true income of corporations.
· congress intended to put a stop responsible for sening BOAC tickets covering passengers and
to the practice of corporations w~ich, while having large tun:i-
overs, report minimal or negative net Income resulting in
minimal or zero Income taxes year In and year out, through
under-declaration of income or over-deduction of expenses
otherwise caled tax shelters." In other words, MCIT serves to
put a cap on such tax shelters.
On petitioner's argument that the imposition of MCIT
amounted to deprivation of property without due process of
law. the Supreme Court held that *MCIT is imposed on Qawi
irui2mA which is arrived at by deducting the capital spent by a
corporation in the sale of Its goods, i.e., the cost of good~ a~d
other direct expenses from gross sale. Clearly, the capital 1s
not being taxed.· Otherwise stated, MCIT is a tax on income.
Furthermore, "MCIT is not an additional tax imposition. It is
imposed In Heu of the normal net income tax, and only If the
normal income tax Is suspiciously low. The MCIT merely
approximates the amount of net Income tax due from a
corporation, pegging the rate at a very much reduced 2% and
uses as the base the corporation's gross Income:
(Chamber of Real Estate and Builders' Associations, Inc. v.
Romulo, GR No. 160756, 9 March 2010.)
Q: What Is the source of an Income?
• In CIR v. British Overseas Airways Corporation, BOAC was a
British Government-owned corporation engaged in the
International airline business. As such, It operated air
transportation service and sold transportation tickets over the
routes of the other airline members. For the years 1959 to
1971 , BOAC had no landing rights for traffic purposes in the
Philippines. It did not carry passengers and/or cargo to and
from the Phi~ppines, although from 1959 to 1971, BOAC
maintained a general sales agent in the country which was
TAX 1 SYLLABUS ASSOCIATE DEAN LILY K. GRUBA S/Y 2014-2015
1995, respondent received a certain sum representing her
sales commission income from which JUBANITEX withheld
the corresponding 10% withholding tax and remitting such
amount to the BIR. Respondent filed a claim for tax refund on
the contention that her sales commission income was not
taxable in the Philippines because the same was a
compensation for her services rendered in Germany and
therefore considered as income from sources outside the
Philippines. Was respondent's sales commission income
taxable In the Philippines? The Supreme Court held
affirmatively. Pursuant to Sections 23(0) and 25 of the 1997
Tax Code, non-resident aliens, whether or not engaged In
trade or business, are subject to Philippine income taxation on
their income received from aN sources within the Philipplnes.
What is thus meant by "source· of income? Source of income
relates to the property, activity or service that produced the
income. "The important factor therefore which determines the
source of income of personal services Is not the residence of
the payor, or the place where the contract for service is
entered into, or the place of payment, but the place where the
services were actualy rendered.· Here, the Supreme Court
found that respondent failed to show substantial evidence, or
"that relevant evidence that a reasonable mind might accept
as adequate to support the conclusion that it was in Germany
where she performed the income producing service which
gave rise to the reported monthly sales in the months of March
and May lo September of 1995. She thus failed to discharge
the burden of proving that her income was from sources
outside the Philippines and exempt from the application of our
income tax law. Hence, the claim for tax refund should be
denied."
(CIR v. Baier-Nickel, GR No. 153793, 29 August 2006.]
Q: Define income tax.
cargoes. The CIR issued an assessment against BOAC for
deficiency iflCome taxes for the years 1959 to 1971 for the sale
of tickets in the Philippines for air transportation. Was BOAC a
resident foreign corporation doing business in the Phlli~pines?
The Supreme Court held affirmatively. BOAC, ~un~g the
periods covered by the subject assessments, maintained a
general sales agent In the Philippines which performed
activities in the exercise of the functions normally incident to,
and in progressive pursuit of, the purpose and object of its
organization as an international air carrier. BOAC was held to
be engaged in business in the Philippines through Its local
agent during the period covered by the assessments.
Did BOAC's income from the sale of tickets in the Philippines
come from sources within the Philippines? The source of .an
income Is the property, activity or service that produced the
income. The Supreme Court stated that in BOAC's case, the
sale of tlckets in the Philippines was the ~ that produced
the income. "The tickets exchanged hands here and payment
for fares were also made here in PhMlppine currency. The situs
of the source of payments is the Philippines. The flow of
wealth proceeded frol'l'I, and occurred within, PhUippine
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·
[CIR v. British Overseas A irways Corporation, GR Nos. L·
65773-74, 30 April 1987.)
•• In CIR v. Baier-Nickel, respondent was a non-resident
German citizen who was employed as a commission agent of
JUBANITEX, which was a domestic corporation. II was agreed
that respondent would receive 10% sales commission on all
sales actually concluded and collected through her efforts. In
3
• Black's Law Dictionary defines "income tax· as a tax ·on the
annual profits arising from property, business pursuits,
professions, trades, or offices: It is a tax ·on a person's
income, wages, salary, commissions, emoluments, profits, and
the like, or the excess thereof over a certain amount."
•• Income tax is a tax on all yearly profits arising from property,
professions, trades or offices. or a tax on a person's income,
emoluments. profits and the like. It is lax on income, whether
net or gross. realized in one taxable year. (27 Am Jur. 308.)
••• At Issue in CIR v. Court of Appeals was the taxability of the
shares of stock in ANSCOR owned by the estate of Don
Andres Soriano as well as Don Andres Soriano's widow, Dona
Carmen Soriano. On various dates, ( 1) the estate and Dona
Carmen exchanged a portion of their common shares for
preferred shares, and (2) ANSCOR redeemed a portion of the
common shares owned by the estate and Dolla Carmen.
ANSCOR's business purpose for the redemption of stocks was
to partially retire said stocks as treasury shares in order to
reduce the company's foreign exchange remittances In case
cash dividends were declared. Subsequently, ANSCOR was
issued an assessment for deficiency withholding tax at source
based on the transactions of exchange and redemption of
stocks. Regarding the exchange of stocks, the Supreme Court
found that there was no change in the proportlonal Interest of
the estate and Dona Carmen before and after the exchange.
The exchange transaction did not result into a flow of wealth
and hence, there was no income tax liability.
As regards the redemption of stocks, the issue was,
particularly, whether ANSCOR's redemption of stocks from its
stockholder as well as the exchange of common with preferred
shares could be considered as essentially equivalent to the