CIR vs.

MARUBENI CORP
GR. 137377. DEC. 18, 2001
J. PUNO
TOPIC: SITUS OF INCOME

FACTS:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from collecting the 1985
deficiency income, branch profit remittance and contractors taxes from Marubeni Corp after
finding the latter to have properly availed of the tax amnesty under EO 41 & 64, as amended.

Marubeni, a Japanese corporation, engaged in general import and export trading, financing and
construction, is duly registered in the Philippines with Manila branch office. CIR examined the
Manila branchs books of accounts for fiscal year ending March 1985, and found that
respondent had undeclared income from contracts with National Development Company (NDC)
and Philippine Phosphate Fertilizer Corporation (Philphos) for construction of a wharf/port
complex and ammonia storage complex respectively.

On August 27, 1986, Marubeni received a letter from CIR assessing it for several deficiency
taxes. CIR claims that the income respondent derived were income from Philippine sources,
hence subject to internal revenue taxes. On Sept 1986, respondent filed 2 petitions for review
with CTA: the first, questioned the deficiency income, branch profit remittance and contractors
tax assessments and second questioned the deficiency commercial brokers assessment.

On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that
taxpayers who wished to avail this should on or before Oct 31, 1986. Marubeni filed its tax
amnesty return on Oct 30, 1986.

On Nov 17, 1986, EO 64 expanded EO 41s scope to include estate and donors taxes under
Title 3 and business tax under Chap 2, Title 5 of NIRC, extended the period of availment to Dec
15, 1986 and stated those who already availed amnesty under EO 41 should file an amended
return to avail of the new benefits. Marubeni filed a supplemental tax amnesty return on Dec 15,
1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the
deficiency taxes. CA affirmed on appeal.

ISSUE: W/N Marubeni is exempted from paying tax

HELD: YES. EXEMPTED

1. On date of effectivity
CIR claims Marubeni is disqualified from the tax amnesty because it falls under the exception in
Sec 4b of EO 41:
Sec. 4. Exceptions.The following taxpayers may not avail themselves of the amnesty herein
granted: xxx b) Those with income tax cases already filed in Court as of the effectivity hereof;
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986, a
case had already been filed and was pending before the CTA and Marubeni therefore fell under
the exception. However, the point of reference is the date of effectivity of EO 41 and that the
filing of income tax cases must have been made before and as of its effectivity.

EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with
CTA on Sept 26, 1986. When EO 41 became effective, the case had not yet been filed.
Marubeni does not fall in the exception and is thus, not disqualified from availing of the amnesty
under EO 41 for taxes on income and branch profit remittance.
The difficulty herein is with respect to the contractors tax assessment (business tax) and
respondents availment of the amnesty under EO 64, which expanded EO 41s coverage. When
EO 64 took effect on Nov 17, 1986, it did not provide for exceptions to the coverage of the
amnesty for business, estate and donors taxes. Instead, Section 8 said EO provided that:
Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or
inconsistent with this amendatory Executive Order shall remain in full force and effect.

Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively. It may not be
given a retroactive effect unless it is so provided expressly or by necessary implication and no
vested right or obligations of contract are thereby impaired.

2. On situs of taxation
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for the
deficiency tax because the income from the projects came from the Offshore Portion as
opposed to Onshore Portion. It claims all materials and equipment in the contract under
the Offshore Portion were manufactured and completed in Japan, not in the
Philippines, and are therefore not subject to Philippine taxes.

(BG: Marubeni won in the public bidding for projects with government corporations NDC and
Philphos. In the contracts, the prices were broken down into a Japanese Yen Portion (I and II)
and Philippine Pesos Portion and financed either by OECF or by suppliers credit. The
Japanese Yen Portion I corresponds to the Foreign Offshore Portion, while Japanese Yen
Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.
Marubeni has already paid the Onshore Portion, a fact that CIR does not deny.)

CIR argues that since the two agreements are turn-key, they call for the supply of both materials
and services to the client, they are contracts for a piece of work and are indivisible. The situs of
the two projects is in the Philippines, and the materials provided and services rendered were all
done and completed within the territorial jurisdiction of the Philippines. Accordingly, respondents
entire receipts from the contracts, including its receipts from the Offshore Portion, constitute
income from Philippine sources. The total gross receipts covering both labor and materials
should be subjected to contractors tax (a tax on the exercise of a privilege of selling services or
labor rather than a sale on products).

Marubeni, however, was able to sufficiently prove in trial that not all its work was performed in
the Philippines because some of them were completed in Japan (and in fact subcontracted) in
accordance with the provisions of the contracts. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under Japanese Yen Portion I
were made and completed in Japan. These services were rendered outside Philippines
taxing jurisdiction and are therefore not subject to contractors tax.

Petition denied.