EVANGELISTA vs.

CIR Facts: Petitioners borrowed sum of money from their father and together with their own personal funds they used said money to buy several real properties. They then appointed their brother (Simeon) as manager of the said real properties with powers and authority to sell, lease or rent out said properties to third persons. on 1946, they realized a gross rental income of in the sum of P24,786.30, while in 1948, they realized a gross rental income of P17,453.00. On September 24, 1954 respondent Collector of Internal Revenue demanded the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-1949. The letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained in his letter of demand dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes in question. CTA denied their petition and subsequent MR and New Trials were denied. Hence this petition. Issue: WON they are subject to corporate income tax? Held: YES.The essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves, because: 1. 2. Said common fund was not something they found already in existence. They invested the same, not merely not merely in one transaction, but in a series of transactions. The number of lots (24) acquired and transactions undertaken is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired. In other words, one cannot but perceive a character of habitually peculiar to business transactions engaged in the purpose of gain. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. Since August, 1945, the properties have been under the management of one person, namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista became the manager. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already

3. 4.

5.

adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.

paid on the dividends remitted by AG&P. This was however denied stating that while it is true that said dividends remitted were not subject to the 15% profit remittance tax and neither is it subject to the 10% intercorporate dividend tax, the recipient of the dividends, being a non-resident stockholder, nevertheless, said dividend income is subject to the 25 % tax pursuant to Article 10 (2) (b) of the Tax Treaty dated February 13, 1980 between the Philippines and Japan. Petitioner appealed to the CTA which affirmed the denial of the refund. Hence this petition.

MARUBENI vs. COMMISSIONER Facts: Marubeni is duly organized under Japan with licence to engage in business in the Philippines. It has equity investments in AG&P of Manila. It received dividends from AG&P which were all declared and taxes paid by AG&P as its withholding agent. BIR then made tax assessments from the dividends of Marubeni. In a letter dated January 29, 1981, petitioner, through SGV, sought a ruling from the Bureau of Internal Revenue on whether or not the dividends petitioner received from AG&P are effectively connected with its conduct or business in the Philippines as to be considered branch profits subject to the 15% profit remittance tax imposed under Section 24 (b) (2) of the National Internal Revenue Code. Acting Commissioner Ancheta ruled that the dividends received by Marubeni from AG&P are not income arising from the business activity in which Marubeni is engaged. Accordingly, said dividends if remitted abroad are not considered branch profits for purposes of the 15% profit remittance tax imposed by Section 24 (b) (2) of the Tax Code. Petitioner claimed for the refund or issuance of a tax credit of P229,424.40 "representing profit tax remittance erroneously Issue: 1. WON Marubeni is a resident foreign corporation following the principal-agent relationship? 2. Can it claim a lower tax rate of 10%? 3. WON it is correct to assess a 25% tax Marubeni dividends? 4. Is petitioner entitled to a refund? Held: 1. YES. Under the Tax Code, a resident foreign corporation is one that is "engaged in trade or business" within the Philippines. Petitioner contends that precisely because it is engaged in business in the Philippines through its Philippine branch that it must be considered as a resident foreign corporation. Petitioner reasons that since the Philippine branch and the Tokyo head office are one and the same entity, whoever made the investment in AG&P, Manila does not matter at all. A single corporate entity cannot be both a resident and a non-resident corporation depending on the nature of the particular transaction involved. Accordingly, whether the dividends are paid directly to the head office or coursed through its local branch is of no moment for after all, the head office and the office branch constitute but one corporate entity, the Marubeni Corporation, which, under both Philippine tax and corporate laws, is a resident foreign

corporation because it is transacting business in the Philippines. 2. NO. The alleged overpaid taxes were incurred for the remittance of dividend income to the head office in Japan which is a separate and distinct income taxpayer from the branch in the Philippines. There can be no other logical conclusion considering the undisputed fact that the investment (totalling 283.260 shares including that of nominee) was made for purposes peculiarly germane to the conduct of the corporate affairs of Marubeni Japan, but certainly not of the branch in the Philippines. It is thus clear that petitioner, having made this independent investment attributable only to the head office, cannot now claim the increments as ordinary consequences of its trade or business in the Philippines and avail itself of the lower tax rate of 10 %. 3. NO. while public respondents correctly concluded that the dividends in dispute were neither subject to the 15 % profit remittance tax nor to the 10 % intercorporate dividend tax, the recipient being a non-resident stockholder, they grossly erred in holding that no refund was forthcoming to the petitioner because the taxes thus withheld totalled the 25 % rate imposed by the Philippine-Japan Tax Convention pursuant to Article 10 (2) (b). To simply add the two taxes to arrive at the 25 % tax rate is to disregard a basic rule in taxation that each tax has a different tax basis. While the tax on dividends is directly levied on the dividends received, "the tax base upon which the 15 % branch profit remittance tax is imposed is the profit actually remitted abroad." 4. YES. Petitioner, being a non-resident foreign corporation, as a general rule, is taxed 35 % of its gross income from all sources within the Philippines. [Section 24 (b) (1)]. However, a discounted rate of 15% is given to petitioner on dividends received from

a domestic corporation (AG&P) on the condition that its domicile state (Japan) extends in favor of petitioner, a tax credit of not less than 20 % of the dividends received. This 20 % represents the difference between the regular tax of 35 % on non-resident foreign corporations which petitioner would have ordinarily paid, and the 15 % special rate on dividends received from a domestic corporation. Consequently, petitioner is entitled to a refund on the transaction in question.

CIR vs. BOAC Facts: BOAC a British government owned corporation engaged in international airline business and a member of IATA. This case involves two other cases tried jointly. The cases are as follows: 1. CIR assessed BOAC with deficiency income taxes from 1959 to 1963. BOAC protested said assessment. CIR released new assessment which claims for taxes until 1967. The second assessment was also protested, but the claim for refund was denied. Hence review with CTA. CIR assessed BOAC with deficiency income tax, interest and penalty for the years 1968-1969 and 1970-1971 with penalties for violation of Sec. 46 filing of return. Filed for request to set aside payment but was denied. Cases are not tried jointly in the CTA. CTA reversed the decision of CIR and held that the proceeds of BOAC passage ticket in the Philippines do not constitute income from Philippine sources since no service of air carriage of passengers or goods was performed within the Philippines. Hence this petition. NOTE: At the time the assessments were made, BOAC had no landing rights and not CPC except party in the years 1961 and 1962. Issue: 1. WON revenue of BOAC from sales of ticket in the Philippines is taxable? 2. WON BOAC is a resident foreign corporation? 3. WON BOAC is a non-resident foreign corporation and is subject only to 35% gross income tax?

2.

Held: 1. YES. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government.

which produced the income. Hence a resident foreign corporation, which now answers issues #3.

2.

YES. BOAC, during the periods covered by the subject assessments, maintained a general sales agent in the Philippines, That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of trips each trip in the series corresponding to a different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airline companies on the basis of their participation in the services rendered through the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement." Those activities were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its organization as an international air carrier. The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of taxability is the "source"; and the source of an income is that activity ...

PASCUAL vs. COMMISIONER Facts: Petitioners bought 2 parcels of land in 1966. In 1968 they sold one lot to MDC and in 1970 they sold the 2 ndlot to Reyes &Samson. The realized net profits for both sales are P165+ in 1968 and P60K in 1970. At the end of the year they paid corresponding capital gains taxes and filed the corresponding returns. However, BIR assessed a deficiency on CORPORATE INCOME TAX. Petitioners protested saying that they had availed of Tax Amnesty on 1974, hence they could not be liable for payment of any form. BIR however said that in 1968 and 1970 petitioners were coowners of an UNREGISTERED PARTNERSHIP taxable as a corporation, and that the availment of the amnesty relieved

them from their INDIVIDUAL income tax and not of the PARTNERSHIP. Petitioners then filed a petition for review with the CTA. CTA affirmed CIR ruling that petitioners which like a corporation were SUBJECT TO CORPORATE INCOME TAX distinct from that the partners are individually liable. Hence this petition. Issue: WON petitioners are liable for CORPORATE INCOME TAX? Held: NO. There is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund and that they intended to divide profits amoing themselves. Respondents only assumes that these conditions are present on the basis that petitiones purchased several parcels of land and became co-owners thereof. Sharing of the returns does not in itself establish a partnership. In order to constitute a partnership these must be present: a. b. c. Intent to form Generally participating in both profits and lossess Community of interest

unregistered partnership. The two isolated transactions did not establish a partnership, hence not liable for corporate income tax. As to the AMNESTY: Court ruled that amnesty applies. Since they are not a corporation and that they already paid capital gains tax and then granted the amnesty, they are now no longer liable for any further tax.

There must be clear intent to form a partnership, the existence of a juridical personality different from the individual partners and the freedom of each to transfer or assign the property in whole. Although there is a clear showing of co-ownership there is however no adequate basis to support that there is an OBILLOS vs. COMMISSIONER

Facts: Obillios Sr. completed payment to Ortigas & Co. for 2 lots. He then transferred his rights to his children. Purpose of the purchase of the lots was to be made into residential lots, however due to economic reasons, it was not feasible to the children after more than a year decided to resell the lots to WCSC and Olga Canada. They treated the profit as a CAPITAL GAIN TAX and paid said income tax. CIR made an assessment (it was made a day before the expiration of period to make assessment MEMASABI LANG TALAGA ANG BIR!) required petitiones to pay CORPORATE INCOME TAX in additiona to the individual income taxes they have paid. CIR considered the profits as DISTRIBUTIVE DIVIDENDS taxable in full and not for only 30%. CIR also required them to pay deficiency and fraud surcharge. This assessment was contested to the CTA. CTA sustained CIR assessment. Hence this appeal. Issue: WON petitioners are subject to CORPORATE INCOME TAX? Held: NO. There was no intention to form a partnership. They were co-owners pure and simple. To consider them as partners would be to obliterate the distinction between coowners and parteners. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of the thing a temporary state. Art. 1769 of the Civil Code provides that sharing of gross returns does not in itself establish a partnership. Additionally, SC ruled that CIR should have investigated whether the father donated the two lots to the petitioners and whether he paid donors tax.

TAN vs. COMMISIONER Facts: Two consolidated cases as follows 1. Petitioners assails Sec. 6 of RR 2-93 arguing that public respondents exceeded their rule-making authority in the creation and implementation of said RR in relation to its application to to partners in general professional partnerships. Title of HB 34314, progenitor of RA 7496 is a misnomer or deficient for being merely entitled Simplified Net Income Tax Scheme for Self Employed and Professionals (SNIT). They also interpose the violation of the equal protection clause. Now there is a SPECIAL CIVIL ACTION FOR PROHIBITION challenging the constitutionality of SNIT and the validity of RR 2-93. In this specpro the court consolidated the above to cases. Petitioners here claim that taxpayers are adversely affected by the continued implementation of the amendatory legislation. Issues: 1. Was there excess in authority? 2. Did SNIT apply to gross income? Was there a violation of equal protection clause? Held:

1. NONE. The Court, first of all, should like to correct the apparent misconception that general professional partnerships are subject to the payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of their respective professions and partners in general professional partnerships. The fact of the matter is that a general professional partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment income, under the present income tax system all individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules. We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under the National Internal Revenue Code. Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so

2.

modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do it through a general professional partnership. 2. NO. SNIT did not adopt a gross income, but have retained the net income taxation scheme. The allowance for deductible items, it is true, may have significantly been reduced by the questioned law in comparison with that which has prevailed prior to the amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. The fact of the matter is still that various deductions, which are by no means inconsequential, continue to be well provided under the new law. Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended to unite the members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are usually made, of the subjects of legislation. The above objectives of the fundamental law appear to us to have been sufficiently met. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and. Uniformity does not forefend classification as long as: (1) the standards that are used therefore are substantial and not arbitrary, (2) the categorization is

germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class

Facts: Petitioners are 41 non-life insurance corporatiosn that entered into a reinsurance treaty with MUNICH a nonresident foreign insurance corporation. Munich required these 41 companies to form a pool referred to as CLEARING HOUSE in the case. The pool then submitted an income tax return. BIR then assessed (assessment was made beyond the allowable period of assessment) a deficiency corporate income tax. This assessment was protested by petitioners through SGV contending that they are not an unregistered partnership, that they have tax exemption and that there is double taxation, and that the assessment made was beyond the period allowed by law. BIR denied the protest. The case was then elevated to the CA which ruled that the pool was a partnership taxable as a corporation and that the collection of the premiums from Munich form part of their income and thus considered as taxable income. Hence this petition. Issue: 1. WON pool was a taxable partnership? 2. WON remittances/premiums received from Munich are taxable income? 3. WON BIR action to the pool has prescribed? Held: 1. YES. Philippine legislature included in the concept of corporations those entities that resembled them such as unregistered partnerships and associations. The ceding companies entered into a Pool Agreement or an association that would handle all the insurance businesses covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich. The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC:

AFISCO vs. COMMISSIONER

(1) The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool. This common fund pays for the administration and operation expenses of the pool. (2) The pool functions through an executive board, which resembles the board of directors of a corporation, composed of one representative for each of the ceding companies. (3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich, because without it they would not have received their premiums. 3. 2. YES. The tax exemptions claimed by petitioners cannot be granted, since their entitlement thereto remains unproven and unsubstantiated. It is axiomatic in the law of taxation that taxes are the lifeblood of the nation. Hence, "exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right." Petitioners have failed to discharge this burden of proof. The sections of the 1977 NIRC which they cite are inapplicable, because these were not yet in effect when the income was earned and when the subject information return for the year ending 1975 was filed. Additionally, Section 255 provides that no tax shall ". . . be paid upon reinsurance by any company that has already paid the tax . . ." This cannot be applied to the present case because, as previously discussed, the pool is a taxable entity distinct from the ceding companies; therefore, the latter

cannot individually claim the income tax paid by the former as their own.

Finally, the petitioners' claim that Munich is tax-exempt based on the RP- West German Tax Treaty is likewise unpersuasive, because the internal revenue commissioner assessed the pool for corporate taxes on the basis of the information return it had submitted for the year ending 1975, a taxable year when said treaty was not yet in effect. 54 Although petitioners omitted in their pleadings the date of effectivity of the treaty, the Court takes judicial notice that it took effect only later, on December 14, 1984. SEE RULES ON EVIDENCE.

NO. The CA and the CTA categorically found that the prescriptive period was tolled under then Section 333 of the NIRC, because "the taxpayer cannot be located at the address given in the information return filed and for which reason there was delay in sending the assessment. Indeed, whether the government's right to collect and assess the tax has prescribed involves facts which have been ruled upon by the lower courts. It is axiomatic that in the absence of a clear showing of palpable error or grave abuse of discretion, as in this case, this Court must not overturn the factual findings of the CA and the CTA.

Furthermore, petitioners admitted in their Motion for Reconsideration before the Court of Appeals that the pool changed its address, for they stated that the pool's information return filed in 1980 indicated therein its "present address." The Court finds that this falls short of the

requirement of Section 333 of the NIRC for the suspension of the prescriptive period. The law clearly states that the said period will be suspended only "if the taxpayer informs the Commissioner of Internal Revenue of any change in the address."