CIR vs. Marubeni

CIR issued a letter of authority to examine the book of accounts of Marubeni Manila branch after discovery of unpaid income taxes on their 2 contracts.

Each contract was for a piece of work and since projects called for the construction and installation of facilities in the PH, the entire income constituted from sources within the PH, hence subject to internal revenue taxes.

Meanwhile EO 41 took place, granting tax amnesty for unpaid income taxes, on the condition that before Oct. 1986, applicants for tax amnesty should file their sworn statement of net worth.

Marubeni filed a tax amnesty and attached its SALN from 1981 to 1986.

EO 64 also took place, granting 2 month extension on filing of tax amnesty, which also says that those who have filed under EO 41 should file anew to avail of the new benefits (such as additional tax amnesty on estate and donor taxes)

Marubeni filed a supplemental tax amnesty return on Dec. 1986.

FACTS

ISSUE

Is Marubeni tax exempt under EO 41 and EO 64?

Assuming Marubeni is not tax exempt, are they still liable for income taxes since the installation of the equipments from Japan are done here in the PH?

COURT RULING

On tax exemption under EO 41 and EO 64?

Marubeni is tax exempt since they filed their claim on time. While the law provides that there should be no pending case re: income tax liabilities before filing, when Marubeni filed their claim, the case has not yet been filed.

On the situs of taxation?

A contractor s tax is imposed upon the privilege of engaging in business and is directly collectible from the person exercising the privilege (in this case, Japan)

Services for the design, fabrication, engineering and manufacture of the materials and equipment are made and completed in Japan, hence, outside the taxing jurisdiction of the PH.

While the construction and installation were completed in the PH, it is clear that the pieces of equipment and supplies were completely designed and engineered in Japan.