GARRISON VS.
COURT OF APPEALS (July 19, 1990) purpose which by its nature may be promptly accomplished, he is considered a
Doctrine: An alien actually present in the Philippines who is not a mere transient or sojourner
is a resident of the Philippines for purposes of income tax.
Facts:
 Petitioners, John Garrison, Frank Robertson, Robert Cathey, James Robertson,
Felicitas de Guzman and Edward McGurk (PETITIONERS) are US Citizens who entered the
country through the Philippine Immigration Act of 1940 and are employed in the US Naval
Base in Olongapo City. They earn no Philippine source income and it is also their intention to
return to the US as soon as their employment has ended.
 The BIR sent notices to Petitioners stating that they did not file their Income Tax
Returns (ITR) for 1969. The BIR claimed that they were resident aliens and required them to
file their returns.
 Under then then Internal Revenue Code resident aliens may be taxed regardless of
whether the gross income was derived from Philippine sources.
 Petitioners refused stating that they were not resident aliens but only special
temporary visitors. Hence, they were not required to file ITRs. They also claimed exemption
by virtue of the RP-US Military Bases Agreement.
 Under Military Bases Agreement, a “national of the United States serving in or
employed in the Philippines in connection with construction, maintenance, operation or
defense of the bases and reside in the Philippines by reason only of such employment” is only
liable for tax on Philippine sources of income.
 The Court of Appeals held that the Bases Agreement “speaks of exemption from
the payment of income tax, not from the filing of the income tax returns . . .”
Issue:
1. Whether or not Petitioners can be considered resident aliens.
2. Whether or not Petitioners are exempt from income tax under the RP-US Military Bases
Agreement.
3. Whether or not Petitioners must still file ITR notwithstanding the exemption.
Held:
1. Yes.
Revenue Regulations No. 2 Section 5 provides: “An alien actually present in the Philippines
who is not a mere transient or sojourner is a resident of the Philippines for purposes of
income tax.” Whether or not an alian is a transient or not is further determined by his:
“intentions with regards to the length and nature of his stay. A mere floating intention
indefinite as to time, to return to another country is not sufficient to constitute him as
transient. If he lives in the Philippines and has no definite intention as to his stay, he is a
resident.” The Section 5 further provides that if the alien is in the Philippines for a definite
transient. However, if an extended stay is necessary for him to accomplsh his purpose, he is
considered a resident, “though it may be his intention at all times to return to his domicile
abroad when the purpose for which he came has been consummated or abandoned.”
2. Yes.
Notwithstanding the fact that the Petitioners are resident aliens who are generally taxable,
their class is nonetheless exempt from paying taxes on income derived from their
employment in the naval base by virtue of the RP-US Military bases agreement.The Bases
Agreement identifies the persons NOT “liable to pay income tax in the Philippines except in
regard to income derived from Philippine sources or sources other than the US sources.” They
are the persons in whom concur the following requisites, to wit:
1) nationals of the United States serving in or employed in the Philippines;
2) their service or employment is "in connection with construction,maintenance, operation or
defense of the bases;
3) they reside in the Philippines by reason only of such employment; and
4) their income is derived exclusively from “U.S. Sources.”
3. Yes
Even though the petitioners are exempt from paying taxes from their employment in the
Naval Base, they must nevertheless file an ITR. The Supreme Court held that the filing of an
ITR and the payment of taxes are two distinct obligations. While income derived from
employment connected with the Naval Base is exempt, income from Philippine Sources is
not. The requirement of filing an ITR is so that the BIR can determine whether or not the US
National should be taxed. “The duty rests on the U.S. nationals concerned to invoke
and prima facie establish their tax-exempt status. It cannot simply be presumed that they
earned no income from any other sources than their employment in the American bases and
are therefore totally exempt from income tax.”
CIR VS. BRITISH OVERSEAS AIRWAYS CORP. (old case)
Appeal from a decision of the CTA setting aside CIR’s assessment of deficiency income taxes
against British Airways
from 1959 to 1967, 1968-1969 to 1970-1971.
British Overseas Airways Corporation is a 100% British Government-owned
corporation organized and existing underthe laws of the United Kingdom.
It engaged in the international airline business.
It operates air transportation service and sells transportation tickets over the routes of the
other airlinemembers.
For the periods of the disputed assessments, BOAC had no landing rights in the Philippines
and not granted a CPCNto operate in the Philippines.
It merely maintained a general sales agent in the Philippines (Warner Barnes and Co. and
later Quantas Airways)responsible for selling BOAC tickets covering passengers and cargo.
First CTA Case
In 1968 CIR assessed BOAC the amount of 2,498,350 Php for deficiency income tax from
1959-1963, which BOACprotested.
Investigation resulted in the issuance of a new (modified) assessment for the years 1959-
1967 which amounted to858,307 Php.
o business in thePhilippines or has an office or place of business in the Philippines and thus
This was paid by BOAC under protest.
BOAC filed a claim for refund of the money they paid, which was eventually denied by
the CIR.
o business.
Before denial, BOAC already filed a petition for review with the CTA (this case) assailing
the assessment andpraying for the refund of the amount.
Second CTA Case
In 1971, BOAC was assessed deficiency income taxes, interests and
penalty from the fiscal years ’68’69 and ’70 ’71in the amount of 549, 327 Php + (1,000 +
1,800) as penalities for violation of Sec 46 penalized under Sec 74 of theNIRC.
BOAC requested that the assessment be set aside, but the CIR denied the request, as well
as a request forreconsideration that they subsequently filed.
BOAC then filed the Second Case before the CTA praying that it be absolved of liability for
deficiency income tax for1969 to 1971.
CTA’s joint decision on the two cases
Reversed the C
IR’s denials for the setting aside of the assessments
Said that the proceeds of sales of BOAC passage tickets by their sales agent do not constitute
income from Philippine
sources since ―no service of carriage of passengers or freight was performed by BOAC
within the Philippines.‖
o Philippine sources”
Thus, not subject to Philippine income taxes.
Said that income from transportation is income from services so that the place where
services are rendered determines the source.Hence this petition for Review on the decision of
the CTA.
ISSUES + RULING
Under Section 20 of the 1977 Tax Code:(h) the term 'resident foreign corporation' applies to
a foreign corporation engaged in trade orbusiness within the Philippines or having an of fice
or place of business therein.(i) The term 'non-resident foreign corporation' applies foreign
corporation not engaged in trade orbusiness within the Philippines and not having any office
or place of business therein.
Was BOAC, during the fiscal years in question, BOAC a resident foreign corporation doing
taxable on its income? YES.
No specific criterion as to what constitutes ―doing‖ or ―engaging in‖ or ―transacting‖
o
In order that a foreign corporation may be regarded as doing business within a State,
there must becontinuity of conduct and intention to establish a continuous business, such as
the appointment of a localagent, and not one of a temporary character (Pacific Micronesian
Line, Inc. vs. Del Rosario and Peligon)
BOAC, during the periods for assessment, maintained a general sales agent in the
Philippines engaged in theselling and issuing of tickets, receiving fares, allocating the trips to
airline companies.
o
Such activities were in exercise of the functions which are normally incident to, and are in
progressivepursuit of the purpose of an international air carrier.
o
Such is the very lifeblood of the airline business.
No doubt that BOAC was ―engaged in‖ business in the Phili
ppines.
Thus, subject to tax upon its total net income.
Does the revenue from sales of tickets by BOAC in the Philippines constitute “income from
and taxable under income tax laws? YES.
 The word "source" conveys one essential idea, that of origin, and the origin of the income
Under Philippine tax laws, ―income‖ refers to the flow of wealth, cash received or its herein is thePhilippines.
equivalent.
o Revenue was acquired from a business activity regularly pursued within the Philippines.
Settled that the Philippine gross income of BOAC from 68-69, 70-71 amounted to Does JAL v CIR constitute res judicata to the case? NO.
Php 10,428,368
The ruling by the Tax Court in that case was to the effect that the mere sale of
tickets, unaccompanied by thephysical act of carriage of transportation, does not render the
taxpayer therein subject to the common carrier'stax.
But did such flow of wealth come from ―sources within the Philippines‖?
But the subject of that case was EXCISE tax and not INCOME tax as is the subject in
o this case.Note the scope of this ruling: Only fiscal years covered by questioned tax
The source of an income is the property, activity or service that produced the income. assessments, or from 1959-67, 1968-69 to1970-71.

For the source of income to be considered as coming from the Philippines, it is sufficient Because PD 69, promulgated in 1972, laid down regulations on taxing international carriers.
that theincome is derived from activity within the Philippines.
o 2-.5 percent on their gross Philippine billings.
In this case, the sale of tickets produces the income. The cash and payments for fares
were received in thePhilippines.
―Gross Philippine billings‖: includes gross revenue realized from uplifts anywhe
The flow of wealth proceeded from, and occurred within, the Philippine territority, re in the world by any internationalcarrier doing business in the Philippines of passage
enjoyingprotection from the Philippine government. documents sold therein, whether for passenger, excessbaggage or mail, provided the cargo or
o mail originates from the Philippines.
Thus, the flow of wealth proceeded from Philippine territory. Disposition:
Decision of CTA is set aside and BOAC is ordered to pay the amount of P534,132.08 as
Sec. 37(a) of the tax code, in enumerating the sources of income, was not meant to deficiency incometax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and 1%
be exclusive. monthly interest from April 16, 1972 for a periodnot to exceed three (3) years in accordance
o with the Tax Code. Claim for refund on their previous payment was denied.
Sales of airline tickets are included in the definition of gross income. Teehankee, J. CONCURRING
Is
BOAC’s argument Just said that there is no longer any source of substantial conflict as to the present 2-1/2% tax
on gross PhilippineBillings between Dissent and Majority opinion since the promulgation of
on the “source” of income being outside the Philippines PD 69.
tenable? NO.

BOAC argues that income is derived from transportation is income for services, and thus
the place where theservices are rendered should determine the source.
o “AMSTERDAM” AND ROYAL INTEROCEAN LINES VS. CIR
Thus, since the transportation is performed outside the Philippines, income cannot be taxed
under itslaws.
FACTS:
The absence of flight operations to and from the Philippines is not determinative of
the source of income or thesitus of income taxation. • Both vessels of petitioner N.V. Reederij “Amsterdam” called on Philippine ports to load
o cargoes for foreign destinations.
The test of taxability is the "source"; and the source of an income is that activity x x x • The freight fees for these transactions were paid in abroad. In these two transactions,
which produced theincome petition Royal Interocean Lines acted as husbanding agent for a fee or commission on said
o vessels. No income tax has been paid by “Amsterdam” on the freight receipts.
• As a result, Commissioner of Internal Revenue filed the corresponding income tax returns
for the petitioner. Commissioner assessed petitioner for deficiency of income tax, as a non- Marubeni Corporation is a Japanese corporation licensed to engage in business in the
resident foreign corporation NOT engaged in trade or business. Philippines. When the profits on Marubeni’s investments in Atlantic Gulf and Pacific Co. of
• On the assumption that the said petitioner is a foreign corporation engaged in trade or Manila were declared, a 10% final dividend tax was withheld from it, and another 15% profit
business in the Philippines, petitioner Royal Interocean Lines filed an income tax return of the remittance tax based on the remittable amount after the final 10% withholding tax were paid
aforementioned vessels and paid the tax in pursuant to their supposed classification. to the Bureau of Internal Revenue. Marubeni Corp. now claims for a refund or tax credit for
• On the same date, petitioner Royal Interocean Lines, as the husbanding agent of the amount which it has allegedly overpaid the BIR.
“Amsterdam”, filed a written protest against the abovementioned assessment made by the
respondent Commissioner. The protest was denied.
• On appeal, CTA modified the assessment by eliminating the 50% fraud compromise
penalties imposed upon petitioners. Petitioner still was not satisfied and decided to appeal to Issues and Ruling:
the SC.
1. Whether or not the dividends Marubeni Corporation received from Atlantic Gulf and Pacific
ISSUE: Whether or not N.V. Reederij “Amsterdam” should be taxed as a foreign corporation Co. are effectively connected with its conduct or business in the Philippines as to be considered
not engaged in trade or business in the Philippines? branch profits subject to 15% profit remittance tax imposed under Section 24(b)(2) of the
National Internal Revenue Code.
HELD:

• Petitioner is a foreign corporation not authorized or licensed to do business in the
Philippines. It does not have a branch in the Philippines, and it only made two calls in
Philippine ports, one in 1963 and the other in 1964.
• In order that a foreign corporation may be considered engaged in trade or business, its
business transactions must be continuous. A casual business activity in the Philippines by a
foreign corporation does not amount to engaging in trade or business in the Philippines for
income tax purposes.
• A foreign corporation doing business in the Philippines is taxable on income solely from
sources within the Philippines. It is permitted to claim deductions from gross income but only
to the extent connected with income earned in the Philippines. On the other hand, foreign
corporations not doing business in the Philippines are taxable on income from all sources
within the Philippines . The tax is 30% (now 35% for non-resident foreign corp which is also
known as foreign corp not engaged in trade or business) of such gross income. (*take note
that in a resident foreign corp, what is being taxed is the taxable income, which is with
deductions, as compared to a non-resident foreign corp which the tax base is gross income)
• Petiioner “Amsterdam” is a non-resident foreign corporation, organized and existing under
the laws of the Netherlands with principal office in Amsterdam and not licensed to do
business in the Philippines
NO. Pursuant to Section 24(b)(2) of the Tax Code, as amended, only profits remitted abroad
by a branch office to its head office which are effectively connected with its trade or business
in the Philippines are subject to the 15% profit remittance tax. The dividends received by
Marubeni Corporation from Atlantic Gulf and Pacific Co. are not income arising from the
business activity in which Marubeni Corporation 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, as amended.
2. Whether Marubeni Corporation is a resident or non-resident foreign corporation.
Marubeni Corporation is a non-resident foreign corporation, with respect to the transaction.
Marubeni Corporation’s head office in Japan is a separate and distinct income taxpayer from
the branch in the Philippines. The investment on Atlantic Gulf and Pacific Co. was made for
purposes peculiarly germane to the conduct of the corporate affairs of Marubeni Corporation
in Japan, but certainly not of the branch in the Philippines.

MARUBENI CORP. VS CIR

3. At what rate should Marubeni be taxed?
The dividends received by Marubeni Corporation from Atlantic Gulf and Pacific Co. are not
income arising from the business activity in which Marubeni Corporation is engaged.
15%. The applicable provision of the Tax Code is Section 24(b)(1)(iii) in conjunction with the
Accordingly, said dividends if remitted abroad are not considered branch profits subject to
Philippine-Japan Tax Treaty of 1980. As a general rule, it is taxed 35% of its gross income from
Branch Profit Remittance Tax.
all sources within the Philippines. However, a discounted rate of 15% is given to Marubeni
Corporation on dividends received from Atlantic Gulf and Pacific Co. on the condition that
Japan, its domicile state, extends in favor of Marubeni Corporation a tax credit of not less
than 20% of the dividends received. This 15% tax rate imposed on the dividends received
Facts:
under Section 24(b)(1)(iii) is easily within the maximum ceiling of 25% of the gross amount of
the dividends as decreed in Article 10(2)(b) of the Tax Treaty.
Note: Each tax has a different tax basis.
Under the Philippine-Japan Tax Convention, the 25% rate fixed is the maximum rate, as
reflected in the phrase “shall not exceed.” This means that any tax imposable by the
contracting state concerned hould not exceed the 25% limitation and said rate would apply
only if the tax imposed by our laws exceeds the same.
ACCENTURE INC VS CIR
ACCENTURE, IN C,
petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE,
respondents
. Philippines. The test of taxability is thesource, and the source is that activity which
G.R. No. 190102. July 11, 2012. SERENO, J
FACTS:
Accenture is a domestic corporation claiming an administrative claim for VATrefund or the
issuance of Tax Credit Certificate (TCC) filed with the DOF in 1 July 2004. The DOFdid not act
on the claim. Thus, Accenture filed a petition for review with the CTA. In 13 November 2008,
CTA denied the petition of Accenture for failing to prove that the latter's sale of services tothe
alleged foreign clients qualified for zero percent VAT. CTA ruled that Accenture's
serviceswould qualify for zero-rating under the 1997 Tax Code only if the recipient of the
services wasdoing business outside of the Philippines, similar to the 2007 SC ruling on the
case of CIR v.Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (Burmeister)
Accenture questionsthe Division's application to this case of the pronouncements made in
Burmeister. According topetitioner, the provision applied to the present case was Section 102
(b) of the 1977 Tax Code,and not Section 108 (B) of the 1997 Tax Code, which was the law
effective when the subjecttransactions were entered into and a refund was applied for.
ISSUE:
Whether or not the contention of SC’s rulings is applicable to the denial of Accenture’s claim
for tax refund
RULING:
SC ruled in the instant case that the recipient of the service must be doingbusiness outside
the Philippines for the transaction to qualify for zero-rating under Section 108(B) of the Tax
Code. IT upholds the position of the CTA en banc that, because Section 108 (B) of the 1997
Tax Code is a verbatim copy of Section 102 (b) of the 1977 Tax Code, anyinterpretation of
the latter holds true for the former. Moreover, even though Accenture's Petitionwas filed
before
Burmeister
was promulgated, the pronouncements made in that case may beapplied to the present one
without violating the rule against retroactive application.
HELD:
Instant petition is DENIED. The decision of CTA En Banc is AFFIRMED.
AIR CANADA VS COMMISSIONER OF INTERNAL REVENUE
Brief Facts:
AirCanadawasgrantedan authority tooperate as an off-line carrier by the Civil AeronauticsBoard
(CAB), and then it entered into a PassengerGeneral Sales Agency (GSA) Agreement with
AerotelLtd., Corporation for operation in the Philippines. On 2002,Air Canada filed its
administrative claim for refund of Php5,185,676.77 with the BIR, contending that the
revenuederived by it from its sales of tickets in the Philippines on itsoff-line flights through its
local General Sales Agentcannot be subject to income tax because the same isnot sourced
within the Philippines.
Doctrine:
A foreign airline company selling
tickets inthe Philippines through their local agents shall beconsidered as resident
foreign corporation
engaged intrade or business in the country. The absence of flightoperations
within the Philippine
territory cannot alterthe fact that the income received was derived fromactivities within the
producedthe income.
FACTS:
1.Air Canada is a foreign corporation organizedand existing under the laws of Canada.
2.
AirCanadawasgranted an authority to operateas an off-line carrier by the Civil AeronauticsBoard (CAB)
subject to certain conditions, onApril 24, 2000, with said authority to expire onApril 24, 2005.
3.
On July 1, 1999, Air Canada and Aerotel Ltd.,Corporation entered into a Passenger
GeneralSales Agency (GSA) Agreement for operation thePhilippines.
4.
On November 28, 2002, Air Canada filed itsadministrative claim for refund with the Bureau
ofInternal Revenue (BIR) in the total amount of Php5,185,676.77.
5.
Air Canada contends that it erroneously paidincome taxes from the Q3 2000 up to the
Q22002.
6.
With no response received from the BIR, AirCanada elevated its claim to the CTA
onNovember 29, 2002.
7.
Air Canada:
 The revenue derived by it from itssales of tickets in the Philippines on its off-lineflights
through its local General Sales Agentcannot be subject to income tax because thesame is not
sourced within the Philippines.
ISSUES:
1. WON the revenue derived by an international aircarrier from sales of tickets in the
Philippines for airtransportation, while having no landing rights in thecountry, constitutes
income of said international aircarrier from Philippine source, and accordingly, taxableunder
Sec. 24(b)(2) of the National Revenue Code. (YES)
RATIO:1. YES. Such revenue constitutes taxable income.
This issue has already been laid to rest in anumber of cases by the SC, one of which is
thelandmark case of
CIR v. British Overseas AirwaysCorporation
.AlthoughAirCanadais not liable to pay the taxas an international air carrier (2.5% on gross Phil.Billings),
it is still liable to pay income tax as aresident foreign corporation.An off-line international
carrier with a GeneralSales Agent (GSA) in the Philippines may beconsidered a resident
foreign corporationtaxable at 32% on taxable income derived fromPhilippine sources.
The GSA’s functions include, among
others,solicitation, promotion and sale of air passengerservices.
o
Such activities show continuity ofcommercial dealings and the exercise offunctions in pursuit
of commercial gain.Moreover, Revenue Regulations No. 6-78 has
elaborated that the phrase “d
oing business in the
Philippines” includes “regular sale
of tickets in thePhilippines by off-line international airlines, eitherby themselves or through
their agents.”
o
On the otherhand, income from saleoftickets in the Philippines is consideredPhilippine sourced.
The test of taxability is the “source” and the
source of an income is the activity whichproduced the income.
o
The sale of tickets in the Philippines is theactivity that produces the income.Further, by
appointment of a GSA whosepremises are used as outlet for selling tickets, theoff-line carrier
may be deemed to have apermanent establishment in the Philippines,hence taxable on
Philippine sourced income.
DISPOSITIVE:
The petition is DENIED and DISMISSED
GATCHALIAN VS. CIR (April 29, 1939)
Facts:
Jose Gatchalian along with 14 others bonded together to purchase a sweeptakes ticket and
registered the same as Jose Gatchalian and Co" This ticket has eventually won. They divided
the price in accordance with their aliquot share in the cost of the ticket.
A month after w inn ing the ticket th ey w ere as sessed b y the Collector of
Interna l Revenue for the payment ofIncome Tax of theirunregisteredpartnership . They replied that that
they merely formed a co-ownership not pa rtn ership a nd req ues ted th e CIR th at
they b e exempted from pa ying suchassessed income tax. They also submitted
evidence of payment of income tax. By each of them for their corresponding individual
taxable pertaining to their share inthe winnings
Issue:
whether they should pay the tax collectively or whether the latter should be prorated among
them and paid individually?
Ruling:
There is no doubt that if the plaintiffs merely formed a community of property the latter is
exempt from the payment of income tax under the law. But according to the stipulation facts
the plaintiffs organized a partnership of a civil nature because each of them put up money to
buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may
win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership
was not only formed, but upon the organization thereof and the winning of the prize, Jose
Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his
capacity as co-partner, as such collection the prize, the office issued the check for P50,000 in
favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected
the said check. All these circumstances repel the idea that the plaintiffs organized and formed
a community of property only.
Having organized and constituted a partnership of a civil nature, the said entity is the one
bound to pay the income tax which the defendant collected under the aforesaid section 10
(a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's
contention that the tax should be prorated among them and paid individually, resulting in
their exemption from the tax.
PASCUAL VS. CIR (October 18, 1988) income tax, then petitioners can be held individually liable as partners for this unpaid
obligation of the partnership.
G.R. No. 78133 October 18, 1988

GANCAYCO, J.: CIR VS. S.C. JOHNSON AND SON (June 25, 1999)

FACTS: acts: Respondent is a domestic corporation organized and operating under the Philippine
On June 22, 1965, petitioners bought two (2)parcels of land from Santiago Bernardino, et Laws, entered into a licensed agreement with the SC Johnson and Son, USA, a non-resident
al.and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque. The
foreign corporation based in the USA pursuant to which the respondent was granted the right
first two parcels of land were sold by petitioners in 1968 to Marenir Development
Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and to use the trademark, patents and technology owned by the later including the right to
Maria Samsonon March 19,1970. Petitioner realized a net profit in the sale made in 1968 in manufacture, package and distribute the products covered by the Agreement and secure
the amount of P165, 224.70, while they realized a net profit of P60,000 in the sale made in assistance in management, marketing and production from SC Johnson and Son USA.
1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974
.Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners For the use of trademark or technology, respondent was obliged to pay SC Johnson and Son,
as co-owners in the real estate transactions formed an unregistered partnership or joint USA royalties based on a percentage of net sales and subjected the same to 25% withholding
venture taxable as a corporation under Section 20(b)and its income was subject to the taxes
tax on royalty payments which respondent paid for the period covering July 1992 to May
prescribed under Section 24, both of the National Internal Revenue Code; that the
unregistered partnership was subject to corporate income tax as distinguished from profits 1993 in the total amount of P1,603,443.00.
derived from the partnership by them which is subject to individual income tax.
On October 29, 1993, respondent filed with the International Tax Affairs Division (ITAD) of the
ISSUE: BIR a claim for refund of overpaid withholding tax on royalties arguing that, the antecedent
Whether petitioners formed an unregistered partnership subject to corporate income facts attending respondents case fall squarely within the same circumstances under which
tax(partnership vs. co-ownership)
said MacGeorge and Gillette rulings were issued. Since the agreement was approved by the
Technology Transfer Board, the preferential tax rate of 10% should apply to the respondent.
RULING:
Article 1769 of the new Civil Code lays down the rule for determining when a transaction So, royalties paid by the respondent to SC Johnson and Son, USA is only subject to 10%
should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, withholding tax.
provides:(2) Co-ownership or co-possession does not itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of the The Commissioner did not act on said claim for refund. Private respondent SC Johnson & Son,
property; (3) The sharing of gross returns does not of itself establish a partnership, whether Inc. then filed a petition for review before the CTA, to claim a refund of the overpaid
or not the persons sharing them have a joint or common right or interest in any property
withholding tax on royalty payments from July 1992 to May 1993.
from which the returns are derived; The sharing of returns does not in itself establish a
partnership whether or not the persons sharing therein have a joint or common right or
interest in the property. There must be a clear intent to form a partnership, the existence of a On May 7, 1996, the CTA rendered its decision in favor of SC Johnson and ordered the CIR to
juridical personality different from the individual partners, and the freedom of each party to issue a tax credit certificate in the amount of P163,266.00 representing overpaid withholding
transfer or assign the whole property. In the present case, there is clear evidence of co- tax on royalty payments beginning July 1992 to May 1993.
ownership between the petitioners. There is no adequate basis to support the proposition
that they thereby formed an unregistered partnership. The two isolated transactions whereby The CIR thus filed a petition for review with the CA which rendered the decision subject of
they purchased properties and sold the same a few years thereafter did not thereby make
this appeal on November 7, 1996 finding no merit in the petition and affirming in toto the CTA
them partners. They shared in the gross profits as co- owners and paid their capital gains
taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, ruling.
they cannot be considered to have formed an unregistered partnership which is thereby liable
for corporate income tax, as the respondent commissioner
proposes. And even assuming for the sake of argument that such unregistered partnership Issue: Whether or not tax refunds are considered as tax exemptions.
appears to have been formed, since there is no such existing unregistered partnership with a
distinct personality nor with assets that can be held liable for said deficiency corporate
Held: It bears stress that tax refunds are in the nature of taxexemptions. As such they are
registered as in derogation of sovereign authority and to be construed strictissimi juris against
the person or entity claiming the exemption. The burden of proof is upon him who claims the
exemption in his favor and he must be able to justify his claim by the clearest grant of organic
or statute law. Private respondent is claiming for a refund of the alleged overpayment of tax
on royalties; however there is nothing on record to support a claim that the tax on royalties
under the RP-US Treaty is paid under similar circumstances as the tax on royalties under the
RP-West Germany Tax Treaty.
REYES VS. CIR (January 27, 2006)
CIR filed a motion saying CTA has no jurisdiction since the assessment against the estate is
already final and executory; and (ii) that the petition was filed out of time
CTA – Ruled in favour of CIR ordering Reyes to pay the estate tax amounting to 19M. CTA
ratiocinated that there can only be a perfected and consummated compromise of the estate’s
tax liability[,] if the NEB has approved [Reyes’s] application for compromise in accordance
with RR No. 6-2000, as implemented by RMO No. 42-2000.

Facts: By virtue of a sworn affidavit for reward by one Abad, an investigation was conducted
by BIR on the estate of the deceased Maria Tancinco who died in 1993 leaving a residential lot CA – Partly granted petition. SC – Affirmed, petition w/o merit.
and old house in Dasma. Without submitting a preliminary finding report, an LOA was issued
and received by Reyes, one of the heirs on 14 March 1997.

ISSUE: WON whether the assessment against the estate is valid; and, second, whether the
compromise entered into is also valid.
Then on 12 Feb 1998, a PAN was issued against the estate, and a FAN as well as demand
letter was issued on 22 April 1998. For the assessment of P14.9M for estate tax of the estate
of Maria Tancinco. On March 11, 1999, the heirs proposed a compromise settlement
HELD: No. Under the present provisions of the Tax Code and pursuant to elementary due
of P1,000,000.00.
process, taxpayers must be informed in writing of the law and the facts upon which a tax
assessment is based; otherwise, the assessment is void. Being invalid, the assessment cannot
in turn be used as a basis for the perfection of a tax compromise. This was clear and
During those dates, RA 8424 Tax Reform Act was already in effect. RA 8424 stated that the mandatory under Section 228.
taxpayer must be informed of both the law and facts on which the assessment was based.The
notice required under the old law was no longer sufficient under the new law. First, RA 8424
has already amended the provision of Section 229 on protesting an assessment. The old
Reyes was not informed in writing of the law and the facts on which the assessment of estate
requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998
taxes had been made. She was merely notified of the findings by the CIR, who had simply
to informing the taxpayer of not only the law, but also of the facts on which an assessment
relied upon the provisions of former Section 22913 prior to its amendment by Republic Act
would be made; otherwise, the assessment itself would be invalid.
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997.

To be simply informed in writing of the investigation being conducted and of the

Due to failure to pay tax on the deadline BIR notified on June 6, 2000 that the subject
property would be sold at public auction on August 8, 2000. Reyes filed a protest with the
BIR. Hence the petition for review filed by Reyes in CTA and a TRO to desist and refrain from
proceeding with the auction sale of the subject property or from issuing a warrant pending
determination of the case and/or unless a contrary order is issued.
recommendation for the assessment of the estate taxes due is nothing but a perfunctory
discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to
mean that Reyes already knew the law and the facts on which the assessment was based. It
does not at all conform to the compulsory requirement under Section 228. Moreover, the
Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of
investigation and was not even the requisite notice under the law.
Validity of Compromise. It would be premature for this Court to declare that the compromise
on the estate tax liability has been perfected and consummated, considering the earlier
determination that the assessment against the estate was void. Nothing has been settled or
finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one
million pesos or the settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the NEB composed of the petitioner and four
deputy commissioners. Finally, as correctly held by the appellate court, this provision applies
to all compromises, whether government-initiated or not. Ubi lex non distinguit, nec nos
distinguere debemos. Where the law does not distinguish, we should not distinguish.
EVANGELISTA VS. CIR (October 15, 1957)
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. They realized rental income from the said properties
for the period 1945-1949.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:
Whether or not petitioners have formed a partnership and consequently, are subject to the
tax on corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise
known as the Nationa lInternal Revenue Code, as well as to the residence tax for corporations
and the real estate dealers fixed 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. 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 of the following observations, among others: (1) Said common fund was
not something they found already in existence; (2)They invested the same, not merely in one
transaction, but in a series of transactions; (3) The aforesaid lots were not devoted to
residential purposes, or to other personal uses, of petitioners herein. Although, taken singly,
they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave no room for doubt on the existence
of said intent in petitioners herein. For purposes of the tax on corporations, our National
Internal Revenue Code, includes these partnerships
—
with the exception only of duly registered general co partnerships
—
within the purview of the term "corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is concerned and are subject
to the income tax for corporations
ROYAL INTEROCEAN LINES VS. CIR
http://www.chanrobles.com/PDF.JURISPRUDENCE/Royal%20Inter-
Ocean%20Lines,%20Inc.%20vs.%20CIR,%20G.%20R.%20No.%20L-
11745,%20Oct.%2031,%201960.pdf
ONA VS. CIR (May 25, 1972)
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five children. A
civil case was instituted for the settlement of her state, in which Oña was appointed
administrator and later on the guardian of the three heirs who were still minors when the
project for partition was approved. This shows that the heirs have undivided ½ interest in 10
parcels of land, 6 houses and money from the War Damage Commission.
Although the project of partition was approved by the Court, no attempt was made to divide
the properties and they remained under the management of Oña who used said properties in
business by leasing or selling them and investing the income derived therefrom and the
proceeds from the sales thereof in real properties and securities. As a result, petitioners’
properties and investments gradually increased. Petitioners returned for income tax purposes
their shares in the net income but they did not actually receive their shares because this left
with Oña who invested them.
Based on these facts, CIR decided that petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax, particularly for years 1955 and 1956.
Petitioners asked for reconsideration, which was denied hence this petition for review from
CTA’s decision.
Issue:
W/N there was a co-ownership or an unregistered partnership
W/N the petitioners are liable for the deficiency corporate income tax
Held:
Unregistered partnership. The Tax Court found that instead of actually distributing the estate
of the deceased among themselves pursuant to the project of partition, the heirs allowed
their properties to remain under the management of Oña and let him use their shares as part
of the common fund for their ventures, even as they paid corresponding income taxes on
their respective shares.
Yes. For tax purposes, the co-ownership of inherited properties is automatically converted
into an unregistered partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent to produce profits for the
heirs in proportion to their respective shares in the inheritance as determined in a project
partition either duly executed in an extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding. The reason is simple. From the moment of
such partition, the heirs are entitled already to their respective definite shares of the estate
and the incomes thereof, for each of them to manage and dispose of as exclusively his own
without the intervention of the other heirs, and, accordingly, he becomes liable individually
for all taxes in connection therewith. If after such partition, he allows his share to be held in
common with his co-heirs under a single management to be used with the intent of making
profit thereby in proportion to his share, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes, at least, an unregistered
partnership is formed.
For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships —

The term “partnership” includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial operation,
or venture is carried on… (8 Merten’s Law of Federal Income Taxation, p. 562 Note 63;
emphasis ours.)
with the exception only of duly registered general copartnerships — within the purview of the
term “corporation.” It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for
corporations. Judgment affirmed.