42 SCRA 23 Political Law Definition of State

In January 1955, Maria Cerdeira died in Tangier, Morocco (an international zone [foreign
country] in North Africa). At the time of her death, she was a Spanish citizen and was a resident

of Tangier. She however left some personal properties (shares of stocks and other intangibles)
in the Philippines. The designated administrator of her estate here is Antonio Campos Rueda.

In the same year, the Collector of Internal Revenue (CIR) assessed the estate for deficiency tax
amounting to about P161k. Campos Rueda refused to pay the assessed tax as he claimed that

the estate is exempt from the payment of said taxes pursuant to section 122 of the Tax
Code which provides:

That no tax shall be collected under this Title in respect of intangible personal property (a) if the
decedent at the time of his death was a resident of a foreign country which at the time of his death did
not impose a transfer tax or death tax of any character in respect of intangible person property of the
Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the
decedent was a resident at the time of his death allow a similar exemption from transfer taxes or death
taxes of every character in respect of intangible personal property owned by citizens of the Philippines
not residing in that foreign country.
Campos Rueda was able to prove that there is reciprocity between Tangier and the Philippines.

However, the CIR still denied any tax exemption in favor of the estate as it averred that Tangier
is not a state as contemplated by Section 22 of the Tax Code and that the Philippines does not
recognize Tangier as a foreign country.

ISSUE: Whether or not Tangier is a state.

HELD: Yes. For purposes of the Tax Code, Tangier is a foreign country.

A foreign country to be identified as a state must be a politically organized sovereign community

independent of outside control bound by penalties of nationhood, legally supreme within its
territory, acting through a government functioning under a regime of law. The stress is on its

being a nation, its people occupying a definite territory, politically organized, exercising by

means of its government its sovereign will over the individuals within it and maintaining its
separate international personality.

Further, the Supreme Court noted that there is already an existing jurisprudence (Collector vs
De Lara) which provides that even a tiny principality, that of Liechtenstein, hardly an

international personality in the sense, did fall under the exempt category provided for in
Section 22 of the Tax Code. Thus, recognition is not necessary. Hence, since it was proven that

Tangier provides such exemption to personal properties of Filipinos found therein so must the
Philippines honor the exemption as provided for by our tax law with respect to the doctrine of
reciprocity.