalInternal Revenue Co#e <a; Co#e:3

On 9 Au2ust *00*, A((enture 5ile# its +onthly "A< Return 5or the perio# 1 July *00* to 31 Au2ust *00* 1stperio#: Its uarterly "A< Return 5or the 5ourth uarter o5 *00*, whi(h (overs the 1st perio#, was 5ile# on 1-epte&er *00* an# an A&en#e# uarterly "A< Return, on *1 June *0044 <he 5ollowin2 are re5le(te# inA((entureWs "A< Return 5or the 5ourth uarter o5 *00*=/

,-#phi,

Pu6cases #ount $nput #T

Eo&esti( .ur(hasesF Capital Goo#s .1*,31*,**00 .1,*31,***0

Eo&esti( .ur(hasesF Goo#s other than (apital Goo#s .4,89,/090 .,48,9/09

Eo&esti( .ur(hasesF -ervi(es .1,4//,8810 .1,4/,/881

Total $nput Ta@ P925509.0

7eroFrate# -ales .31,113,/1334

<otal -ales .33/,40,/444

A((enture 5ile# its +onthly "A< Return 5or the &onth o5 -epte&er *00* on *4 O(toer *00* an# that 5or O(toer*00*, on 1* !ove&er *00* <hese returns were a&en#e# on 9 January *003 A((entureWs uarterly "A< Return5or the 5irst uarter o5 *003, whi(h in(lu#e# the perio# 1 -epte&er *00* to 30 !ove&er *00* *n# perio#:, was5ile# on 1 Ee(e&er *00* an# the A&en#e# uarterly "A< Return, on 18 June *004 <he latter (ontains the5ollowin2 in5or&ation=

Pu6cases #ount $nput #T

Eo&esti( .ur(hasesF Capital Goo#s .80,/,*9410 .8,0,/*941

Eo&esti( .ur(hasesF Goo#s other than (apital Goo#s .13*,8*0,/410 .13,*8*,0/41

Eo&esti( .ur(hasesF-ervi(es .3,*38,/800 .,3*3,8/80

Total $nput Ta@ P3459.2

http://www.lawphil.net/judjuris/juri2012/jul2012/gr_190102_2012.html#fnt1














17

Resolute, A((enture 5ile# a .etition 5or Review with the C<A n Ban(, ut the latter a55ir&e# the EivisionWs Ee(isionan# Resolution*8 A suseuent +R was also #enie# in a Resolution #ate# *3 O(toer *009

>en(e, the present .etition 5or Review*9 un#er Rule 4/

In a Joint -tipulation o5 6a(ts an# Issues, the parties an# the Eivision have a2ree# to su&it the 5ollowin2 issues5or resolution=

1 hether or not .etitionerWs sales o5 2oo#s an# servi(es are DeroFrate# 5or "A< purposes un#er -e(tion108B:*:3: o5 the 199 <a; Co#e

* hether or not petitionerWs (lai& 5or re5un#ta; (re#it in the a&ount o5 .3/,18,884*1 representsunutiliDe# input "A< pai# on its #o&esti( pur(hases o5 2oo#s an# servi(es 5or the perio# (o&&en(in2 5ro&1 July *00* until 30 !ove&er *00*

3 hether or not .etitioner has (arrie# over to the su((ee#in2 ta;ale uarters: or years: the alle2e#unutiliDe# input "A< pai# on its #o&esti( pur(hases o5 2oo#s an# servi(es 5or the perio# (o&&en(in2 5ro&1 July *00* until 30 !ove&er *00*, an# applie# the sa&e 5ully to its output "A< liaility 5or the sai#perio#

4 hether or not .etitioner is entitle# to the re5un# o5 the a&ount o5 .3/,18,884*1, representin2 theunutiliDe# input "A< on #o&esti( pur(hases o5 2oo#s an# servi(es 5or the perio# (o&&en(in2 5ro& 1 July*00* until 30 !ove&er *00*, 5ro& its sales o5 servi(es to various 5orei2n (lients

/ hether or not .etitionerWs (lai& 5or re5un#ta; (re#it in the a&ount o5 .3/,18,884*1, as alle2e#unutiliDe# input "A< on #o&esti( pur(hases o5 2oo#s an# servi(es 5or the perio# (overin2 1 July *00* until30 !ove&er *00* are #uly sustantiate# y proper #o(u&ents30

6or (onsi#eration in the present .etition are the 5ollowin2 issues=

1 -houl# the re(ipient o5 the servi(es e #oin2 usiness outsi#e the .hilippines 5or the transa(tion to eDeroFrate# un#er -e(tion 108B:*: o5 the 199 <a; Co#eX

* >as A((enture su((ess5ully proven that its (lients are entities #oin2 usiness outsi#e the .hilippinesX

Re(ipient o5 servi(es &ust e #oin2 usiness outsi#e the .hilippines 5or the transa(tions to uali5y as DeroFrate#

A((enture an(hors its re5un# (lai& on -e(tion 11*A: o5 the 199 <a; Co#e, whi(h allows the re5un# o5 unutiliDe#input "A< earne# 5ro& DeroFrate# or e55e(tively DeroFrate# sales <he provision rea#s=

-C 11* Re5un#s or <a; Cre#its o5 Input <a; F

A: 7eroFRate# or 55e(tively 7eroFRate# -ales F Any "A<Fre2istere# person, whose sales are DeroFrate# ore55e(tively DeroFrate# &ay, within two *: years a5ter the (lose o5 the ta;ale uarter when the sales were &a#e,apply 5or the issuan(e o5 a ta; (re#it (erti5i(ate or re5un# o5 (re#itale input ta; #ue or pai# attriutale to su(hsales, e;(ept transitional input ta;, to the e;tent that su(h input ta; has not een applie# a2ainst output ta;=

.rovi#e#, however, <hat in the (ase o5 DeroFrate# sales un#er -e(tion 10A:*:a:1:, *: an# B: an# -e(tion 108B:1: an# *:, the a((eptale 5orei2n (urren(y e;(han2e pro(ee#s thereo5 ha# een #uly a((ounte# 5or ina((or#an(e with the rules an# re2ulations o5 the Ban2@o -entral n2 .ilipinas B-.:= .rovi#e#, 5urther, <hat wherethe ta;payer is en2a2e# in DeroFrate# or e55e(tively DeroFrate# sale an# also in ta;ale or e;e&pt sale o5 2oo#s o5properties or servi(es, an# the a&ount o5 (re#itale input ta; #ue or pai# (annot e #ire(tly an# entirely attriute#to any one o5 the transa(tions, it shall e allo(ate# proportionately on the asis o5 the volu&e o5 sales -e(tion108B: re5erre# to in the 5ore2oin2 provision was 5irst seen when .resi#ential Ee(ree !o .E: 199431 a&en#e#<itle I" o5 .E 11/8,3* whi(h is also @nown as the !ational Internal Revenue Co#e o5 19 -everal Ee(isions havere5erre# to this as the 198 <a; Co#e, even thou2h it &erely a&en#e# <itle I" o5 the 19 <a; Co#e

<wo years therea5ter, or on 1 January 1988, ;e(utive Or#er !o O: *333 5urther a&en#e# provisions o5 <itleI" O *3 y trans5errin2 the ol# <itle I" provisions to <itle "I an# 5illin2 in the 5or&er title with new provisionsthat i&pose# a "A<

<he "A< syste& intro#u(e# in O *3 was restru(ture# throu2h Repuli( A(t !o RA: 134 <his law, whi(hwas approve# on / +ay 1994, wi#ene# the ta; ase -e(tion 3 thereo5 rea#s=

-C<IO! 3 -e(tion 10* o5 the !ational Internal Revenue Co#e, as a&en#e#, is herey 5urther a&en#e# to rea# as5ollows=

-C 10* "alueFa##e# ta; on sale o5 servi(es an# use or lease o5 properties ; ; ;

; ; ; ; ; ; ; ; ;


















18

: <ransa(tions su$e(t to DeroFrate M <he 5ollowin2 servi(es per5or&e# in the .hilippines y "A<Fre2istere#persons shall e su$e(t to 0N=

1: .ro(essin2, &anu5a(turin2 or repa(@in2 2oo#s 5or other persons #oin2 usiness outsi#e the .hilippineswhi(h 2oo#s are suseuently e;porte#, where the servi(es are pai# 5or in a((eptale 5orei2n (urren(y an#a((ounte# 5or in a((or#an(e with the rules an# re2ulations o5 the Ban2@o -entral n2 .ilipinas B-.:

*: -ervi(es other than those &entione# in the pre(e#in2 suFpara2raph, the (onsi#eration 5or whi(h ispai# 5or in a((eptale 5orei2n (urren(y an# a((ounte# 5or in a((or#an(e with the rules an# re2ulations o5the Ban2@o -entral n2 .ilipinas B-.:

ssentially, -e(tion 10*: o5 the 19 <a; Co#eMas a&en#e# y .E 1994, O *3, an# RA 1Mprovi#esthat i5 the (onsi#eration 5or the servi(es provi#e# y a "A<Fre2istere# person is in a 5orei2n (urren(y, then thistransa(tion shall e su$e(te# to Dero per(ent rate

<he 199 <a; Co#e repro#u(e# -e(tion 10*: o5 the 19 <a; Co#e in its -e(tion 108B:, to wit=

B: <ransa(tions -u$e(t to 7ero .er(ent 0N: Rate F <he 5ollowin2 servi(es per5or&e# in the .hilippines y "A<Fre2istere# persons shall e su$e(t to Dero per(ent 0N: rate


*: -ervi(es other than those &entione# in the pre(e#in2 para2raph, the (onsi#eration 5or whi(h is pai# 5orin a((eptale 5orei2n (urren(y an# a((ounte# 5or in a((or#an(e with the rules an# re2ulations o5 the Ban2@o-entral n2 .ilipinas B-.: ; ; ;

On 1 !ove&er *00/, -e(tion o5 RA 933, whi(h a&en#e# the 5ore2oin2 provision, e(a&e e55e(tive It rea#s=

-C -e(tion 108 o5 the sa&e Co#e, as a&en#e#, is herey 5urther a&en#e# to rea# as 5ollows=

-C 108 "alueFa##e# <a; on -ale o5 -ervi(es an# ?se or )ease o5

.roperties F

B: <ransa(tions -u$e(t to 7ero .er(ent 0N: Rate F <he 5ollowin2 servi(es per5or&e# in the .hilippines y "A<Fre2istere# persons shall e su$e(t to Dero per(ent 0N: rate=


*: -ervi(es other than those &entione# in the pre(e#in2 para2raph ren#ere# to a person en2a2e# inusiness (on#u(te# outsi#e the .hilippines or to a nonresi#ent person not en2a2e# in usiness who isoutsi#e the .hilippines when the servi(es are per5or&e#, the (onsi#eration 5or whi(h is pai# 5or in

a((eptale 5orei2n (urren(y an# a((ounte# 5or in a((or#an(e with the rules an# re2ulations o5 the Ban2@o-entral n2 .ilipinas B-.: ; ; ; &phasis supplie#:

<he &eat o5 A((entureWs ar2u&ent is that nowhere #oes -e(tion 108B: o5 the 199 <a; Co#e state that servi(es,to e DeroFrate#, shoul# e ren#ere# to (lients #oin2 usiness outsi#e the .hilippines, the reuire&ent intro#u(e#y RA 9333/ Reuire# y -e(tion 108B:, prior to the a&en#&ent, is that the (onsi#eration 5or the servi(esren#ere# e in 5orei2n (urren(y an# in a((or#an(e with the rules o5 the Ban2@o -entral n2 .ilipinas B-.: -in(eA((enture has (o&plie# with all the (on#itions i&pose# in -e(tion 108B:, it is entitle# to the re5un# praye# 5or

In support o5 its (lai&, A((enture (ites A&e;, in whi(h this Court suppose#ly rule# that -e(tion 108B: reveals a(lear intent on the part o5 the le2islators not to i&pose the (on#ition o5 ein2 (onsu&e# aroa# in or#er 5or theservi(es per5or&e# in the .hilippines to e DeroFrate#3

<he Eivision rule# that this Court, in A&e; an# Bur&eister, #i# not #e(lare that the reuire&entMthat the (lient&ust e #oin2 usiness outsi#e the .hilippinesM(an e #isre2ar#e#, e(ause this reuire&ent is e;pressly provi#e#in Arti(le 108*: o5 the <a; Co#e3

A((enture uestions the EivisionWs appli(ation to this (ase o5 the pronoun(e&ents &a#e in Bur&eister A((or#in2 topetitioner, the provision applie# to the present (ase was -e(tion 10*: o5 the 19 <a; Co#e, an# not -e(tion108B: o5 the 199 <a; Co#e, whi(h was the law e55e(tive when the su$e(t transa(tions were entere# into an# are5un# was applie# 5or









20

<he Court e;plaine# how the servi(es ren#ere# in A&e; were (onsi#ere# to have een per5or&e# an# (onsu&e# inthe .hilippines, to wit=

Consu&ption is the use o5 a thin2 in a way that therey e;hausts it Applie# to servi(es, the ter& &eans theper5or&an(e or su((ess5ul (o&pletion o5 a (ontra(tual #uty, usually resultin2 in the per5or&erWs release 5ro& anypast or 5uture liaility ; ; ; <he servi(es ren#ere# y respon#ent are per5or&e# or su((ess5ully (o&plete# uponits sen#in2 to its 5orei2n (lient the #ra5ts an# ills it has 2athere# 5ro& servi(e estalish&ents here Its servi(es,havin2 een per5or&e# in the .hilippines, are there5ore also (onsu&e# in the .hilippines44

<he e55e(t o5 the pla(e o5 (onsu&ption on the DeroFratin2 o5 the transa(tion was not the issue inBur&eister,-#phi,Instea#, this Court a##resse# the suarely raise# issue o5 whether the re(ipient o5 servi(esshoul# e #oin2 usiness outsi#e the .hilippines 5or the transa(tion to uali5y 5or DeroFratin2 e rule# that itshoul# <hus, another essential (on#ition 5or uali5i(ation 5or DeroFratin2 un#er -e(tion 10*:*: o5 the 19 <a;Co#e is that the re(ipient o5 the usiness e #oin2 that usiness outsi#e the .hilippines In (lari5yin2 that there isno (on5li(t etween this pronoun(e&ent an# that lai# #own in A&e;, we rule# thus=

; ; ; As the Court hel# in Co&&issioner o5 Internal Revenue v A&eri(an ;press International, In( .hilippineBran(h:, the pla(e o5 pay&ent is i&&aterial, &u(h less is the pla(e where the output o5 the servi(e is ulti&atelyuse# An essential (on#ition 5or entitle&ent to 0N "A< un#er -e(tion 10* : 1: an# *: is that the re(ipient o5 theservi(es is a person #oin2 usiness outsi#e the .hilippines In this (ase, the re(ipient o5 the servi(es is theConsortiu&, whi(h is #oin2 usiness not outsi#e, ut within the .hilippines e(ause it has a 1/Fyear (ontra(t to

operate an# &aintain !A.OCORWs two 100F&e2awatt power ar2es in +in#anao &phasis in the ori2inal: 4/

In A&e; we rule# that the pla(e o5 per5or&an(e an#or (onsu&ption o5 the servi(e is i&&aterial In Bur&eister, theCourt 5oun# that, althou2h the pla(e o5 the (onsu&ption o5 the servi(e #oes not a55e(t the entitle&ent o5 atransa(tion to DeroFratin2, the pla(e where the re(ipient (on#u(ts its usiness #oes

A&e; #oes not (on5li(t with Bur&eister In 5a(t, to 5ully un#erstan# how -e(tion 10*:*: o5 the 19 <a; Co#eMan# (onseuently -e(tion 108B:*: o5 the 199 <a; Co#eMwas inten#e# to operate, the two a5ore&entione# (asesshoul# e ta@en to2ether <he DeroFratin2 o5 the servi(es per5or&e# y respon#ent in A&e; was a55ir&e# y theCourt, e(ause althou2h the servi(es ren#ere# were oth per5or&e# an# (onsu&e# in the .hilippines, the re(ipiento5 the servi(e was still an entity #oin2 usiness outsi#e the .hilippines as reuire# in Bur&eister

<hat the re(ipient o5 the servi(e shoul# e #oin2 usiness outsi#e the .hilippines to uali5y 5or DeroFratin2 is the

only lo2i(al interpretation o5 -e(tion 10*:*: o5 the 19 <a; Co#e, as we e;plaine# in Bur&eister=

<his (an only e the lo2i(al interpretation o5 -e(tion 10* : *: I5 the provi#er an# re(ipient o5 the otherservi(es are oth #oin2 usiness in the .hilippines, the pay&ent o5 5orei2n (urren(y is irrelevant Otherwise, thosesu$e(t to the re2ular "A< un#er -e(tion 10* a: (an avoi# payin2 the "A< y si&ply stipulatin2 pay&ent in 5orei2n(urren(y inwar#ly re&itte# y the re(ipient o5 servi(es <o interpret -e(tion 10* : *: to apply to a payerFre(ipient o5 servi(es #oin2 usiness in the .hilippines is to &a@e the pay&ent o5 the re2ular "A< un#er -e(tion 10*a: #epen#ent on the 2enerosity o5 the ta;payer <he provi#er o5 servi(es (an (hoose to pay the re2ular "A< oravoi# it y stipulatin2 pay&ent in 5orei2n (urren(y inwar#ly re&itte# y the payerFre(ipient -u(h interpretationre&oves -e(tion 10* a: as a ta; &easure in the <a; Co#e, an interpretation this Court (annot san(tion A ta; is a&an#atory e;a(tion, not a voluntary (ontriution

; ; ; ; ; ; ; ; ;

6urther, when the provi#er an# re(ipient o5 servi(es are oth #oin2 usiness in the .hilippines, their transa(tion5alls suarely un#er -e(tion 10* a: 2overnin2 #o&esti( sale or e;(han2e o5 servi(es In#ee#, this is a purely lo(alsale or e;(han2e o5 servi(es su$e(t to the re2ular "A<, unless o5 (ourse the transa(tion 5alls un#er the otherprovisions o5 -e(tion 10* :

<hus, when -e(tion 10* : *: spea@s o5 servi(es other than those &entione# in the pre(e#in2 supara2raph,the le2islative intent is that only the servi(es are #i55erent etween supara2raphs 1 an# * <he reuire&ents 5orDeroFratin2, in(lu#in2 the essential (on#ition that the re(ipient o5 servi(es is #oin2 usiness outsi#e the .hilippines,re&ain the sa&e un#er oth supara2raphs &phasis in the ori2inal:4

)astly, it is worth &entionin2 that prior to the pro&ul2ation o5 Bur&eister, Con2ress ha# alrea#y (lari5ie# the intentehin# -e(tions 10*:*: o5 the 19 <a; Co#e an# 108B:*: o5 the 199 <a; Co#e a&en#in2 the earlierprovision RA 933 a##e# the 5ollowin2 phrase= ren#ere# to a person en2a2e# in usiness (on#u(te# outsi#e the.hilippines or to a nonresi#ent person not en2a2e# in usiness who is outsi#e the .hilippines when the servi(es areper5or&e#

A((enture has 5aile# to estalish that the re(ipients o5 its servi(es #o usiness outsi#e the .hilippines

A((enture ar2ues that ase# on the #o(u&entary evi#en(e it presente#,4 it was ale to estalish the 5ollowin2(ir(u&stan(es=

1 <he re(or#s o5 the -e(urities an# ;(han2e Co&&ission -C: show that A((entureWs (lients have notestalishe# any ran(h o55i(e in whi(h to #o usiness in the .hilippines











21

* 6or these servi(es, A((enture ills another (orporation, A((enture .arti(ipations B" A.B:, whi(h isli@ewise a 5orei2n (orporation with no presen(e in the .hilippines

3 Only those not #oin2 usiness in the .hilippines (an e reuire# un#er B-. rules to pay in a((eptale(urren(y 5or their pur(hase o5 2oo#s an# servi(es 5ro& the .hilippines <hus, in a #o&esti( transa(tion,where the provi#er an# re(ipient o5 servi(es are oth #oin2 usiness in the .hilippines, the B-. (annotreuire any party to &a@e pay&ent in 5orei2n (urren(y48

A((enture (lai&s that these #o(u&entary pie(es o5 evi#en(e are supporte# y the Report o5 &&anuel +en#oDa,the CourtF(o&&issione# In#epen#ent Certi5ie# .uli( A((ountant >e as(ertaine# that A((entureWs 2ross illin2spertainin2 to DeroFrate# sales were all supporte# y DeroFrate# O55i(ial Re(eipts an# Billin2 -tate&ents <hese#o(u&ents show that these DeroFrate# sales were pai# in 5orei2n e;(han2e (urren(y an# #uly a((ounte# 5or in therules an# re2ulations o5 the B-.49

In the C<AWs opinion, however, the #o(u&ents presente# y A((enture &erely sustantiate the e;isten(e o5 thesales, re(eipt o5 5orei2n (urren(y pay&ents, an# inwar# re&ittan(e o5 the pro(ee#s o5 these sales #uly a((ounte#5or in a((or#an(e with B-. rules .etitioner presente# no evi#en(e whatsoever that these (lients were #oin2usiness outsi#e the .hilippines/0

A((enture insists, however, that it was ale to estalish that it ha# ren#ere# servi(es to 5orei2n (orporations #oin2usiness outsi#e the .hilippines, unli@e in Bur&eister, whi(h alle2e#ly involve# a 5orei2n (orporation #oin2 usinessin the .hilippines/1

e #eny A((entureWs .etition 5or a ta; re5un#

<he evi#en(e presente# y A((enture &ay have estalishe# that its (lients are 5orei2n,-#phi, <his 5a(t #oes notauto&ati(ally &ean, however, that these (lients were #oin2 usiness outsi#e the .hilippines A5ter all, the <a; Co#eitsel5 has provisions 5or a 5orei2n (orporation en2a2e# in usiness within the .hilippines an# vi(e versa, to wit=

-C ** Ee5initions F hen use# in this <itle=

; ; ; ; ; ; ; ; ;

>: <he ter& resi#ent 5orei2n (orporation applies to a 5orei2n (orporation en2a2e# in tra#e or usinesswithin the .hilippines

I: <he ter& Ynonresi#ent 5orei2n (orporationW applies to a 5orei2n (orporation not en2a2e# in tra#e orusiness within the .hilippines &phasis in the ori2inal:

Conseuently, to (o&e within the purview o5 -e(tion 108B:*:, it is not enou2h that the re(ipient o5 the servi(e eproven to e a 5orei2n (orporation rather, it &ust e spe(i5i(ally proven to e a nonresi#ent 5orei2n (orporation

<here is no spe(i5i( (riterion as to what (onstitutes #oin2 or en2a2in2 in or transa(tin2 usiness e rule#thus in Co&&issioner o5 Internal Revenue v British Overseas Airways Corporation=/*

; ; ; <here is no spe(i5i( (riterion as to what (onstitutes #oin2 or en2a2in2 in or transa(tin2 usiness a(h

(ase &ust e $u#2e# in the li2ht o5 its pe(uliar environ&ental (ir(u&stan(es <he ter& i&plies a (ontinuity o5(o&&er(ial #ealin2s an# arran2e&ents, an# (onte&plates, to that e;tent, the per5or&an(e o5 a(ts or wor@s or thee;er(ise o5 so&e o5 the 5un(tions nor&ally in(i#ent to, an# in pro2ressive prose(ution o5 (o&&er(ial 2ain or 5or thepurpose an# o$e(t o5 the usiness or2aniDation In or#er that a 5orei2n (orporation &ay e re2ar#e# as #oin2usiness within a -tate, there &ust e (ontinuity o5 (on#u(t an# intention to estalish a (ontinuous usiness, su(has the appoint&ent o5 a lo(al a2ent, an# not one o5 a te&porary (hara(ter/3

A ta;payer (lai&in2 a ta; (re#it or re5un# has the ur#en o5 proo5 to estalish the 5a(tual asis o5 that(lai&,-#phi, <a; re5un#s, li@e ta; e;e&ptions, are (onstrue# stri(tly a2ainst the ta;payer/4

A((enture 5aile# to #is(har2e this ur#en It alle2e# an# presente# evi#en(e to prove only that its (lients were5orei2n entities >owever, as 5oun# y oth the C<A Eivision an# the C<A n Ban(, no evi#en(e was presente# yA((enture to prove the 5a(t that the 5orei2n (lients to who& petitioner ren#ere# its servi(es were (lients #oin2

usiness outsi#e the .hilippines

As rule# y the C<A n Ban(, the O55i(ial Re(eipts, Inter(o&pany .ay&ent Reuests, Billin2 -tate&ents, +e&oInvoi(esFRe(eivale, +e&o Invoi(esF.ayale, an# Ban@ -tate&ents presente# y A((enture &erely sustantiate#the e;isten(e o5 sales, re(eipt o5 5orei2n (urren(y pay&ents, an# inwar# re&ittan(e o5 the pro(ee#s o5 su(h sales#uly a((ounte# 5or in a((or#an(e with B-. rules, all o5 these were #evoi# o5 any evi#en(e that the (lients were#oin2 usiness outsi#e o5 the .hilippines//

>R6OR, the instant .etition is E!IE <he ** -epte&er *009 Ee(ision an# the *3 O(toer *009 Resolutiono5 the Court o5 <a; Appeals n Ban( in C<A B !o 4, #is&issin2 the .etition 5or the re5un# o5 the e;(ess orunutiliDe# input "A< (re#its o5 A((enture, In(, are A66IR+E -O ORERE




















22

G.R. No. L-4545 #p6il 9 1929

J!%( G#TC"#L$#N (T #L. plainti55sFappellants,vsT"( C!LL(CT!R !F $NT(RN#L R((N( #e5en#antFappellee

$*P(R$#L J.:

<he plainti55 rou2ht this a(tion to re(over 5ro& the #e5en#ant Colle(tor o5 Internal Revenue the su& o5 .1,8344,with le2al interest thereon, whi(h they pai# un#er protest y way o5 in(o&e ta; <hey appeale# 5ro& the #e(isionren#ere# in the (ase on O(toer *3, 193 y the Court o5 6irst Instan(e o5 the City o5 +anila, whi(h #is&isse# thea(tion with the (osts a2ainst the&

<he (ase was su&itte# 5or #e(ision upon the 5ollowin2 stipulation o5 5a(ts=

Co&e now the parties to the aoveF&entione# (ase, throu2h their respe(tive un#ersi2ne# attorneys, an#herey a2ree to respe(t5ully su&it to this >onorale Court the (ase upon the 5ollowin2 state&ent o5 5a(ts=

1 <hat plainti55 are all resi#ents o5 the &uni(ipality o5 .ulilan, Bula(an, an# that #e5en#ant is the Colle(toro5 Internal Revenue o5 the .hilippines

* <hat prior to Ee(e&er 1/, 1934 plainti55s, in or#er to enale the& to pur(hase one sweepsta@es ti(@etvalue# at two pesos .*:, sus(rie# an# pai# there5or the a&ounts as 5ollows=

1 Jose Gat(halian .018

* Gre2oria Cristoal 18

3 -aturnina -ilva 08

4 Guiller&o <apia 13

/ Jesus )e2aspi 1/

Jose -ilva 0

<o&asa +er(a#o 08

8 Julio Gat(halian 13

9 &iliana -antia2o 13

10 +aria C )e2aspi 1

11 6ran(is(o Caral 13

1* GonDalo Javier 14

13 +aria -antia2o 1

14 Buenaventura GuD&an 13

1/ +ariano -antos 14

<otal *00

3 <hat i&&e#iately therea5ter ut prior to Ee(e&er 1/, 1934, plainti55s pur(hase#, in the or#inary (ourseo5 usiness, 5ro& one o5 the #uly authoriDe# a2ents o5 the !ational Charity -weepsta@es O55i(e one ti(@etearin2 !o 183 5or the su& o5 two pesos .*: an# that the sai# ti(@et was re2istere# in the na&e o5Jose Gat(halian an# Co&pany

4 <hat as a result o5 the #rawin2 o5 the sweepsta@es on Ee(e&er 1/, 1934, the aoveF&entione# ti(@etearin2 !o 183 won one o5 the thir# priDes in the a&ount o5 ./0,000 an# that the (orrespon#in2 (he(@(overin2 the aoveF&entione# priDe o5 ./0,000 was #rawn y the !ational Charity -weepsta@es O55i(e in

5avor o5 Jose Gat(halian S Co&pany a2ainst the .hilippine !ational Ban@, whi(h (he(@ was (ashe# #urin2the latter part o5 Ee(e&er, 1934 y Jose Gat(halian S Co&pany

/ <hat on Ee(e&er *9, 1934, Jose Gat(halian was reuire# y in(o&e ta; e;a&iner Al5re#o Eavi# to 5ilethe (orrespon#in2 in(o&e ta; return (overin2 the priDe won y Jose Gat(halian S Co&pany an# that onEe(e&er *9, 1934, the sai# return was si2ne# y Jose Gat(halian, a (opy o5 whi(h return is en(lose# as;hiit A an# &a#e a part hereo5

<hat on January 8, 193/, the #e5en#ant &a#e an assess&ent a2ainst Jose Gat(halian S Co&panyreuestin2 the pay&ent o5 the su& o5 .1,49994 to the #eputy provin(ial treasurer o5 .ulilan, Bula(an,



23

2ivin2 to sai# Jose Gat(halian S Co&pany until January *0, 193/ within whi(h to pay the sai# a&ount o5.1,49994, a (opy o5 whi(h letter &ar@e# ;hiit B is en(lose# an# &a#e a part hereo5

<hat on January *0, 193/, the plainti55s, throu2h their attorney, sent to #e5en#ant a reply, a (opy o5whi(h &ar@e# ;hiit C is atta(he# an# &a#e a part hereo5, reuestin2 e;e&ption 5ro& pay&ent o5 thein(o&e ta; to whi(h reply there were en(lose# 5i5teen 1/: separate in#ivi#ual in(o&e ta; returns 5ile#separately y ea(h one o5 the plainti55s, (opies o5 whi(h returns are atta(he# an# &ar@e# ;hiit EF1 to EF1/, respe(tively, in or#er o5 their na&es liste# in the (aption o5 this (ase an# &a#e parts hereo5 astate&ent o5 sale si2ne# y Jose Gat(halian showin2 the a&ount put up y ea(h o5 the plainti55s to (over upthe atta(he# an# &ar@e# as ;hiit an# &a#e a part hereo5 an# a (opy o5 the a55i#avit si2ne# y JoseGat(halian #ate# Ee(e&er *9, 1934 is atta(he# an# &ar@e# ;hiit 6 an# &a#e part thereo5

8 <hat the #e5en#ant in his letter #ate# January *8, 193/, a (opy o5 whi(h &ar@e# ;hiit G is en(lose#,#enie# plainti55sH reuest o5 January *0, 193/, 5or e;e&ption 5ro& the pay&ent o5 ta; an# reiterate# his#e&an# 5or the pay&ent o5 the su& o5 .1,49994 as in(o&e ta; an# 2ave plainti55s until 6eruary 10, 193/within whi(h to pay the sai# ta;

9 <hat in view o5 the 5ailure o5 the plainti55s to pay the a&ount o5 ta; #e&an#e# y the #e5en#ant,notwithstan#in2 suseuent #e&an# &a#e y #e5en#ant upon the plainti55s throu2h their attorney on+ar(h *3, 193/, a (opy o5 whi(h &ar@e# ;hiit > is en(lose#, #e5en#ant on +ay 13, 193/ issue# awarrant o5 #istraint an# levy a2ainst the property o5 the plainti55s, a (opy o5 whi(h warrant &ar@e# ;hiit I

is en(lose# an# &a#e a part hereo5

10 <hat to avoi# e&arrass&ent arisin2 5ro& the e&ar2o o5 the property o5 the plainti55s, the sai#plainti55s on June 1/, 193/, throu2h Gre2oria Cristoal, +aria C )e2aspi an# Jesus )e2aspi, pai# un#erprotest the su& o5 .01/1 as part o5 the ta; an# penalties to the &uni(ipal treasurer o5 .ulilan, Bula(an,as evi#en(e# y o55i(ial re(eipt !o 4/489 whi(h is atta(he# an# &ar@e# ;hiit J an# &a#e a parthereo5, an# reueste# #e5en#ant that plainti55s e allowe# to pay un#er protest the alan(e o5 the ta; an#penalties y &onthly install&ents

11 <hat plainti55Hs reuest to pay the alan(e o5 the ta; an# penalties was 2rante# y #e5en#ant su$e(t tothe (on#ition that plainti55s 5ile the usual on# se(ure# y two solvent persons to 2uarantee pro&ptpay&ent o5 ea(h install&ents as it e(o&es #ue

1* <hat on July 1, 193/, plainti55 5ile# a on#, a (opy o5 whi(h &ar@e# ;hiit is en(lose# an# &a#e apart hereo5, to 2uarantee the pay&ent o5 the alan(e o5 the alle2e# ta; liaility y &onthly install&ents atthe rate o5 .1180 a &onth, the 5irst pay&ent un#er protest to e e55e(te# on or e5ore July 31, 193/

13 <hat on July 1, 193/ the sai# plainti55s 5or&ally proteste# a2ainst the pay&ent o5 the su& o5 .0*/1,a (opy o5 whi(h protest is atta(he# an# &ar@e# ;hiit ), ut that #e5en#ant in his letter #ate# Au2ust 1,193/ overrule# the protest an# #enie# the reuest 5or re5un# o5 the plainti55s

14 <hat, in view o5 the 5ailure o5 the plainti55s to pay the &onthly install&ents in a((or#an(e with the ter&san# (on#itions o5 on# 5ile# y the&, the #e5en#ant in his letter #ate# July *3, 193/, (opy o5 whi(h isatta(he# an# &ar@e# ;hiit +, or#ere# the &uni(ipal treasurer o5 .ulilan, Bula(an to e;e(ute within 5ive#ays the warrant o5 #istraint an# levy issue# a2ainst the plainti55s on +ay 13, 193/

1/ <hat in or#er to avoi# annoyan(e an# e&arrass&ent arisin2 5ro& the levy o5 their property, theplainti55s on Au2ust *8, 193, throu2h Jose Gat(halian, Guiller&o <apia, +aria -antia2o an# &iliano-antia2o, pai# un#er protest to the &uni(ipal treasurer o5 .ulilan, Bula(an the su& o5 .1,*093representin2 the unpai# alan(e o5 the in(o&e ta; an# penalties #e&an#e# y #e5en#ant as evi#en(e# yin(o&e ta; re(eipt !o 3/811 whi(h is atta(he# an# &ar@e# ;hiit ! an# &a#e a part hereo5 an# that on-epte&er 3, 193, the plainti55s 5or&ally proteste# to the #e5en#ant a2ainst the pay&ent o5 sai# a&ountan# reueste# the re5un# thereo5, (opy o5 whi(h is atta(he# an# &ar@e# ;hiit O an# &a#e part hereo5ut that on -epte&er 4, 193, the #e5en#ant overrule# the protest an# #enie# the re5un# thereo5 (opy o5 whi(h is atta(he# an# &ar@e# ;hiit . an# &a#e a part hereo5 an#

1 <hat plainti55s #e&an#e# upon #e5en#ant the re5un# o5 the total su& o5 one thousan# ei2ht hun#re#an# si;ty three pesos an# 5ortyF5our (entavos .1,8344: pai# un#er protest y the& ut that #e5en#antre5use# an# still re5uses to re5un# the sai# a&ount notwithstan#in2 the plainti55sH #e&an#s

1 <he parties hereto reserve the ri2ht to present other an# a##itional evi#en(e i5 ne(essary

;hiit re5erre# to in the stipulation is o5 the 5ollowin2 tenor=

+o #hom it may concern

I, Jose Gat(halian, a resi#ent o5 .ulilan, Bula(an, &arrie#, o5 a2e, herey (erti5y, that on the 11th #ay o5Au2ust, 1934, I sol# parts o5 &y shares on ti(@et !o 183 to the persons an# 5or the a&ount in#i(ate#elow an# the part o5 &ay share re&ainin2 is also shown to wit=



24

Purchaser Amount A&&ress

1 +ariano -antos .014 .ulilan, Bula(an

* Buenaventura GuD&an 13 F Eo F

3 +aria -antia2o 1 F Eo F

4 GonDalo Javier 14 F Eo F

/ 6ran(is(o Caral 13 F Eo F

+aria C )e2aspi 1 F Eo F

&iliana -antia2o 13 F Eo F

8 Julio Gat(halian 13 F Eo F

9 Jose -ilva 0 F Eo F

10 <o&asa +er(a#o 08 F Eo F

11 Jesus )e2aspi 1/ F Eo F

1* Guiller&o <apia 13 F Eo F

13 -aturnina -ilva 08 F Eo F

14 Gre2oria Cristoal 18 F Eo F

1/ Jose Gat(halian 18 F Eo F

*00 <otal (ost o5 sai#

ti(@et an# that, there5ore, the persons na&e# aove are entitle# to the parts o5 whatever priDe that &i2hte won y sai# ti(@et

.ulilan, Bula(an, .I

-2#: JO- GA<C>A)IA!

An# a su&&ary o5 ;hiits EF1 to EF1/ is inserte# in the ill o5 e;(eptions as 5ollows=

RCA.I<?)A<IO!- O6 1/ I!EI"IE?A) I!CO+ <AL R<?R!- 6OR 1934 A)) EA<E JA!?AR 19, 193/-?B+I<<E <O <> CO))C<OR O6 I!<R!A) R"!?

Name/xhi$it

No.Purchase

PricePrice0on

/xpensesNet

prize

1 JoseGat(halian

EF1 .018 .4,4*/ . 480 3,94/

* Gre2oriaCristoal

EF* 18 4,// *,000 *,//

3 -aturnina-ilva

EF3 08 1,8/ 30 1,/1/

4 Guiller&o<apia

EF4 13 3,3*/ 30 *,9/

/ Jesus )e2aspi y +aria Cristoal EF/ 1/ 3,8*/ *0 3,10/

Jose-ilva

EF 08 1,8/ 30 1,/1/

<o&asa+er(a#o

EF 0 1,8/ 30 1,/1/

8 Julio Gat(halian y BeatriDGuD&an

EF8 13 3,1/0 *40 *,910

9 &iliana-antia2o

EF9 13 3,3*/ 30 *,9/

10 +aria C)e2aspi

EF10 1 4,100 90 3,140

11 6ran(is(o EF11 13 3,3*/ 30 *,9/



25

Caral

1* GonDaloJavier

EF1* 14 3,3*/ 30 *,9/

13 +aria-antia2o

EF13 1 4,3/0 30 3,990

14 BuenaventuraGuD&an EF14 13 3,3*/ 30 *,9/

1/ +ariano-antos

EF1/ 14 3,3*/ 30 *,9/

*00 /0,000

ZV t#V styleV5ontFsiDe=14p; te;tF#e(oration= none(olor= r20, 0, 1*8: 5ontF5a&ily= arial, ver#ana[

<he le2al uestions raise# in plainti55sFappellantsH 5ive assi2ne# errors &ay properly e re#u(e# to the two5ollowin2= 1: hether the plainti55s 5or&e# a partnership, or &erely a (o&&unity o5 property without a personalityo5 its own in the 5irst (ase it is a#&itte# that the partnership thus 5or&e# is liale 5or the pay&ent o5 in(o&e ta;,

whereas i5 there was &erely a (o&&unity o5 property, they are e;e&pt 5ro& su(h pay&ent an# *: whether theyshoul# pay the ta; (olle(tively or whether the latter shoul# e prorate# a&on2 the& an# pai# in#ivi#ually

<he Colle(tor o5 Internal Revenue (olle(te# the ta; un#er se(tion 10 o5 A(t !o *833, as last a&en#e# y se(tion *o5 A(t !o 31, rea#in2 as 5ollows=

-C 10 a: <here shall e levie#, assesse#, (olle(te#, an# pai# annually upon the total net in(o&ere(eive# in the pre(e#in2 (alen#ar year 5ro& all sour(es y every (orporation, $ointFsto(@ (o&pany,partnership, $oint a((ount (uenta en parti(ipa(ion:, asso(iation or insuran(e (o&pany, or2aniDe# in the.hilippine Islan#s, no &atter how (reate# or or2aniDe#, ut not in(lu#in2 #uly re2istere# 2eneral(opartnership (o&paias (ole(tivas:, a ta; o5 three per (entu& upon su(h in(o&e an# a li@e ta; shall elevie#, assesse#, (olle(te#, an# pai# annually upon the total net in(o&e re(eive# in the pre(e#in2 (alen#aryear 5ro& all sour(es within the .hilippine Islan#s y every (orporation, $ointFsto(@ (o&pany, partnership, $oint a((ount (uenta en parti(ipa(ion:, asso(iation, or insuran(e (o&pany or2aniDe#, authoriDe#, or

e;istin2 un#er the laws o5 any 5orei2n (ountry, in(lu#in2 interest on on#s, notes, or other interestFearin2oli2ations o5 resi#ents, (orporate or otherwise= Provi&e&% ho#ever% <hat nothin2 in this se(tion shall e(onstrue# as per&ittin2 the ta;ation o5 the in(o&e #erive# 5ro& #ivi#en#s or net pro5its on whi(h thenor&al ta; has een pai#

<he 2ain #erive# or loss sustaine# 5ro& the sale or other #isposition y a (orporation, $ointFsto(@ (o&pany,partnership, $oint a((ount (uenta en parti(ipa(ion:, asso(iation, or insuran(e (o&pany, or property, real,personal, or &i;e#, shall e as(ertaine# in a((or#an(e with suse(tions c : an# & : o5 se(tion two o5 A(t!u&ere# <wo thousan# ei2ht hun#re# an# thirtyFthree, as a&en#e# y A(t !u&ere# <wentyFninehun#re# an# twentyFsi;

<he 5ore2oin2 ta; rate shall apply to the net in(o&e re(eive# y every ta;ale (orporation, $ointFsto(@(o&pany, partnership, $oint a((ount (uenta en parti(ipa(ion:, asso(iation, or insuran(e (o&pany in the

(alen#ar year nineteen hun#re# an# twenty an# in ea(h year therea5ter

<here is no #out that i5 the plainti55s &erely 5or&e# a (o&&unity o5 property the latter is e;e&pt 5ro& thepay&ent o5 in(o&e ta; un#er the law But a((or#in2 to the stipulation 5a(ts the plainti55s or2aniDe# a partnership o5 a (ivil nature e(ause ea(h o5 the& put up &oney to uy a sweepsta@es ti(@et 5or the sole purpose o5 #ivi#in2eually the priDe whi(h they &ay win, as they #i# in 5a(t in the a&ount o5 ./0,000 arti(le 1/, Civil Co#e: <hepartnership was not only 5or&e#, ut upon the or2aniDation thereo5 an# the winnin2 o5 the priDe, Jose Gat(halianpersonally appeare# in the o55i(e o5 the .hilippines Charity -weepsta@es, in his (apa(ity as (oFpartner, as su(h(olle(tion the priDe, the o55i(e issue# the (he(@ 5or ./0,000 in 5avor o5 Jose Gat(halian an# (o&pany, an# the sai#partner, in the sa&e (apa(ity, (olle(te# the sai# (he(@ All these (ir(u&stan(es repel the i#ea that the plainti55sor2aniDe# an# 5or&e# a (o&&unity o5 property only

>avin2 or2aniDe# an# (onstitute# a partnership o5 a (ivil nature, the sai# entity is the one oun# to pay the in(oη whi(h the #e5en#ant (olle(te# un#er the a5oresai# se(tion 10 a: o5 A(t !o *833, as a&en#e# y se(tion * o5A(t !o 31 <here is no &erit in plainti55Hs (ontention that the ta; shoul# e prorate# a&on2 the& an# pai#in#ivi#ually, resultin2 in their e;e&ption 5ro& the ta;

In view o5 the 5ore2oin2, the appeale# #e(ision is a55ir&e#, with the (osts o5 this instan(e to the plainti55sappellants -o or#ere#

G.R. No. 122 !cto:e6 1 19

*#R$#N! P. P#%C#L an/ R(N#T! P. ,R#G!N petitioners,

vs T"( C!**$%%$!N(R !F $NT(RN#L R((N( an/ C!RT !F T#7 #PP(#L% respon#ents



28

/ +he foregoing con&itions have existe& for more than ten 1,;2 years, or, to e e;a(t, over 5i5teen

1/: years, sin(e the 5irst property was a(uire#, an# over twelve 1*: years, sin(e -i&eon

van2elists e(a&e the &ana2er

.etitioners have not testi5ie# or intro#u(e# any evi#en(e, either on their purpose in (reatin2 the

set up alrea#y a#verte# to, or on the (auses 5or its (ontinue# e;isten(e <hey #i# not even try to

o55er an e;planation there5or

Althou2h, ta@en sin2ly, they &i2ht not su55i(e to estalish the intent ne(essary to (onstitute a

partnership, the collective effect of these circumstances is such as to leave no room for &ou$t on

the existence of sai& intent in petitioners herein. <nly one or t#o of the aforementione&

circumstances #ere present in the cases cite& $y petitioners herein% an&% hence% those cases are

not in point 5

In the present (ase, there is no evi#en(e that petitioners entere# into an a2ree&ent to (ontriute &oney, property

or in#ustry to a (o&&on 5un#, an# that they inten#e# to #ivi#e the pro5its a&on2 the&selves Respon#ent

(o&&issioner an# or his representative $ust assu&e# these (on#itions to e present on the asis o5 the 5a(t that

petitioners pur(hase# (ertain par(els o5 lan# an# e(a&e (oFowners thereo5

In van2elists, there #as a series of transactions #here petitioners purchase& t#enty=four 1"2 lots showin2 that

the purpose was not li&ite# to the (onservation or preservation o5 the (o&&on 5un# or even the properties

a(uire# y the& +he character of ha$ituality peculiar to $usiness transactions engage& in for the purpose of gain

#as present

In the instant (ase, petitioners ou2ht two *: par(els o5 lan# in 19/ <hey #i# not sell the sa&e nor &a@e any

i&prove&ents thereon In 19, they ou2ht another three 3: par(els o5 lan# 5ro& one seller It was only 198

when they sol# the two *: par(els o5 lan# a5ter whi(h they #i# not &a@e any a##itional or new pur(hase <he

re&ainin2 three 3: par(els were sol# y the& in 190 <he transa(tions were isolate# <he (hara(ter o5 haituality

pe(uliar to usiness transa(tions 5or the purpose o5 2ain was not present

In /vangelista, the properties were lease# out to tenants 5or several years <he usiness was un#er the

&ana2e&ent o5 one o5 the partners -u(h (on#ition e;iste# 5or over 5i5teen 1/: years !one o5 the (ir(u&stan(es

are present in the (ase at ar <he (oFownership starte# only in 19/ an# en#e# in 190

<hus, in the (on(urrin2 opinion o5 +r Justi(e An2elo Bautista in /vangelista he sai#=

I wish however to &a@e the 5ollowin2 oservation Arti(le 19 o5 the new Civil Co#e lays #own the

rule 5or #eter&inin2 when a transa(tion shoul# e #ee&e# a partnership or a (oFownership -ai#

arti(le para2raphs * an# 3, provi#es

*: CoFownership or (oFpossession #oes not itsel5 estalish a partnership, whether su(h (oFowners

or (oFpossessors #o or #o not share any pro5its &a#e y the use o5 the property

3: <he sharin2 o5 2ross returns #oes not o5 itsel5 estalish a partnership, whether or not the

persons sharin2 the& have a $oint or (o&&on ri2ht or interest in any property 5ro& whi(h the

returns are #erive#

9rom the a$ove it appears that the fact that those #ho agree to form a co= o#nership share or &o

not share any profits ma&e $y the use of the property hel& in common &oes not convert their

venture into a partnership. <r the sharing of the gross returns &oes not of itself esta$lish a

partnership #hether or not the persons sharing therein have a *oint or common right or interest in

the property. +his only means that% asi&e from the circumstance of profit% the presence of other

elements constituting partnership is necessary% such as the clear intent to form a partnership% the

existence of a *uri&ical personality &ifferent from that of the in&ivi&ual partners% an& the free&om to

transfer or assign any interest in the property $y one #ith the consent of the others .a#illa, CivilCo#e o5 the .hilippines Annotate#, "ol I, 19/3 e#, pp 3/F3:

)t is evi&ent that an isolate& transaction #here$y t#o or more persons contri$ute fun&s to $uy

certain real estate for profit in the a$sence of other circumstances sho#ing a contrary intention

cannot $e consi&ere& a partnership.

.ersons who (ontriute property or 5un#s 5or a (o&&on enterprise an# a2ree to share the 2ross

returns o5 that enterprise in proportion to their (ontriution, ut who severally retain the title to

their respe(tive (ontriution, are not therey ren#ere# partners <hey have no (o&&on sto(@ or



29

(apital, an# no (o&&unity o5 interest as prin(ipal proprietors in the usiness itsel5 whi(h the

pro(ee#s #erive# le&ents o5 the )aw o5 .artnership y 6lor# E +e(he& *n# #, se(tion 83, p

4:

A $oint pur(hase o5 lan#, y two, #oes not (onstitute a (oFpartnership in respe(t thereto nor #oes

an a2ree&ent to share the pro5its an# losses on the sale o5 lan# (reate a partnership the parties

are only tenants in (o&&on Clar@ vs -i#eway, 14* ?- 8*,1* Ct 3*, 3/ ) #, 11/:

here plainti55, his rother, an# another a2ree# to e(o&e owners o5 a sin2le tra(t o5 realty, hol#in2

as tenants in (o&&on, an# to #ivi#e the pro5its o5 #isposin2 o5 it, the rother an# the other not

ein2 entitle# to share in plainti55s (o&&ission, no partnership e;iste# as etween the three

parties, whatever their relation &ay have een as to thir# parties +a2ee vs +a2ee 1*3 ! 3,

*33 +ass 341:

)n or&er to constitute a partnership inter sese there must $e 1a2 An intent to form the same3 1$2

generally participating in $oth profits an& losses3 1c2 an& such a community of interest% as far as

thir& persons are concerne& as ena$les each party to ma8e contract% manage the $usiness% an&

&ispose of the #hole property.=>unicipal Paving Co. vs. 4erring ,5; P. ,;6% 5; ))) ";.2

<he (o&&on ownership o5 property #oes not itsel5 (reate a partnership etween the owners,

thou2h they &ay use it 5or the purpose o5 &a@in2 2ains an# they &ay, without e(o&in2 partners,

a2ree a&on2 the&selves as to the &ana2e&ent, an# use o5 su(h property an# the appli(ation o5

the pro(ee#s there5ro& -purlo(@ vs ilson, 14* - 33,10 !o App 14: 3

<he sharin2 o5 returns #oes not in itsel5 estalish a partnership whether or not the persons sharin2 therein have a

$oint or (o&&on ri2ht or interest in the property <here &ust e a (lear intent to 5or& a partnership, the e;isten(e

o5 a $uri#i(al personality #i55erent 5ro& the in#ivi#ual partners, an# the 5ree#o& o5 ea(h party to trans5er or assi2n

the whole property

In the present (ase, there is (lear evi#en(e o5 (oFownership etween the petitioners <here is no a#euate asis to

support the proposition that they therey 5or&e# an unre2istere# partnership <he two isolate# transa(tions

wherey they pur(hase# properties an# sol# the sa&e a 5ew years therea5ter #i# not therey &a@e the& partners

<hey share# in the 2ross pro5its as (oF owners an# pai# their (apital 2ains ta;es on their net pro5its an# availe# o5

the ta; a&nesty therey ?n#er the (ir(u&stan(es, they (annot e (onsi#ere# to have 5or&e# an unre2istere#

partnership whi(h is therey liale 5or (orporate in(o&e ta;, as the respon#ent (o&&issioner proposes

An# even assu&in2 5or the sa@e o5 ar2u&ent that su(h unre2istere# partnership appears to have een 5or&e#,

sin(e there is no su(h e;istin2 unre2istere# partnership with a #istin(t personality nor with assets that (an e hel#

liale 5or sai# #e5i(ien(y (orporate in(o&e ta;, then petitioners (an e hel# in#ivi#ually liale as partners 5or this

unpai# oli2ation o5 the partnership p >owever, as petitioners have availe# o5 the ene5its o5 ta; a&nesty as

in#ivi#ual ta;payers in these transa(tions, they are therey relieve# o5 any 5urther ta; liaility arisin2 there5ro&

>R6RO+, the petition is herey GRA!<E an# the #e(ision o5 the respon#ent Court o5 <a; Appeals o5 +ar(h 30,

198 is herey R"R-E an# -< A-IE an# another #e(ision is herey ren#ere# relievin2 petitioners o5 the

(orporate in(o&e ta; liaility in this (ase, without pronoun(e&ent as to (osts -O ORERE

G.R. No. 1105 June 5 1999

C!**$%%$!N(R !F $NT(RN#L R((N( petitioner,

vs %.C. J!"N%!N #N, %!N $NC. an/ C!RT !F #PP(#L% respon#ents

G!N#G#-R()(% J.:

<his is a petition 5or review on certiorari un#er Rule 4/ o5 the Rules o5 Court see@in2 to set asi#e the #e(ision o5 the

Court o5 Appeals #ate# !ove&er , 199 in CAFGR -. !o 4080* a55ir&in2 the #e(ision o5 the Court o5 <a;Appeals in C<A Case !o /13

<he ante(e#ent 5a(ts as 5oun# y the Court o5 <a; Appeals are not #ispute#, to wit=

PRespon#entQ, a #o&esti( (orporation or2aniDe# an# operatin2 un#er the .hilippine laws, entere#

into a li(ense a2ree&ent with -C Johnson an# -on, ?nite# -tates o5 A&eri(a ?-A:, a nonFresi#ent

5orei2n (orporation ase# in the ?-A pursuant to whi(h the Prespon#entQ was 2rante# the ri2ht to

use the tra#e&ar@, patents an# te(hnolo2y owne# y the latter in(lu#in2 the ri2ht to &anu5a(ture,



30

pa(@a2e an# #istriute the pro#u(ts (overe# y the A2ree&ent an# se(ure assistan(e in

&ana2e&ent, &ar@etin2 an# pro#u(tion 5ro& -C Johnson an# -on, ? - A

<he sai# )i(ense A2ree&ent was #uly re2istere# with the <e(hnolo2y <rans5er Boar# o5 the Bureau

o5 .atents, <ra#e +ar@s an# <e(hnolo2y <rans5er un#er Certi5i(ate o5 Re2istration !o 804 ;h

A:

6or the use o5 the tra#e&ar@ or te(hnolo2y, Prespon#entQ was oli2e# to pay -C Johnson an# -on,

?-A royalties ase# on a per(enta2e o5 net sales an# su$e(te# the sa&e to */N withhol#in2 ta;

on royalty pay&ents whi(h Prespon#entQ pai# 5or the perio# (overin2 July 199* to +ay 1993 in the

total a&ount o5 .1,03,44300 ;hs B to ) an# su&ar@in2s:

On O(toer *9, 1993, Prespon#entQ 5ile# with the International <a; A55airs Eivision I<AE: o5 the

BIR a (lai& 5or re5un# o5 overpai# withhol#in2 ta; on royalties ar2uin2 that, the ante(e#ent 5a(ts

atten#in2 Prespon#entHsQ (ase 5all suarely within the sa&e (ir(u&stan(es un#er whi(h

sai# >acGeorge an& Gillete rulin2s were issue# -in(e the a2ree&ent was approve# y the

<e(hnolo2y <rans5er Boar#, the pre5erential ta; rate o5 10N shoul# apply to the Prespon#entQ e

there5ore su&it that royalties pai# y the Prespon#entQ to -C Johnson an# -on, ?-A is only

su$e(t to 10N withhol#in2 ta; pursuant to the &ostF5avore# nation (lause o5 the R.F?- <a; <reaty

PArti(le 13 .ara2raph * : iii:Q in relation to the R.Fest Ger&any <a; <reaty PArti(le 1* *: :Q

.etition 5or Review P5ile# with the Court o5 AppealsQ, par 1*: PRespon#entHsQ (lai& 5or there 5un#

o5 .93,*00 was (o&pute# as 5ollows=

Gross */N 10N

+onth Royalty ithhol#in2 ithhol#in2

ear 6ee <a; .ai# <a; Balan(e

MMM MMM MMM MMM MMM

July 199* //9,88 139,90 //,988 83,98*

Au2ust /,93/ 141,984 /,94 8/,190

-epte&er /9/,9/ 148,989 /9,/9 89,393

O(toer 34,40/ 1/8,01 3,441 9/,11

!ove&er *0,88/ 1//,**1 *,089 93,133

Ee(e&er 383,* 9/,819 3,3*8 /,491

Jan 1993 0*,4/1 10,30 8,*4/ 10*,38

6eruary //,84/ 141,41 /,/8/ 84,8

+ar(h /4,*/3 13,813 /4,*/ 8*,088

April 0,810 1/,*03 ,081 99,1**

+ay 03,0 1/0,9 0,308 90,41

MMMM MMMM MMMM MMM

.,4*1,0 .1,0/,443 .4*,1 .93,* 1

VVVVVVVV VVVVVVVV VVVVVVVV VVVVVVVV

<he Co&&issioner #i# not a(t on sai# (lai& 5or re5un# .rivate respon#ent -C Johnson S -on, In( -C Johnson:

then 5ile# a petition 5or review e5ore the Court o5 <a; Appeals C<A: where the (ase was #o(@ete# as C<A Case !o

/13, to (lai& a re5un# o5 the overpai# withhol#in2 ta; on royalty pay&ents 5ro& July 199* to +ay 1993



33

*: >owever, su(h royalties &ay also e ta;e# in the Contra(tin2 -tate in whi(h

they arise, an# a((or#in2 to the law o5 that -tate, ut the ta; so (har2e# shall not

e;(ee#=

;;; ;;; ;;;

: 10 per(ent o5 the 2ross a&ount o5 royalties arisin2 5ro& the use

o5, or the ri2ht to use, any patent, tra#e&ar@, #esi2n or &o#el,

plan, se(ret 5or&ula or pro(ess, or 5ro& the use o5 or the ri2ht to

use, in#ustrial, (o&&er(ial, or s(ienti5i( euip&ent, or 5or

in5or&ation (on(ernin2 in#ustrial, (o&&er(ial or s(ienti5i(

e;perien(e

6or as lon2 as the trans5er o5 te(hnolo2y, un#er .hilippine law, is su$e(t to approval, the li&itation

o5 the ta; rate &entione# un#er : shall, in the (ase o5 royalties arisin2 in the Repuli( o5 the

.hilippines, only apply i5 the (ontra(t 2ivin2 rise to su(h royalties has een approve# y the

.hilippine (o&petent authorities

?nli@e the R.F?- <a; <reaty, the R.FGer&any <a; <reaty allows a ta; (re#it o5 *0 per(ent o5 the 2ross a&ount o5

su(h royalties a2ainst Ger&an in(o&e an# (orporation ta; 5or the ta;es payale in the .hilippines on su(h royalties

where the ta; rate is re#u(e# to 10 or 1/ per(ent un#er su(h treaty Arti(le *4 o5 the R.FGer&any <a; <reaty states

M

1: <a; shall e #eter&ine# in the (ase o5 a resi#ent o5 the 6e#eral Repuli( o5

Ger&any as 5ollows=

;;; ;;; ;;;

: -u$e(t to the provisions o5 Ger&an ta; law re2ar#in2 (re#it 5or

5orei2n ta;, there shall e allowe# as a (re#it a2ainst Ger&an

in(o&e an# (orporation ta; payale in respe(t o5 the 5ollowin2 ite&so5 in(o&e arisin2 in the Repuli( o5 the .hilippines, the ta; pai#

un#er the laws o5 the .hilippines in a((or#an(e with this A2ree&ent

on=

;;; ;;; ;;;

##: royalties, as #e5ine# in para2raph 3 o5 Arti(le

1*

;;; ;;; ;;;

(: 6or the purpose o5 the (re#it re5erre# in supara2raph : the.hilippine ta; shall e #ee&e# to e

;;; ;;; ;;;

((: in the (ase o5 royalties 5or whi(h the ta; is

re#u(e# to 10 or 1/ per (ent a((or#in2 to para2raph

* o5 Arti(le 1*, *0 per(ent o5 the 2ross a&ount o5

su(h royalties

;;; ;;; ;;;

A((or#in2 to petitioner, the ta;es upon royalties un#er the R.F?- <a; <reaty are not pai# un#er (ir(u&stan(essi&ilar to those in the R.Fest Ger&any <a; <reaty sin(e there is no provision 5or a *0 per(ent &at(hin2 (re#it in

the 5or&er (onvention an# private respon#ent (annot invo@e the (on(essional ta; rate on the stren2th o5 the &ost

5avore# nation (lause in the R.F?- <a; <reaty .etitionerHs position is e;plaine# thus=

?n#er the 5ore2oin2 provision o5 the R.Fest Ger&any <a; <reaty, the .hilippine ta; pai# on in(o&e

5ro& sour(es within the .hilippines is allowe# as a (re#it a2ainst Ger&an in(o&e an# (orporation

ta; on the sa&e in(o&e In the (ase o5 royalties 5or whi(h the ta; is re#u(e# to 10 or 1/ per(ent

a((or#in2 to para2raph * o5 Arti(le 1* o5 the R.Fest Ger&any <a; <reaty, the (re#it shall e *0N

o5 the 2ross a&ount o5 su(h royalty <o illustrate, the royalty in(o&e o5 a Ger&an resi#ent 5ro&



34

sour(es within the .hilippines arisin2 5ro& the use o5, or the ri2ht to use, any patent, tra#e &ar@,

#esi2n or &o#el, plan, se(ret 5or&ula or pro(ess, is ta;e# at 10N o5 the 2ross a&ount o5 sai#

royalty un#er (ertain (on#itions <he rate o5 10N is i&pose# i5 (re#it a2ainst the Ger&an in(o&e

an# (orporation ta; on sai# royalty is allowe# in 5avor o5 the Ger&an resi#ent <hat &eans the rate

o5 10N is 2rante# to the Ger&an ta;payer i5 he is si&ilarly 2rante# a (re#it a2ainst the in(o&e an#

(orporation ta; o5 est Ger&any <he (lear intent o5 the &at(hin2 (re#it is to so5ten the i&pa(t o5

#oule ta;ation y #i55erent $uris#i(tions

<he R.F?- <a; <reaty (ontains no si&ilar &at(hin2 (re#it as that provi#e# un#er the R.Fest

Ger&any <a; <reaty >en(e, the ta; on royalties un#er the R.F?- <a; <reaty is not pai# un#er

si&ilar (ir(u&stan(es as those otainin2 in the R.Fest Ger&any <a; <reaty <here5ore, the &ost

5avore# nation (lause in the R.Fest Ger&any <a; <reaty (annot e availe# o5 in interpretin2 the

provisions o5 the R.F?- <a; <reaty 5

<he petition is &eritorious

e are unale to sustain the position o5 the Court o5 <a; Appeals, whi(h was uphel# y the Court o5 Appeals, that

the phrase pai# un#er si&ilar (ir(u&stan(es in Arti(le 13 *: :, iii: o5 the R.F?- <a; <reaty shoul# e

interprete# to re5er to pay&ent o5 royalty, an# not to the pay&ent o5 the ta;, 5or the reason that the phrase pai#

un#er si&ilar (ir(u&stan(es is 5ollowe# y the phrase to a resi#ent o5 a thir# state <he respon#ent (ourt hel#

that or#s are to e un#erstoo# in the (onte;t in whi(h they are use#, an# sin(e what is pai# to a resi#ent o5 a

thir# state is not a ta; ut a royalty lo2i( instru(ts that the treaty provision in uestion shoul# re5er to royalties o5

the sa&e @in# pai# un#er si&ilar (ir(u&stan(es

<he aove (onstru(tion is ase# prin(ipally on synta; or senten(e stru(ture ut 5ails to ta@e into a((ount the

purpose ani&atin2 the treaty provisions in point <o e2in with, we are not aware o5 any law or rule pertinent to the

pay&ent o5 royalties, an# none has een rou2ht to our attention, whi(h provi#es 5or the pay&ent o5 royalties

un#er #issi&ilar (ir(u&stan(es <he ta; rates on royalties an# the (ir(u&stan(es o5 pay&ent thereo5 are the sa&e

5or all the re(ipients o5 su(h royalties an# there is no #isparity ase# on nationality in the (ir(u&stan(es o5 su(h

pay&ent 3 On the other han#, a (ursory rea#in2 o5 the various ta; treaties will show that there is no si&ilarity in

the provisions on relie5 5ro& or avoi#an(e o5 #oule ta;ation as this is a &atter o5 ne2otiation etween the

(ontra(tin2 parties As will e shown later, this #issi&ilarity is true parti(ularly in the treaties etween the

.hilippines an# the ?nite# -tates an# etween the .hilippines an# est Ger&any

<he R.F?- <a; <reaty is $ust one o5 a nu&er o5 ilateral treaties whi(h the .hilippines has entere# into 5or the

avoi#an(e o5 #oule ta;ation 9 <he purpose o5 these international a2ree&ents is to re(on(ile the national 5is(al

le2islations o5 the (ontra(tin2 parties in or#er to help the ta;payer avoi# si&ultaneous ta;ation in two #i55erent

$uris#i(tions10 +ore pre(isely, the ta; (onventions are #ra5te# with a view towar#s the eli&ination o5 international

$uri#i(al #oule ta;ation, whi(h is #e5ine# as the i&position o5 (o&parale ta;es in two or &ore states on the sa&e

ta;payer in respe(t o5 the sa&e su$e(t &atter an# 5or i#enti(al perio#s 11 <he apparent rationale 5or #oin2 away

with #oule ta;ation is o5 en(oura2e the 5ree 5low o5 2oo#s an# servi(es an# the &ove&ent o5 (apital, te(hnolo2y

an# persons etween (ountries, (on#itions #ee&e# vital in (reatin2 roust an# #yna&i( e(ono&ies 1 6orei2n

invest&ents will only thrive in a 5airly pre#i(tale an# reasonale international invest&ent (li&ate an# the

prote(tion a2ainst #oule ta;ation is (ru(ial in (reatin2 su(h a (li&ate 12

Eoule ta;ation usually ta@es pla(e when a person is resi#ent o5 a (ontra(tin2 state an# #erives in(o&e 5ro&, or

owns (apital in, the other (ontra(tin2 state an# oth states i&pose ta; on that in(o&e or (apital In or#er to

eli&inate #oule ta;ation, a ta; treaty resorts to several &etho#s 6irst, it sets out the respe(tive ri2hts to ta; o5

the state o5 sour(e or situs an# o5 the state o5 resi#en(e with re2ar# to (ertain (lasses o5 in(o&e or (apital In so&e

(ases, an e;(lusive ri2ht to ta; is (on5erre# on one o5 the (ontra(tin2 states however, 5or other ite&s o5 in(o&e or

(apital, oth states are 2iven the ri2ht to ta;, althou2h the a&ount o5 ta; that &ay e i&pose# y the state o5

sour(e is li&ite# 14

<he se(on# &etho# 5or the eli&ination o5 #oule ta;ation applies whenever the state o5 sour(e is 2iven a 5ull or

li&ite# ri2ht to ta; to2ether with the state o5 resi#en(e In this (ase, the treaties &a@e it in(u&ent upon the state

o5 resi#en(e to allow relie5 in or#er to avoi# #oule ta;ation <here are two &etho#s o5 relie5 M the e;e&ption

&etho# an# the (re#it &etho# In the e;e&ption &etho#, the in(o&e or (apital whi(h is ta;ale in the state o5

sour(e or situs is e;e&pte# in the state o5 resi#en(e, althou2h in so&e instan(es it &ay e ta@en into a((ount in

#eter&inin2 the rate o5 ta; appli(ale to the ta;payerHs re&ainin2 in(o&e or (apital On the other han#, in the

(re#it &etho#, althou2h the in(o&e or (apital whi(h is ta;e# in the state o5 sour(e is still ta;ale in the state o5

resi#en(e, the ta; pai# in the 5or&er is (re#ite# a2ainst the ta; levie# in the latter <he asi( #i55eren(e etween

the two &etho#s is that in the e;e&ption &etho#, the 5o(us is on the in(o&e or (apital itsel5, whereas the (re#it

&etho# 5o(uses upon the ta; 15



38

lease# y other parties with petitioners #ivi#in2 eually the in(o&e a5ter #e#u(tin2 the e;penses o5 operation

an# &aintenan(e 13 Ei55eren(es o5 su(h sli2ht si2ni5i(an(e #o not (all 5or a #i55erent rulin2

It is ovious that petitionersH e55ort to avoi# the (ontrollin2 5or(e o5 the van2elista rulin2 (annot e #ee&e#

su((ess5ul Respon#ent Court o5 <a; Appeals a(te# (orre(tly It yiel#e# to the (o&&an# o5 an authoritative

#e(ision it re(o2niDe# its in#in2 (hara(ter <here is (learly no &erit to the se(on# error assi2ne# y petitioners,

who woul# #eny its appli(aility to their situation

<he 5irst alle2e# error (o&&itte# y respon#ent Court o5 <a; Appeals in hol#in2 that petitioners, in a(uirin2 the

Gis Buil#in2, estalishe# a partnership su$e(t to in(o&e ta; as a (orporation un#er the !ational Internal

Revenue Co#e is li@ewise untenale In their #is(ussion in their rie5 o5 this alle2e# error, stress is lai# on their

ein2 (oFowners an# not partners -u(h an alle2ation was li@ewise &a#e in the van2elista (ase

<his is the way it was #ispose# o5 in the opinion o5 the present Chie5 Justi(e= <his pretense was (orre(tly re$e(te#

y the Court o5 <a; Appeals14 <hen (a&e the e;planation why= <o e2in with, the ta; in uestion is one i&pose#

upon (orporations, whi(h, stri(tly spea@in2, are #istin(t an# #i55erent 5ro& partnerships hen our Internal

Revenue Co#e in(lu#es partnerships a&on2 the entities su$e(t to the ta; on (orporations, sai# Co#e &ust

allu#e, there5ore, to or2aniDations whi(h are not necessarily partnerships, in the te(hni(al sense o5 the ter&

<hus, 5or instan(e, se(tion *4 o5 sai# Co#e exempts 5ro& the a5ore&entione# ta; #uly re2istere# 2eneral

partnerships, whi(h (onstitute pre(isely one o5 the &ost typi(al 5or&s o5 partnerships in this $uris#i(tion )i@ewise,

as #e5ine# in se(tion 84: o5 sai# Co#e, the ter& (orporation in(lu#es partnerships, no matter ho# create& or

organize&. <his uali5yin2 e;pression (learly in#i(ates that a $oint venture nee# not e un#erta@en in any o5 the

stan#ar# 5or&s, or in (on5or&ity with the usual reuire&ents o5 the law on partnerships, in or#er that one (oul# e

#ee&e# (onstitute# 5or purposes o5 the ta; on (orporations A2ain, pursuant to sai# se(tion 84:, the ter&

(orporation in(lu#es, a&on2 others, $oint a((ounts, cuentas en participacion: an# asso(iations, none of #hich

has a legal personality of its o#n% in&epen&ent of that of its mem$ers. A((or#in2ly, the law&a@er (oul# not have

re2ar#e# that personality as a (on#ition essential to the e;isten(e o5 the partnerships therein re5erre# to In 5a(t,

as aove state#, #uly re2istere# 2eneral (opartnerships M whi(h are possesse# o5 the a5ore&entione# personality

F have een e;pressly e;(lu#e# y law se(tions *4 an# 84PQ: 5ro& the (onnotation o5 the ter&

(orporation1/ <he opinion went on to su&&ariDe the &atter aptly= 6or purposes o5 the ta; on (orporations,our

National )nternal Revenue Co&e% inclu&e these partnerships M with the e;(eption only o5 #uly re2istere# 2eneral

(oFpartnerships within the purview o5 the ter& (orporation It is, there5ore, (lear to our &in# that petitionersherein (onstitute a partnership, inso5ar as sai# Co#e is (on(erne#, an# are su$e(t to the in(o&e ta; 5or

(orporations1

In the li2ht o5 the aove, it (annot e sai# that the respon#ent Court o5 <a; Appeals #e(i#e# the &atter in(orre(tly

<here is no warrant 5or the assertion that it 5aile# to apply the settle# law to un(ontroverte# 5a(ts Its #e(ision

(annot e su((ess5ully assaile# +oreover, an oservation &a#e in Alham$ra Cigar Cigarette >anufacturing Co. v.

Commissioner of )nternal Revenue%1 is wellFworth re(allin2 <hus= !or as a &atter o5 prin(iple is it a#visale 5or

this Court to set asi#e the (on(lusion rea(he# y an a2en(y su(h as the Court o5 <a; Appeals whi(h is, y the very

nature o5 its 5un(tions, #e#i(ate# e;(lusively to the stu#y an# (onsi#eration o5 ta; prole&s an# has ne(essarily

#evelope# an e;pertise on the su$e(t, unless, as #i# not happen here, there has een an ause or i&provi#ent

e;er(ise o5 its authority

>R6OR, the #e(ision o5 the respon#ent Court o5 <a; Appeals or#erin2 petitioners to pay the su&s o5

.3,1*800 as in(o&e ta; #ue 5ro& the partnership 5or&e# y herein petitioners 5or the years 19/1 to 19/4 an#

.*0,1900 5or the years 19// an# 19/ within thirty #ays 5ro& the #ate this #e(ision e(o&es 5inal, plus the

(orrespon#in2 sur(har2e an# interest in (ase o5 #elinuen(y, is a55ir&e# ith (osts a2ainst petitioners

G.R. No. L-9993 !cto:e6 15 195

(F(*$# (#NG(L$%T# *#N(L# (#NG(L$%T# an/ FR#NC$%C# (#NG(L$%T# petitione6sAs. T"( C!LL(CT!R !F $NT(RN#L R((N( an/ T"( C!RT !F T#7 #PP(#L% 6espon/ents.

C!NC(PC$!N J .B

<his is a petition 5ile# y u5e&ia van2elista, +anuela van2elista an# 6ran(is(a van2elista, 5or review o5 a#e(ision o5 the Court o5 <a; Appeals, the #ispositive part o5 whi(h rea#s=

6OR A)) <> 6ORGOI!G, we hol# that the petitioners are liale 5or the in(o&e ta;, real estate #ealerHs ta;an# the resi#en(e ta; 5or the years 194/ to 1949, in(lusive, in a((or#an(e with the respon#entHsassess&ent 5or the sa&e in the total a&ount o5 .,8834, whi(h is herey a55ir&e# an# the petition 5orreview 5ile# y petitioner is herey #is&isse# with (osts a2ainst petitioners

It appears 5ro& the stipulation su&itte# y the parties=



39

1 <hat the petitioners orrowe# 5ro& their 5ather the su& o5 ./9,140000 whi(h a&ount to2ether withtheir personal &onies was use# y the& 5or the purpose o5 uyin2 real properties,

* <hat on 6eruary *, 1943, they ou2ht 5ro& +rs Jose5ina 6lorentino a lot with an area o5 3,1340 s& in(lu#in2 i&prove&ents thereon 5ro& the su& o5 .100,00000 this property has an assesse# value o5./,/100 as o5 1948

3 <hat on April 3, 1944 they pur(hase# 5ro& +rs Jose5a Oppus *1 par(els o5 lan# with an a22re2ate areao5 3,1840 s & in(lu#in2 i&prove&ents thereon 5or .130,00000 this property has an assesse# valueo5 .8*,*//00 as o5 1948

4 <hat on April *8, 1944 they pur(hase# 5ro& the Insular Invest&ents In(, a lot o5 4,3/3 s & in(lu#in2i&prove&ents thereon 5or .108,8*/00 <his property has an assesse# value o5 .4,98300 as o5 1948

/ <hat on April *8, 1944 they ou2ht 5or& +rs "alentina A5ale a lot o5 8,31 s & in(lu#in2i&prove&ents thereon 5or .*3,*3434 <his property has an assesse# value o5 ./9,14000 as o5 1948

<hat in a #o(u&ent #ate# Au2ust 1, 194/, they appointe# their rother -i&eon van2elista to H&ana2etheir properties with 5ull power to lease to (olle(t an# re(eive rents to issue re(eipts there5or in #e5ault o5 su(h pay&ent, to rin2 suits a2ainst the #e5aultin2 tenants to si2n all letters, (ontra(ts, et(, 5or an# in

their ehal5, an# to en#orse an# #eposit all notes an# (he(@s 5or the&

<hat a5ter havin2 ou2ht the aoveF&entione# real properties the petitioners ha# the sa&e rente# orleases to various tenants

8 <hat 5ro& the &onth o5 +ar(h, 194/ up to an in(lu#in2 Ee(e&er, 194/, the total a&ount (olle(te# asrents on their real properties was .9,/9900 while the e;penses a&ounte# to .3,/000 therey leavin2the& a net rental in(o&e o5 ./,94833

9 <hat on 194, they realiDe# a 2ross rental in(o&e o5 in the su& o5 .*4,830, out o5 whi(h a&ount was#e#u(te# in the su& o5 .1,*88* 5or e;penses therey leavin2 the& a net rental in(o&e o5 .,49813

10 <hat in 1948, they realiDe# a 2ross rental in(o&e o5 .1,4/300 out o5 the whi(h a&ount was #e#u(te#

the su& o5 .4,83/ as e;penses, therey leavin2 the& a net rental in(o&e o5 .1*,1/3/

It 5urther appears that on -epte&er *4, 19/4 respon#ent Colle(tor o5 Internal Revenue #e&an#e# the pay&ent o5 in(o&e ta; on (orporations, real estate #ealerHs 5i;e# ta; an# (orporation resi#en(e ta; 5or the years 194/F1949,(o&pute#, a((or#in2 to assess&ent &a#e y sai# o55i(er, as 5ollows=

I!CO+ <AL-

194/ 1484

194 1,1441

194 1034

1948 1,91*30

1949 1,//90

<otal in(lu#in2 sur(har2e an#(o&pro&ise

.,1/09



40

RA) -<A< EA)RH- 6ILE <AL

194 .3/0

194 1/000

1948 1/000

1949 1/000

<otal in(lu#in2 penalty ./*00

R-IE!C <AL- O6 COR.ORA<IO!

194/ .38/

194 38/

194 38/

1948 38/

1949 38/

<otal in(lu#in2 sur(har2e .193/

<O<A) <AL- E? .,8834

-ai# letter o5 #e&an# an# (orrespon#in2 assess&ents were #elivere# to petitioners on Ee(e&er 3, 19/4,whereupon they institute# the present (ase in the Court o5 <a; Appeals, with a prayer that the #e(ision o5 therespon#ent (ontaine# in his letter o5 #e&an# #ate# -epte&er *4, 19/4 e reverse#, an# that they e asolve#5ro& the pay&ent o5 the ta;es in uestion, with (osts a2ainst the respon#ent

A5ter appropriate pro(ee#in2s, the Court o5 <a; Appeals the aoveF&entione# #e(ision 5or the respon#ent, an# apetition 5or re(onsi#eration an# new trial havin2 een suseuently #enie#, the (ase is now e5ore ?s 5or review atthe instan(e o5 the petitioners



41

<he issue in this (ase whether petitioners are su$e(t to the ta; on (orporations provi#e# 5or in se(tion *4 o5Co&&onwealth A(t !o 4, otherwise @nown as the !ational Internal Revenue Co#e, as well as to the resi#en(eta; 5or (orporations an# the real estate #ealers 5i;e# ta; ith respe(t to the ta; on (orporations, the issue hin2eson the &eanin2 o5 the ter&s (orporation an# partnership, as use# in se(tion *4 an# 84 o5 sai# Co#e, thepertinent parts o5 whi(h rea#=

-C *4 Rate of tax on corporationsM<here shall e levie#, assesse#, (olle(te#, an# pai# annually uponthe total net in(o&e re(eive# in the pre(e#in2 ta;ale year 5ro& all sour(es y every (orporation or2aniDe#in, or e;istin2 un#er the laws o5 the .hilippines, no &atter how (reate# or or2aniDe# ut not in(lu#in2 #ulyre2istere# 2eneral (oFpartnerships compaBias colectivas:, a ta; upon su(h in(o&e eual to the su& o5 the5ollowin2=

-C 84 : <he ter& H(orporationH in(lu#es partnerships, no &atter how (reate# or or2aniDe#, $ointFsto(@(o&panies, $oint a((ounts cuentas en participacion:, asso(iations or insuran(e (o&panies, ut #oes notin(lu#e #uly re2istere# 2eneral (opartnerships compaBias colectivas:

Arti(le 1 o5 the Civil Co#e o5 the .hilippines provi#es=

By the (ontra(t o5 partnership two or &ore persons in# the&selves to (ontriute &oney, properly, orin#ustry to a (o&&on 5un#, with the intention o5 #ivi#in2 the pro5its a&on2 the&selves

.ursuant to the arti(le, the essential ele&ents o5 a partnership are two, na&ely= a: an a2ree&ent to (ontriute&oney, property or in#ustry to a (o&&on 5un# an# : intent to #ivi#e the pro5its a&on2 the (ontra(tin2 parties<he 5irst ele&ent is un#oute#ly present in the (ase at ar, 5or, a#&itte#ly, petitioners have a2ree# to, an# #i#,(ontriute &oney an# property to a (o&&on 5un# >en(e, the issue narrows #own to their intent in a(tin2 as they#i# ?pon (onsi#eration o5 all the 5a(ts an# (ir(u&stan(es surroun#in2 the (ase, we are 5ully satis5ie# that theirpurpose was to en2a2e in real estate transa(tions 5or &onetary 2ain an# then #ivi#e the sa&e a&on2 the&selves,e(ause=

1 -ai# (o&&on 5un# was not so&ethin2 they 5oun# alrea#y in e;isten(e It was not property inherite# ythe& pro in&iviso <hey (reate# it purposely hat is &ore they *ointly $orro#e& a sustantial portionthereo5 in or&er to estalish sai# (o&&on 5un#

* <hey investe# the sa&e, not &erely not &erely in one transa(tion, ut in a series o5 transa(tions On

6eruary *, 1943, they ou2ht a lot 5or .100,00000 On April 3, 1944, they pur(hase# *1 lots 5or.18,00000 <his was soon 5ollowe# on April *3, 1944, y the a(uisition o5 another real estate 5or.108,8*/00 6ive /: #ays later April *8, 1944:, they 2ot a 5ourth lot 5or .*3,*3414 <he nu&er o5 lots*4: a(uire# an# transa(tions un#erta@en, as well as the rie5 interre2nu& etween ea(h, parti(ularly thelast three pur(hases, is stron2ly in#i(ative o5 a pattern or (o&&on #esi2n that was not li&ite# to the(onservation an# preservation o5 the a5ore&entione# (o&&on 5un# or even o5 the property a(uire# y thepetitioners in 6eruary, 1943 In other wor#s, one (annot ut per(eive a (hara(ter o5 haitually pe(uliar tousiness transa(tions en2a2e# in the purpose o5 2ain

3 <he a5oresai# lots were not #evote# to resi#ential purposes, or to other personal uses, o5 petitionersherein <he properties were lease# separately to several persons, who, 5ro& 194/ to 1948 in(lusive, pai#the total su& o5 .0,0830 y way o5 rentals -ee&in2ly, the lots are still ein2 so let, 5or petitioners #onot even su22est that there has een any (han2e in the utiliDation thereo5

4 -in(e Au2ust, 194/, the properties have een un#er the &ana2e&ent o5 one person, na&ely -i&eonvan2elista, with 5ull power to lease, to (olle(t rents, to issue re(eipts, to rin2 suits, to si2n letters an#(ontra(ts, an# to in#orse an# #eposit notes an# (he(@s <hus, the a55airs relative to sai# properties haveeen han#le# as i5 the sa&e elon2e# to a (orporation or usiness an# enterprise operate# 5or pro5it

/ <he 5ore2oin2 (on#itions have e;iste# 5or &ore than ten 10: years, or, to e e;a(t, over 5i5teen 1/:years, sin(e the 5irst property was a(uire#, an# over twelve 1*: years, sin(e -i&eon van2elista e(a&ethe &ana2er

.etitioners have not testi5ie# or intro#u(e# any evi#en(e, either on their purpose in (reatin2 the set upalrea#y a#verte# to, or on the (auses 5or its (ontinue# e;isten(e <hey #i# not even try to o55er ane;planation there5or

Althou2h, ta@en sin2ly, they &i2ht not su55i(e to estalish the intent ne(essary to (onstitute a partnership, the(olle(tive e55e(t o5 these (ir(u&stan(es is su(h as to leave no roo& 5or #out on the e;isten(e o5 sai# intent inpetitioners herein Only one or two o5 the a5ore&entione# (ir(u&stan(es were present in the (ases (ite# ypetitioners herein, an#, hen(e, those (ases are not in point

.etitioners insist, however, that they are &ere (oFowners, not (opartners, 5or, in (onseuen(e o5 the a(ts per5or&e#y the&, a le2al entity, with a personality in#epen#ent o5 that o5 its &e&ers, #i# not (o&e into e;isten(e, an#so&e o5 the (hara(teristi(s o5 partnerships are la(@in2 in the (ase at ar <his pretense was (orre(tly re$e(te# ythe Court o5 <a; Appeals



42

<o e2in with, the ta; in uestion is one i&pose# upon (orporations, whi(h, stri(tly spea@in2, are #istin(t an##i55erent 5ro& partnerships hen our Internal Revenue Co#e in(lu#es partnerships a&on2 the entities su$e(tto the ta; on (orporations, sai# Co#e &ust allu#e, there5ore, to or2aniDations whi(h are not ne(essarilypartnerships, in the te(hni(al sense o5 the ter& <hus, 5or instan(e, se(tion *4 o5 sai# Co#e e;e&pts 5ro& thea5ore&entione# ta; #uly re2istere# 2eneral partnerships whi(h (onstitute pre(isely one o5 the &ost typi(al 5or&so5 partnerships in this $uris#i(tion )i@ewise, as #e5ine# in se(tion 84: o5 sai# Co#e, the ter& (orporation in(lu#espartnerships, no matter ho# create& or organize& <his uali5yin2 e;pression (learly in#i(ates that a $oint venturenee# not e un#erta@en in any o5 the stan#ar# 5or&s, or in (on5or&ity with the usual reuire&ents o5 the law on

partnerships, in or#er that one (oul# e #ee&e# (onstitute# 5or purposes o5 the ta; on (orporations A2ain,pursuant to sai# se(tion 84:, the ter& (orporation in(lu#es, a&on2 other, $oint a((ounts, cuentas en participation: an# asso(iations, none of #hich has a legal personality of its o#n% in&epen&ent of that of itsmem$ers A((or#in2ly, the law&a@er (oul# not have re2ar#e# that personality as a (on#ition essential to thee;isten(e o5 the partnerships therein re5erre# to In 5a(t, as aove state#, #uly re2istere# 2eneral (opartnershipsM #hich are possesse& of the aforementione& personality M have een e;pressly e;(lu#e# y law se(tions *4 an#84 PQ 5ro& the (onnotation o5 the ter& (orporation It &ay not e a&iss to a## that petitionersH alle2ation to thee55e(t that their liaility in (onne(tion with the leasin2 o5 the lots aove re5erre# to, un#er the &ana2e&ent o5 oneperson M even i5 true, on whi(h we e;press no opinion M ten#s to increase the si&ilarity etween the nature o5their venture an# that (orporations, an# is, there5ore, an a##itional ar2u&ent in favor o5 the i&position o5 sai# ta;on (orporations

?n#er the Internal Revenue )aws o5 the ?nite# -tates, (orporations are ta;e# #i55erently 5ro& partnerships Byspe(i5i( provisions o5 sai# laws, su(h (orporations in(lu#e asso(iations, $ointFsto(@ (o&panies an# insuran(e(o&panies >owever, the ter& asso(iation is not use# in the a5ore&entione# laws

in any narrow or te(hni(al sense It in(lu#es any or2aniDation, (reate# 5or the transa(tion o5 #esi2ne#a55airs, or the attain&ent o5 so&e o$e(t, whi(h li@e a (orporation, (ontinues notwithstan#in2 that its&e&ers or parti(ipants (han2e, an# the a55airs o5 whi(h, li@e (orporate a55airs, are (on#u(te# y a sin2lein#ivi#ual, a (o&&ittee, a oar#, or so&e other 2roup, a(tin2 in a representative (apa(ity It is i&&aterialwhether su(h or2aniDation is (reate# y an a2ree&ent, a #e(laration o5 trust, a statute, or otherwise Itin(lu#es a voluntary asso(iation, a $ointFsto(@ (orporation or (o&pany, a HusinessH trusts a H+assa(husettsHtrust, a H(o&&on lawH trust, an# Hinvest&entH trust whether o5 the 5i;e# or the &ana2e&ent type:, aninterinsuaran(e e;(han2e operatin2 throu2h an attorney in 5a(t, a partnership asso(iation, an# any othertype o5 or2aniDation y whatever na&e @nown: whi(h is not, within the &eanin2 o5 the Co#e, a trust or anestate, or a partnership A +ertens )aw o5 6e#eral In(o&e <a;ation, p 88 e&phasis supplie#:

-i&ilarly, the A&eri(an )aw

provi#es its o#n concept o5 a partnership, un#er the ter& Hpartnership Hit in(lu#es not only apartnership as @nown at (o&&on law ut, as well, a syn#i(ate, 2roup, pool, *oint venture or otherunincorporate& organizations #hich carries on any $usiness financial operation% or venture, an# whi(h isnot, within the &eanin2 o5 the Co#e, a trust, estate, or a (orporation A +ertenHs )aw o5 6e#eralIn(o&e ta;ation, p 89 e&phasis supplie#:

<he ter& HpartnershipH in(lu#es a syn#i(ate, 2roup, pool, *oint venture or other unincorporate&organization% through or $y means of #hich any $usiness% financial operation% or venture is carrie& on, 8 +ertenHs )aw o5 6e#eral In(o&e <a;ation, p /* !ote 3 e&phasis supplie#:

6or purposes o5 the ta; on (orporations, our National )nternal Revenue Co&e% inclu&es these partnerships M with

the e;(eption only o5 #uly re2istere# 2eneral (opartnerships M #ithin the purvie# of the term Ecorporation.E It is,there5ore, (lear to our &in# that petitioners herein (onstitute a partnership, inso5ar as sai# Co#e is (on(erne# an#are su$e(t to the in(o&e ta; 5or (orporations

As re2ar#s the resi#en(e o5 ta; 5or (orporations, se(tion * o5 Co&&onwealth A(t !o 4/ provi#es in part=

ntities liale to resi#en(e ta;Fvery (orporation, no &atter how (reate# or or2aniDe#, whether #o&esti(or resi#ent 5orei2n, en2a2e# in or #oin2 usiness in the .hilippines shall pay an annual resi#en(e ta; o5 5ivepesos an# an annual a##itional ta; whi(h in no (ase, shall e;(ee# one thousan# pesos, in a((or#an(e withthe 5ollowin2 s(he#ule=

<he ter& H(orporationH as use# in this A(t in(lu#es $ointFsto(@ (o&pany, partnership, $oint a((ount cuentasen participacion:, asso(iation or insuran(e (o&pany, no matter ho# create& or organize& e&phasis

supplie#:

Consi#erin2 that the pertinent part o5 this provision is analo2ous to that o5 se(tion *4 an# 84 : o5 our !ationalInternal Revenue Co#e (o&&onwealth A(t !o 4:, an# that the latter was approve# on June 1/, 1939, the #ayi&&e#iately a5ter the approval o5 sai# Co&&onwealth A(t !o 4/ June 14, 1939:, it is apparent that the ter&s(orporation an# partnership are use# in oth statutes with sustantially the sa&e &eanin2 Conseuently,petitioners are su$e(t, also, to the resi#en(e ta; 5or (orporations

)astly, the re(or#s show that petitioners have haitually en2a2e# in leasin2 the properties aove &entione# 5or aperio# o5 over twelve years, an# that the yearly 2ross rentals o5 sai# properties 5ro& June 194/ to 1948 ran2e#



43

5ro& .9,/99 to .1,4/3 <hus, they are su$e(t to the ta; provi#e# in se(tion 193 : o5 our !ational InternalRevenue Co#e, 5or real estate #ealers, inas&u(h as, pursuant to se(tion 194 s: thereo5=

HReal estate #ealerH in(lu#es any person en2a2e# in the usiness o5 uyin2, sellin2, e;(han2in2, leasing% orrenting property or his o#n account as principal an# hol#in2 hi&sel5 out as a 5ull or part ti&e #ealer in realestate or as an owner o5 rental property or properties rente# or o55ere# to rent 5or an a22re2ate a&ount o5three thousan# pesos or &ore a year e&phasis supplie#:

here5ore, the appeale# #e(ision o5 the Court o5 <a; appeals is herey a55ir&e# with (osts a2ainst the petitionersherein It is so or#ere#

G.R. No. L-1924 *ay 5 19

L!R(N! T. !# an/ "($R% !F JL$# '#L(% naelyB R!,!LF! '. !# *#R$#N! '. !# L '.

!# $RG$N$# '. !# an/ L!R(N! '. !# JR. petitioners,vsT"( C!**$%%$!N(R !F $NT(RN#L R((N( respon#ent

'#RR(,! J.: p

.etition 5or review o5 the #e(ision o5 the Court o5 <a; Appeals in C<A Case !o 1, si&ilarly entitle# as aove,hol#in2 that petitioners have (onstitute# an unre2istere# partnership an# are, there5ore, su$e(t to the pay&ent o5the #e5i(ien(y (orporate in(o&e ta;es assesse# a2ainst the& y respon#ent Co&&issioner o5 Internal Revenue 5orthe years 19// an# 19/ in the total su& o5 .*1,89100, plus /N sur(har2e an# 1N &onthly interest 5ro&Ee(e&er 1/, 19/8, su$e(t to the provisions o5 -e(tion /1 e: *: o5 the Internal Revenue Co#e, as a&en#e# y-e(tion 8 o5 Repuli( A(t !o *343 an# the (osts o5 the suit, 1 as well as the resolution o5 sai# (ourt #enyin2petitionersH &otion 5or re(onsi#eration o5 sai# #e(ision

<he 5a(ts are state# in the #e(ision o5 the <a; Court as 5ollows=

Julia Buales #ie# on +ar(h *3, 1944, leavin2 as heirs her survivin2 spouse, )orenDo < Oa an# her5ive (hil#ren In 1948, Civil Case !o 4/19 was institute# in the Court o5 6irst Instan(e o5 +anila 5orthe settle&ent o5 her estate )ater, )orenDo < Oa the survivin2 spouse was appointe#a#&inistrator o5 the estate o5 sai# #e(ease# ;hiit 3, pp 34F41, BIR re(: On April 14, 1949, thea#&inistrator su&itte# the pro$e(t o5 partition, whi(h was approve# y the Court on +ay 1, 1949-ee ;hiit : Be(ause three o5 the heirs, na&ely )uD, "ir2inia an# )orenDo, Jr, all surna&e#Oa, were still &inors when the pro$e(t o5 partition was approve#, )orenDo < Oa, their 5ather an#a#&inistrator o5 the estate, 5ile# a petition in Civil Case !o 93 o5 the Court o5 6irst Instan(e o5+anila 5or appoint&ent as 2uar#ian o5 sai# &inors On !ove&er 14, 1949, the Court appointe#hi& 2uar#ian o5 the persons an# property o5 the a5orena&e# &inors -ee p 3, BIR re(:

<he pro$e(t o5 partition ;hiit see also pp F0, BIR re(: shows that the heirs haveun#ivi#e# oneFhal5 1*: interest in ten par(els o5 lan# with a total assesse# value o5 .8,8000,si; houses with a total assesse# value o5 .1,/9000 an# an un#eter&ine# a&ount to e (olle(te#5ro& the ar Ea&a2e Co&&ission )ater, they re(eive# 5ro& sai# Co&&ission the a&ount o5./0,00000, &ore or less <his a&ount was not #ivi#e# a&on2 the& ut was use# in therehailitation o5 properties owne# y the& in (o&&on tsn, p 4: O5 the ten par(els o5 lan#a5ore&entione#, two were a(uire# a5ter the #eath o5 the #e(e#ent with &oney orrowe# 5ro& the.hilippine <rust Co&pany in the a&ount o5 .*,1300 tsn, p *4 ;hiit 3, pp 31F34 BIR re(:

<he pro$e(t o5 partition also shows that the estate shares eually with )orenDo < Oa, thea#&inistrator thereo5, in the oli2ation o5 .94,9300, (onsistin2 o5 loans (ontra(te# y the latterwith the approval o5 the Court see p 3 o5 ;hiit or see p 4, BIR re(:

Althou2h the pro$e(t o5 partition was approve# y the Court on +ay 1, 1949, no atte&pt was&a#e to #ivi#e the properties therein liste# Instea#, the properties re&aine# un#er the&ana2e&ent o5 )orenDo < Oa who use# sai# properties in usiness y leasin2 or sellin2 the& an#investin2 the in(o&e #erive# there5ro& an# the pro(ee#s 5ro& the sales thereo5 in real propertiesan# se(urities As a result, petitionersH properties an# invest&ents 2ra#ually in(rease# 5ro&.10/,4/000 in 1949 to .480,00/*0 in 19/ as (an e 2leane# 5ro& the 5ollowin2 yearFen#alan(es=

Invest )an Buil



44

ear

&ent # #in2

A((ount

A((ount

A((ount

1949 M .8,8000 .1,/9000

19/0 .*4,// 1*8,/* 9,0*

19/1 /1,30131 1*0,349*8 110,0/11

19/* ,9*/* 8,0/*8 1/*,439

19/3 1,*/8* 84,9*/8 11,4383

19/4 3,*33 99,001*0 1,9*04

19// 100,800 1*0,*498 19,**/*

19/ 1/,0*88 13/,148 19,**/*

-ee ;hiits 3 S tsn, pp **, */F*, 40, /0, 10*F104:

6ro& sai# invest&ents an# properties petitioners #erive# su(h in(o&es as pro5its 5ro& install&entsales o5 su#ivi#e# lots, pro5its 5ro& sales o5 sto(@s, #ivi#en#s, rentals an# interests see p 3 o5;hiit 3 p 3*, BIR re( tsn, pp 3F38: <he sai# in(o&es are re(or#e# in the oo@s o5 a((ount@ept y )orenDo < Oa where the (orrespon#in2 shares o5 the petitioners in the net in(o&e 5or theyear are also @nown very year, petitioners returne# 5or in(o&e ta; purposes their shares in thenet in(o&e #erive# 5ro& sai# properties an# se(urities an#or 5ro& transa(tions involvin2 the&;hiit 3, supra tsn, pp */F*: >owever, petitioners #i# not a(tually re(eive their shares in theyearly in(o&e tsn, pp */F*, 40, 98, 100: <he in(o&e was always le5t in the han#s o5 )orenDo< Oa who, as hereto5ore pointe# out, investe# the& in real properties an# se(urities -ee ;hiit3, tsn, pp /0, 10*F104:

On the asis o5 the 5ore2oin2 5a(ts, respon#ent Co&&issioner o5 Internal Revenue: #e(i#e# thatpetitioners 5or&e# an unre2istere# partnership an# there5ore, su$e(t to the (orporate in(o&e ta;,pursuant to -e(tion *4, in relation to -e(tion 84:, o5 the <a; Co#e A((or#in2ly, he assesse#a2ainst the petitioners the a&ounts o5 .8,09*00 an# .13,89900 as (orporate in(o&e ta;es 5or19// an# 19/, respe(tively -ee ;hiit /, a&en#e# y ;hiit 1, pp /0 an# 8, BIR re(:.etitioners proteste# a2ainst the assess&ent an# as@e# 5or re(onsi#eration o5 the rulin2 o5respon#ent that they have 5or&e# an unre2istere# partnership 6in#in2 no &erit in petitionersHreuest, respon#ent #enie# it -ee ;hiit 1, p 8, BIR re(: -ee pp 1F4, +e&oran#u& 5orRespon#ent, June 1*, 191:

<he ori2inal assess&ent was as 5ollows=



45

,:55

!et in(o&e as per investi2ation .40,*0989

In(o&e ta; #ue thereon 8,04*00*/N sur(har2e *,010/0Co&pro&ise 5or nonF5ilin2 /000<otal .10,10*/0

,:56

!et in(o&e as per investi2ation .9,*4/*3

In(o&e ta; #ue thereon 13,84900*/N sur(har2e 3,4**/Co&pro&ise 5or nonF5ilin2 /000<otal .1,31*/

-ee ;hiit 13, pa2e /0, BIR re(or#s:

?pon 5urther (onsi#eration o5 the (ase, the */N sur(har2e was eli&inate# in line with the rulin2 o5the -upre&e Court in Collector v. Fatangas +ransportation Co., GR !o )F99*, Jan , 19/8, sothat the uestione# assess&ent re5ers solely to the in(o&e ta; proper 5or the years 19// an# 19/an# the Co&pro&ise 5or nonF5ilin2, the latter ite& oviously re5errin2 to the (o&pro&ise in lieu o5 the (ri&inal liaility 5or 5ailure o5 petitioners to 5ile the (orporate in(o&e ta; returns 5or sai# years-ee ;h 1, pa2e 8, BIR re(or#s: .p 1F3, Anne; C to .etition:

.etitioners have assi2ne# the 5ollowin2 as alle2e# errors o5 the <a; Court=

I

<> CO?R< O6 <AL A..A)- RRE I! >O)EI!G <>A< <> .<I<IO!R- 6OR+E A!?!RGI-<RE .AR<!R->I.

II

<> CO?R< O6 <AL A..A)- RRE I! !O< >O)EI!G <>A< <> .<I<IO!R- R COFO!R-O6 <> .RO.R<I- I!>RI<E A!E <>: .RO6I<- ERI"E 6RO+ <RA!-AC<IO!- <>R6RO+si(:

III

<> CO?R< O6 <AL A..A)- RRE I! >O)EI!G <>A< .<I<IO!R- R )IAB) 6ORCOR.ORA< I!CO+ <AL- 6OR 19// A!E 19/ A- A! ?!RGI-<RE .AR<!R->I.

I"

O! <> A--?+.<IO! <>A< <> .<I<IO!R- CO!-<I<?<E A! ?!RGI-<RE .AR<!R->I.,<> CO?R< O6 <AL A..A)- RRE I! !O< >O)EI!G <>A< <> .<I<IO!R- R A!?!RGI-<RE .AR<!R->I. <O <> L<!< O!) <>A< <> I!"-<E <> .RO6I<- 6RO+<> .RO.R<I- O!E I! CO++O! A!E <> )OA!- RCI"E ?-I!G <> I!>RI<E.RO.R<I- A- CO))A<RA)-

"

O! <> A--?+.<IO! <>A< <>R A- A! ?!RGI-<RE .AR<!R->I., <> CO?R< O6 <ALA..A)- RRE I! !O< EE?C<I!G <> "ARIO?- A+O?!<- .AIE B <> .<I<IO!R- A-I!EI"IE?A) I!CO+ <AL O! <>IR R-.C<I" ->AR- O6 <> .RO6I<- ACCR?I!G 6RO+ <>.RO.R<I- O!E I! CO++O!, 6RO+ <> E6ICI!C <AL O6 <> ?!RGI-<RE

.AR<!R->I.

In other wor#s, petitioners pose 5or our resolution the 5ollowin2 uestions= 1: ?n#er the 5a(ts 5oun# y the Courto5 <a; Appeals, shoul# petitioners e (onsi#ere# as (oFowners o5 the properties inherite# y the& 5ro& the#e(ease# Julia Buales an# the pro5its #erive# 5ro& transa(tions involvin2 the sa&e, or, &ust they e #ee&e# tohave 5or&e# an unre2istere# partnership su$e(t to ta; un#er -e(tions *4 an# 84: o5 the !ational InternalRevenue Co#eX *: Assu&in2 they have 5or&e# an unre2istere# partnership, shoul# this not e only in the sensethat they investe# as a (o&&on 5un# the pro5its earne# y the properties owne# y the& in (o&&on an# the loans2rante# to the& upon the se(urity o5 the sai# properties, with the result that as 5ar as their respe(tive shares in theinheritan(e are (on(erne#, the total in(o&e thereo5 shoul# e (onsi#ere# as that o5 (oFowners an# not o5 theunre2istere# partnershipX An# 3: assu&in2 a2ain that they are ta;ale as an unre2istere# partnership, shoul# not



46

the various a&ounts alrea#y pai# y the& 5or the sa&e years 19// an# 19/ as in#ivi#ual in(o&e ta;es on theirrespe(tive shares o5 the pro5its a((ruin2 5ro& the properties they owne# in (o&&on e #e#u(te# 5ro& the#e5i(ien(y (orporate ta;es, herein involve#, assesse# a2ainst su(h unre2istere# partnership y the respon#entCo&&issionerX

.on#erin2 on these uestions, the 5irst thin2 that has stru(@ the Court is that whereas petitionersH pre#e(essor ininterest #ie# way a(@ on +ar(h *3, 1944 an# the pro$e(t o5 partition o5 her estate was $u#i(ially approve# as earlyas +ay 1, 1949, an# presu&aly petitioners have een hol#in2 their respe(tive shares in their inheritan(e sin(ethose #ates a#&itte#ly un#er the a#&inistration or &ana2e&ent o5 the hea# o5 the 5a&ily, the wi#ower an# 5ather)orenDo < Oa, the assess&ent in uestion re5ers to the later years 19// an# 19/ e elieve this point to ei&portant e(ause, apparently, at the start, or in the years 1944 to 19/4, the respon#ent Co&&issioner o5 InternalRevenue #i# treat petitioners as (oFowners, not liale to (orporate ta;, an# it was only 5ro& 19// that he(onsi#ere# the& as havin2 5or&e# an unre2istere# partnership At least, there is nothin2 in the re(or# in#i(atin2that an earlier assess&ent ha# alrea#y een &a#e -u(h ein2 the (ase, an# e see no reason how it (oul# eotherwise, it is easily un#erstan#ale why petitionersH position that they are (oFowners an# not unre2istere# (oFpartners, 5or the purposes o5 the i&pu2ne# assess&ent, (annot e uphel# <ruth to tell, petitioners shoul# 5in#(o&5ort in the 5a(t that they were not si&ilarly assesse# earlier y the Bureau o5 Internal Revenue

<he <a; Court 5oun# that instea# o5 a(tually #istriutin2 the estate o5 the #e(ease# a&on2 the&selves pursuant tothe pro$e(t o5 partition approve# in 1949, the properties re&aine# un#er the &ana2e&ent o5 )orenDo < Oa whouse# sai# properties in usiness y leasin2 or sellin2 the& an# investin2 the in(o&e #erive# there5ro& an# the

pro(ee# 5ro& the sales thereo5 in real properties an# se(urities, as a result o5 whi(h sai# properties an#invest&ents stea#ily in(rease# yearly 5ro& .8,8000 in lan# a((ount an# .1,/9000 in uil#in2 a((ount in1949 to .1/,0*88 in invest&ent a((ount, .13/148 in lan# a((ount an# .19,**/* in uil#in2a((ount in 19/ An# all these e(a&e possile e(ause, a#&itte#ly, petitioners never a(tually re(eive# any shareo5 the in(o&e or pro5its 5ro& )orenDo < Oa an# instea#, they allowe# hi& to (ontinue usin2 sai# shares as part o5the (o&&on 5un# 5or their ventures, even as they pai# the (orrespon#in2 in(o&e ta;es on the asis o5 theirrespe(tive shares o5 the pro5its o5 their (o&&on usiness as reporte# y the sai# )orenDo < Oa

It is thus in(ontrovertile that petitioners #i# not, (ontrary to their (ontention, &erely li&it the&selves to hol#in2the properties inherite# y the& In#ee#, it is a#&itte# that #urin2 the &aterial years herein involve#, so&e o5 thesai# properties were sol# at (onsi#erale pro5it, an# that with sai# pro5it, petitioners en2a2e#, thru )orenDo < Oa,in the pur(hase an# sale o5 (orporate se(urities It is li@ewise a#&itte# that all the pro5its 5ro& these ventures were#ivi#e# a&on2 petitioners proportionately in a((or#an(e with their respe(tive shares in the inheritan(e In these(ir(u&stan(es, it is Our (onsi#ere# view that 5ro& the &o&ent petitioners allowe# not only the in(o&es 5ro& their

respe(tive shares o5 the inheritan(e ut even the inherite# properties the&selves to e use# y )orenDo < Oa as a(o&&on 5un# in un#erta@in2 several transa(tions or in usiness, with the intention o5 #erivin2 pro5it to e share#y the& proportionally, su(h a(t was tanta&onut to a(tually (ontriutin2 su(h in(o&es to a (o&&on 5un# an#, ine55e(t, they therey 5or&e# an unre2istere# partnership within the purview o5 the aoveF&entione# provisions o5the <a; Co#e

It is ut lo2i(al that in (ases o5 inheritan(e, there shoul# e a perio# when the heirs (an e (onsi#ere# as (oFowners rather than unre2istere# (oFpartners within the (onte&plation o5 our (orporate ta; laws a5ore&entione#Be5ore the partition an# #istriution o5 the estate o5 the #e(ease#, all the in(o&e thereo5 #oes elon2 (o&&only toall the heirs, oviously, without the& e(o&in2 therey unre2istere# (oFpartners, ut it #oes not ne(essarily 5ollowthat su(h status as (oFowners (ontinues until the inheritan(e is a(tually an# physi(ally #istriute# a&on2 the heirs,5or it is easily (on(eivale that a5ter @nowin2 their respe(tive shares in the partition, they &i2ht #e(i#e to (ontinuehol#in2 sai# shares un#er the (o&&on &ana2e&ent o5 the a#&inistrator or e;e(utor or o5 anyone (hosen y the&an# en2a2e in usiness on that asis ithal, i5 this were to e allowe#, it woul# e the easiest thin2 5or heirs inany inheritan(e to (ir(u&vent an# ren#er &eanin2less -e(tions *4 an# 84: o5 the !ational Internal RevenueCo#e

It is true that in /vangelista vs. Collector , 10* .hil 140, it was state#, a&on2 the reasons 5or hol#in2 theappellants therein to e unre2istere# (oFpartners 5or ta; purposes, that their (o&&on 5un# was not so&ethin2they 5oun# alrea#y in e;isten(e an# that it was not a property inherite# y the& pro in&iviso, ut it is (ertainly5ar 5et(he# to ar2ue there5ro&, as petitioners are #oin2 here, that ergo, in all instan(es where an inheritan(e is nota(tually #ivi#e#, there (an e no unre2istere# (oFpartnership As alrea#y in#i(ate#, 5or ta; purposes, the (oFownership o5 inherite# properties is auto&ati(ally (onverte# into an unre2istere# partnership the &o&ent the sai#(o&&on properties an#or the in(o&es #erive# there5ro& are use# as a (o&&on 5un# with intent to pro#u(epro5its 5or the heirs in proportion to their respe(tive shares in the inheritan(e as #eter&ine# in a pro$e(t partitioneither #uly e;e(ute# in an e;tra$u#i(ial settle&ent or approve# y the (ourt in the (orrespon#in2 testate orintestate pro(ee#in2 <he reason 5or this is si&ple 6ro& the &o&ent o5 su(h partition, the heirs are entitle#

alrea#y to their respe(tive #e5inite shares o5 the estate an# the in(o&es thereo5, 5or ea(h o5 the& to &ana2e an##ispose o5 as e;(lusively his own without the intervention o5 the other heirs, an#, a((or#in2ly he e(o&es lialein#ivi#ually 5or all ta;es in (onne(tion therewith I5 a5ter su(h partition, he allows his share to e hel# in (o&&onwith his (oFheirs un#er a sin2le &ana2e&ent to e use# with the intent o5 &a@in2 pro5it therey in proportion tohis share, there (an e no #out that, even i5 no #o(u&ent or instru&ent were e;e(ute# 5or the purpose, 5or ta;purposes, at least, an unre2istere# partnership is 5or&e# <his is e;a(tly what happene# to petitioners in this (ase

In this (onne(tion, petitionersH relian(e on Arti(le 19, para2raph 3:, o5 the Civil Co#e, provi#in2 that= <hesharin2 o5 2ross returns #oes not o5 itsel5 estalish a partnership, whether or not the persons sharin2 the& have a $oint or (o&&on ri2ht or interest in any property 5ro& whi(h the returns are #erive#, an#, 5or that &atter, on anyother provision o5 sai# (o#e on partnerships is unavailin2 In /vangelista, supra, this Court (learly #i55erentiate# the(on(ept o5 partnerships un#er the Civil Co#e 5ro& that o5 unre2istere# partnerships whi(h are (onsi#ere# as



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(orporations un#er -e(tions *4 an# 84: o5 the !ational Internal Revenue Co#e +r Justi(e Roerto Con(ep(ion,now Chie5 Justi(e, elu(i#ate# on this point thus=

<o e2in with, the ta; in uestion is one i&pose# upon (orporations, whi(h, stri(tly spea@in2, are#istin(t an# #i55erent 5ro& partnerships hen our Internal Revenue Co#e in(lu#es partnershipsa&on2 the entities su$e(t to the ta; on (orporations, sai# Co#e &ust allu#e, there5ore, toor2aniDations whi(h are not necessarily partnerships, in the te(hni(al sense o5 the ter& <hus, 5orinstan(e, se(tion *4 o5 sai# Co#e exempts 5ro& the a5ore&entione# ta; #uly re2istere# 2eneralpartnerships, whi(h (onstitute pre(isely one o5 the &ost typi(al 5or&s o5 partnerships in this $uris#i(tion )i@ewise, as #e5ine# in se(tion 84: o5 sai# Co#e, the ter& (orporation in(lu#espartnerships, no matter ho# create& or organize& <his uali5yin2 e;pression (learly in#i(ates thata $oint venture nee# not e un#erta@en in any o5 the stan#ar# 5or&s, or in (on5ir&ity with the usualreuire&ents o5 the law on partnerships, in or#er that one (oul# e #ee&e# (onstitute# 5orpurposes o5 the ta; on (orporation A2ain, pursuant to sai# se(tion 84:,the ter& (orporationin(lu#es, a&on2 others, $oint a((ounts,cuentas en participacion: an# asso(iations, none o5whi(h has a le2al personality o5 its own, in#epen#ent o5 that o5 its &e&ers A((or#in2ly, thelaw&a@er (oul# not have re2ar#e# that personality as a (on#ition essential to the e;isten(e o5 thepartnerships therein re5erre# to In 5a(t, as aove state#, #uly re2istere# 2eneral (oFpartnershipsM whi(h are possesse# o5 the a5ore&entione# personality M have een e;pressly e;(lu#e# y lawse(tions *4 an# 84PQ: 5ro& the (onnotation o5 the ter& (orporation

;;; ;;; ;;;

-i&ilarly, the A&eri(an )aw

provi#es its o#n concept o5 a partnership ?n#er the ter& partnership itin(lu#es not only a partnership as @nown in (o&&on law ut, as well, a syn#i(ate,2roup, pool, *oint venture% or other unincorporate& organization #hich carries onany $usiness% financial operation% or venture, an# whi(h is not, within the &eanin2o5 the Co#e, a trust, estate, or a (orporation A +ertenHs )aw o5 6e#eralIn(o&e <a;ation, p 89 e&phasis ours:

<he ter& partnership in(lu#es a syn#i(ate, 2roup, pool, *oint venture or otherunincorporate& organization% through or $y means of #hich any $usiness% financial

operation% or venture is carrie& on 8 +ertenHs )aw o5 6e#eral In(o&e <a;ation,p /* !ote 3 e&phasis ours:

6or purposes o5 the ta; on (orporations, our National )nternal Revenue Co&e inclu&es these partnerships M with the e;(eption only o5 #uly re2istere# 2eneral (opartnerships M #ithin the purvie# of the term Ecorporation.E It is, there5ore, (lear to our &in# that petitioners herein(onstitute a partnership, inso5ar as sai# Co#e is (on(erne#, an# are su$e(t to the in(o&e ta; 5or(orporations

e reiterate# this view, thru +r Justi(e 6ernan#o, in Reyes vs. Commissioner of )nternal Revenue, G R !os )F*40*0F*1, July *9, 198, *4 -CRA 198, wherein the Court rule# a2ainst a theory o5 (oFownership pursue# yappellants therein

As re2ar#s the se(on# uestion raise# y petitioners aout the se2re2ation, 5or the purposes o5 the (orporate ta;esin uestion, o5 their inherite# properties 5ro& those a(uire# y the& suseuently, e (onsi#er as $usti5ie# the5ollowin2 ratio(ination o5 the <a; Court in #enyin2 their &otion 5or re(onsi#eration=

In (onne(tion with the se(on# 2roun#, it is alle2e# that, i5 there was an unre2istere# partnership,the hol#in2 shoul# e li&ite# to the usiness en2a2e# in apart 5ro& the properties inherite# ypetitioners In other wor#s, the ta;ale in(o&e o5 the partnership shoul# e li&ite# to the in(o&e#erive# 5ro& the a(uisition an# sale o5 real properties an# (orporate se(urities an# shoul# notin(lu#e the in(o&e #erive# 5ro& the inherite# properties It is a#&itte# that the inherite# propertiesan# the in(o&e #erive# there5ro& were use# in the usiness o5 uyin2 an# sellin2 other realproperties an# (orporate se(urities A((or#in2ly, the partnership in(o&e &ust in(lu#e not only thein(o&e #erive# 5ro& the pur(hase an# sale o5 other properties ut also the in(o&e o5 the inherite#properties

Besi#es, as alrea#y oserve# earlier, the in(o&e #erive# 5ro& inherite# properties &ay e (onsi#ere# as in#ivi#ualin(o&e o5 the respe(tive heirs only so lon2 as the inheritan(e or estate is not #istriute# or, at least, partitione#,ut the &o&ent their respe(tive @nown shares are use# as part o5 the (o&&on assets o5 the heirs to e use# in&a@in2 pro5its, it is ut proper that the in(o&e o5 su(h shares shoul# e (onsi#ere# as the part o5 the ta;alein(o&e o5 an unre2istere# partnership <his, e hol#, is the (lear intent o5 the law

)i@ewise, the thir# uestion o5 petitioners appears to have een a#euately resolve# y the <a; Court in thea5ore&entione# resolution #enyin2 petitionersH &otion 5or re(onsi#eration o5 the #e(ision o5 sai# (ourt .ertinently,the (ourt rule# this wise=

In support o5 the thir# 2roun#, (ounsel 5or petitioners alle2es=



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ven i5 we were to yiel# to the #e(ision o5 this >onorale Court that the hereinpetitioners have 5or&e# an unre2istere# partnership an#, there5ore, have to eta;e# as su(h, it &i2ht e re(alle# that the petitioners in their in#ivi#ual in(o&e ta;returns reporte# their shares o5 the pro5its o5 the unre2istere# partnership e thin@it only 5air an# euitale that the various a&ounts pai# y the in#ivi#ual petitionersas in(o&e ta; on their respe(tive shares o5 the unre2istere# partnership shoul# e#e#u(te# 5ro& the #e5i(ien(y in(o&e ta; 5oun# y this >onorale Court a2ainst theunre2istere# partnership pa2e , +e&oran#u& 5or the .etitioner in -upport o5

<heir +otion 5or Re(onsi#eration, O(t *8, 191:

In other wor#s, it is the position o5 petitioners that the ta;ale in(o&e o5 the partnership &ust ere#u(e# y the a&ounts o5 in(o&e ta; pai# y ea(h petitioner on his share o5 partnership pro5its<his is not (orre(t rather, it shoul# e the other way aroun# <he partnership pro5its #istriutaleto the partners petitioners herein: shoul# e re#u(e# y the a&ounts o5 in(o&e ta; assesse#a2ainst the partnership Conseuently, ea(h o5 the petitioners in his in#ivi#ual (apa(ity overpai# hisin(o&e ta; 5or the years in uestion, ut the in(o&e ta; #ue 5ro& the partnership has een(orre(tly assesse# -in(e the in#ivi#ual in(o&e ta; liailities o5 petitioners are not in issue in thispro(ee#in2, it is not proper 5or the Court to pass upon the sa&e

.etitioners insist that it was error 5or the <a; Court to so rule that whatever e;(ess they &i2ht have pai# asin#ivi#ual in(o&e ta; (annot e (re#ite# as part pay&ent o5 the ta;es herein in uestion It is ar2ue# that to

san(tion the view o5 the <a; Court is to oli2e petitioners to pay #oule in(o&e ta; on the sa&e in(o&e, an#,worse, (onsi#erin2 the ti&e that has lapse# sin(e they pai# their in#ivi#ual in(o&e ta;es, they &ay alrea#y earre# y pres(ription 5ro& re(overin2 their overpay&ents in a separate a(tion e #o not a2ree As e see it, the(ase o5 petitioners as re2ar#s the point un#er #is(ussion is si&ply that o5 a ta;payer who has pai# the wron2 ta;,assu&in2 that the 5ailure to pay the (orporate ta;es in uestion was not #elierate O5 (ourse, su(h ta;payer hasthe ri2ht to e rei&urse# what he has erroneously pai#, ut the law is very (lear that the (lai& an# a(tion 5orsu(h rei&urse&ent are su$e(t to the ar o5 pres(ription An# sin(e the perio# 5or the re(overy o5 the e;(essin(o&e ta;es in the (ase o5 herein petitioners has alrea#y lapse#, it woul# not see& ri2ht to virtually #isre2ar#pres(ription &erely upon the 2roun# that the reason 5or the #elay is pre(isely e(ause the ta;payers 5aile# to &a@ethe proper return an# pay&ent o5 the (orporate ta;es le2ally #ue 5ro& the& In prin(iple, it is ut proper not toallow any rela;ation o5 the ta; laws in 5avor o5 persons who are not e;a(tly aove suspi(ion in their (on#u(t visFaFvis their ta; oli2ation to the -tate

I! "I O6 A)) <> 6ORGOI!G, the $u#2&ent o5 the Court o5 <a; Appeals appeale# 5ro& is a55ir& with (osts

a2ainst petitioners

C2. Taxpayers

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