tax2 cases

7/26/2019 Tax2 Cases

1/19

Wells Fargo vs. Collector of Internal Revenue

GR 46720, 28 June 1940

First Division, Moran (J): 4 concur, 1 concur in result

Facts:ir!ie "illian #$e !ie! on 16 %e&te'er 192, at "os *n+eles, ali-ornia, t.e &lace o-

.er alle+e! last resi!ence an! !o'icile/ *'on+ t.e &ro&erties s.e le-t as .er 12 conu+al

s.ares o- stoc3 in t.e en+uet onsoli!ate! Minin+ o/, an anon$'ous &artners.i& (socie!a!

anoni'a), or+anie! un!er t.e las o- t.e 5.ili&&ines/ %.e le-t a ill !ul$ a!'itte! to &roate

in ali-ornia .ere .er estate as a!'inistere! an! settle!/ ells Far+o an3 an! nion rust

o/ as !ul$ a&&ointe! trustee o- t.e trust $ t.e sai! ill/ .e Fe!eral an! ali-ornia %tates

in.eritance taes !ue t.ereon .ave een !ul$ &ai!/ .e ollector o- ;nternal Revenue in t.e

5.ili&&ines, .oever, sou+.t to suect t.e s.ares o- stoc3 to in.eritance ta, to .ic. ells

Far+o oecte!/

Issue:.et.er t.e s.ares o- stoc3 are suect to 5.ili&&ine in.eritance ta consi!erin+ t.at

t.e !ece!ent as !o'icile! in ali-ornia/

Held:


2/19

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-46720 June 28, 1940

WELLS FRGO !N" # UN$ON TRUST COMPN%,petitioner-appellant,vs.T&E COLLECTOR OF $NTERNL RE'ENUE,respondent-appellee.

De Witt, Perkins and Ponce Enrile for appellant.Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee.Ross, Larence, Selph and Carrascoso, !a"es #adison Ross and $ederico A%ra&a as a"ici c'ri(.

MORN, J.:

An appeal from a declaratory ud!ment rendered by the Court of "irst #nstance of Manila.

Birdie $illian Eye, %ife of Clyde Milton Eye, died on &eptember '(, ')*+, at $os An!eles, California, the place ofher alle!ed last residence and domicile. Amon! the properties she left her one-half conu!al share in ,shares of stoc in the Ben!uet Consolidated Minin! Company, an anonymous partnership /sociedad anoni"a0,or!ani1ed and e2istin! under the la%s of the Philippines, %ith is principal office in the City of Manila. &he left a%ill %hich %as duly admitted to probate in California %here her estate %as administered and settled. Petitioner-appellant, 3ells "ar!o Ban 4 5nion 6rust Company, %as duly appointed trustee of the created by the said %ill.6he "ederal and &tate of California7s inheritance ta2es due on said shares have been duly paid. RespondentCollector of #nternal Revenue sou!ht to subect ane% the aforesaid shares of stoc to the Philippine inheritance

ta2, to %hich petitioner-appellant obected. 3herefore, a petition for a declaratory ud!ment %as filed in the lo%ercourt, %ith the statement that, 8if it should be held by a final declaratory ud!ment that the transfer of theaforesaid shares of stoc is le!ally subect to the Philippine inheritance ta2, the petitioner %ill pay such ta2,interest and penalties /savin! error in computation0 %ithout protest and %ill not file to recover the same9 and thepetitioner believes and t herefore alle!es that it should be held that such transfer is not subect to said ta2, therespondent %ill not proceed to assess and collect the same.8 6he Court of "irst #nstance of Manila rendered

ud!ment, holdin! that the transmission by %ill of the said *:, shares of stoc is subect to Philippineinheritance ta2. ;ence, this appeal by the petitioner.

Petitioner concedes /'0 that the Philippine inheritance ta2 is not a ta2 property, but upon transmission byinheritance /$oren1o &s.Posadas, *: uestion, their situs is in the domicile of the o%ner thereof, and,therefore, their transmission by death necessarily taes place under his domiciliary la%s.

&ection ':*( of the Administrative Code, as amended, provides that every transmission by virtue of inheritanceof any share issued by any corporation of sociedad anoni"a or!ani1ed or constituted in the Philippines, issubect to the ta2 therein provided. 6his provision has already been applied to shares of stoc in a domesticcorporation %hich %ere o%ned by a British subect residin! and domiciled in =reat Britain. /?no%les &s.@atco, =.R. No. +)(. See also =ibbs &s.=overnment of P. #., =. R. No. *:().0 Petitioner, ho%ever, invoes the rule laiddo%n by the 5nited &tates &upreme Court in four cases /"armers $oan 4 6rust Company &s.Minnesota, +5.&. +9 $a%. ed., *'9 Bald%in &s.Missouri, +' 5.&., :(9 $a%. ed., ':(, Beidler &s.&outh Carolina


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6a2 Commission ++ 5. &., '9 : $a%. ed., '*'9 "irst National Ban of Boston &s.Maine, + 5. &., *'+9 :+ &.Ct., ', ( $a%. ed., *'*9 A. $. R., ''0, to the effect that an inheritance ta2 can be imposed %ith respect tointan!ibles only by the &tate %here the decedent %as domiciled at the time of his death, and that, under the due-process clause, the &tate in %hich a corporation has been incorporated has no po%er to impose such ta2 if theshares of stoc in such corporation are o%ned by a non-resident decedent. #t is to be observed, ho%ever, that ina later case /Burnet &s.Broos, + 5. &., *9 $a%. ed., 0, the 5nited &tates &upreme Court upheld theauthority of the "ederal =overnment to impose an inheritance ta2 on the transmission, by death of a non-resident, of stoc in a domestic /America0 corporation, irrespective of the situs of the correspondin! certificates of

stoc. But it is contended that the doctrine in the fore!oin! case is not applicable, because the due-processclause is directed at the &tate and not at the "ederal =overnment, and that the federal or national po%er of the5nited &tates is to be determined in relation to other countries and their subects by applyin! the principles of

urisdiction reco!ni1ed in international relations. Be that as it may, the truth is that the due-process clause is8directed at the protection of the individual and he is entitled to its immunity as much a!ainst the state as a!ainstthe national !overnment.8 /Curry &s.McCanless, * 5. &., *:, *9 * $a%. ed., '**), '*).0 #ndeed, the rulelaid do%n in the four cases relied upon by the appellant %as predicated on a proper re!ard for the relation of thestates of the American 5nion, %hich re>uires that property should be ta2ed in only one state and that urisdictionto ta2 is restricted accordin!ly. #n other %ords, the application to the states of the due-process rule sprin!s from aproper distribution of their po%ers and spheres of activity as ordained by the 5nited &tates Constitution, and suchdistribution is enforced and protected by not allo%in! one state to reach out and ta2 property in another. Andthese considerations do not apply to the Philippines. uence in dra%in! any distinct bet%een the operation and effect of the due-process clause as it applies to the individual states and to the national !overnment of the 5nited &tates. 6he>uestion here involved is essentially not one of due-process, but of the po%er of the Philippine =overnment tota2. #f that po%er be conceded, the !uaranty of due process cannot certainly be invoed to frustrate it, unless thela% involved is challen!ed, %hich is not, on considerations repu!nant to such !uaranty of due process of that ofthe e>ual protection of the la%s, as, %hen the la% is alle!ed to be arbitrary, oppressive or discriminatory.


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embodied in the due-process clause for the protection of life, liberty, and property of all persons Fciti1ens and friendly aliens alie. Russian Dolunteer "leet &s.5nited &tates, ++ 5. &., ', )9 : $a%ed., *, (9 ' &. Ct., ++)9 Nicholas &s.Coolid!e, + 5. &., :*'9 :+, ' $a% ed., '', '')+9 &.Ct., '9 :+ A. $. R., ''9 ;einer &s.onnon, +: 5.&., *'+, *+(9 ( $a% ed., +, )9 :+ &. Ct.,*:. f in the instant case the $ederal Go&ern"ent had 'risdiction to i"pose the ta, there is "anifestl+no %ro'nd for assailin% it. ?no%lton &s.Moore, ' 5.&., ', ')9 $a%. ed., )(), ))(9 + &. Ct., 9Ma=ray &s.5nited &tates, '): 5.&., +, ('9 ) $a%. ed., 9 )9 + &. Ct., ()9 ' Ann. Cas., :('9"lint &s.&tone 6racy Co., ++ 5.&., ', ':*, ':9 :: $a%. ed., *), ', ':9 *' &. Ct., *+9 Ann. Cas.,

')'+B, '*'+9 Brushaber &s.5nion p. R. Co., + 5.&., ', +9 ( $a%. ed., )*, :9 *( &. Ct., +*(9 $. R.A., ')' 9 ', Ann. Cas, ')'B, '*9 5nited &tates &s.oremus, +) 5. &., (, )*9 (* $a%. ed., *),)(9 *) &. Ct., +'. /Emphasis ours.0

And, in sustainin! the po%er of the "ederal =overnment to ta2 properties %ithin its borders, %herever its o%nermay have been domiciled at the time of his death, the court ruled

. . . 6here does not appear, a priori, to be anythin! contrary to the principles of international la%, or hurtfulto the polity of nations, in a &tate7s ta2in! property physically situated %ithin its borders, %herever itso%ner may have been domiciled at the time of his death. . . .

As urisdiction may e2ist in more than one !overnment, that is, urisdiction based on distinct !rounds F

the citi1enship of the o%ner, his domicile, the source of income, the situs of the property F efforts havebeen made to preclude multiple ta2ation throu!h the ne!otiation of appropriate international conventions.6hese endeavors, ho%ever, have proceeded upon e2press or implied reco!nition, and not in denial, ofthe soverei!n ta2in! po%er as e2erted by !overnments in the e2ercise of urisdiction upon any one ofthese !rounds. . . . /Seepa!es *)(-*)9 *)).0

#n Curry &s.McCanless, s'pra, the court, in decidin! the >uestion of %hether the &tates of Alabama and6ennessee may each constitutionally impose death ta2es upon the transfer of an interest in intan!ibles held intrust by an Alabama trustee but passin! under the %ill of a beneficiary decedent domiciles in 6ennessee,sustained the po%er of each &tate to impose the ta2. #n arrivin! at this conclusion, the court made the follo%in!observations

#n cases %here the o%ner of intan!ibles confines his activity to the place of his domicile it has been foundconvenient to substitute a rule for a reason, cf. Ne% @or e2 rel., Cohn &s.=raves, * 5.&., *, *'*9 '$a%. ed., (((, (9 : &. Ct., ((9 ' A. $. R., +'9 "irst Ban &toc Corp. &s.Minnesota, *' 5. &.,+*, +'9 ' $a%. ed., '(', '(:9 : &. Ct., (9 ''* A. $. R., ++, by sayin! that his intan!ibles areta2ed at their situs and not else%here, or perhaps less artificially, by invoin! the ma2im "o)iliase*''nt'r persona". Blod!ett &s.&ilberman, + 5.&., '9 + $a%. ed., )9 &. Ct., ', supra9Bald%in &s.Missouri, +' 5. &., :(9 $a%. ed., ':(9 : &. Ct., *(9 + A. $. R., '**, s'pra, %hichmeans only that it is the identify o%ner at his domicile %hich !ives urisdiction to ta2. But %hen theta2payer e2tends his activities %ith respect to his intan!ibles, so as to avail himself of the protection andbenefit of the la%s of another state, in such a %ay as to brin! his person or properly %ithin the reach ofthe ta2 !atherer there, the reason for a sin!le place of ta2ation no lon!er obtains, and the rule even%orable substitute for the reasons may e2ist in any particular case to support the constitutional po%er ofeach state concerned to ta2. 3hether %e re!ard the ri!ht of a state to ta2 as founded on po%er over the

obect ta2ed, as declared by Chief Gustice Marshall in McCulloch &s.Maryland, 3heat., *'(9 $a%. ed.,:), supra, throu!h dominion over tan!ibles or over persons %hose relationships are source ofintan!ibles ri!hts, or on the benefit and protection conferred by the ta2in! soverei!nty, or both, it isundeniable that the state of domicile is not deprived, by the ta2payer7s activities else%here, of itsconstitutional urisdiction to ta2, and conse>uently that there are many circumstances in %hich more thanone state may have urisdiction to impose a ta2 and measure it by some or all of the ta2payer7sintan!ibles. &hares or corporate stoc be ta2ed at the domicile of the shareholder and also at that of thecorporation %hich the ta2in! state has created and controls9 and income may be ta2ed both by the state%here it is earned and by the state of the recipient7s domicile. protection, benefit, and po%er over thesubect matter are not confined to either state. . . ./p. '*-'*).0


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. . . 3e find it impossible to say that ta2ation of intan!ibles can be reduced in every case to the meremechanical operation of locatin! at a sin!le place, and there ta2in!, every le!al interest !ro%in! out of allthe comple2 le!al relationships %hich may be entered into bet%een persons. 6his is the case because inpoint of actuality those interests may be too diverse in their relationships to various ta2in! urisdictions toadmit of unitary treatment %ithout discardin! modes of ta2ation lon! accepted and applied before the"ourteen Amendment %as adopted, and still reco!ni1ed by this Court as valid. /P. '*:'.0

3e need not belabor the doctrines of the fore!oin! cases. 3e believe, and so hold, that the issue here involved

is controlled by those doctrines. #n the instant case, the actual situs of the shares of stoc is in the Philippines,the corporation bein! domiciled therein. And besides, the certificates of stoc have remained in this country up tothe time %hen the deceased died in California, and they %ere in possession of one &yrena Mc?ee, secretary ofthe Ben!uet Consolidated Minin! Company, to %hom they have been delivered and indorsed in blan. 6hisindorsement !ave &yrena Mc?ee the ri!ht to vote the certificates at the !eneral meetin!s of the stocholders, tocollect dividends, and dispose of the shares in the manner she may deem fit, %ithout preudice to her liability tothe o%ner for violation of instructions. "or all practical purposes, then, &yrena Mc?ee had the le!al title to thecertificates of stoc held in trust for the true o%ner thereof. #n other %ords, the o%ner residin! in California hase2tended here her activities %ith respect to her intan!ibles so as to avail herself of the protection and benefit ofthe Philippine la%s. Accordin!ly, the urisdiction of the Philippine =overnment to ta2 must be upheld.

Gud!ment is affirmed, %ith costs a!ainst petitioner-appellant.

A&ance/a, C.!., "perial, Diaz and Concepcion, !!., conc'r.


6/19

CIR vs. A. Campos Rueda

01 SCRA 12 3 Political La 3 Definition of 4State5

#n Ganuary ')::, Maria Cerdeira died in 6an!ier, Morocco /an international 1one Hforei!n countryI in North Africa0. At

the time of her death, she %as a &panish citi1en and %as a resident of 6an!ier. &he ho%ever left some personal

properties /shares of stocs and other intan!ibles0 in the Philippines. 6he desi!nated administrator of her estate here is

Antonio Campos Rueda.

#n the same year, the Collector of #nternal Revenue /C#R0 assessed the estate for deficiency ta2 amountin! to about

P'('. Campos Rueda refused to pay the assessed ta2 as he claimed that the estate is e2empt from the payment of

said ta2es pursuant to section '++ of the 6a2 Code %hich provides

6hat no ta shall )e collected 'nder this 6itle in respect of intan%i)le personal propert+ 7a8 if the decedent at the ti"e ofhis death as a resident of a forei%n co'ntr+ hich at the ti"e of his death did not i"pose a transfer ta or death ta of

an+ character in respect of intan%i)le person propert+ of the Philippines not residin% in that forei%n co'ntr+, or 7)8 if the

las of the forei%n co'ntr+ of hich the decedent as a resident at the ti"e of his death allo a si"ilar ee"ption fro"

transfer taes or death taes of e&er+ character in respect of intan%i)le personal propert+ oned )+ citizens of the

Philippines not residin% in that forei%n co'ntr+.

Campos Rueda %as able to prove that there is reciprocity bet%een 6an!ier and the Philippines.

;o%ever, the C#R still denied any ta2 e2emption in favor of the estate as it averred that 6an!ier is not a JstateK as

contemplated by &ection ++ of the 6a2 Code and that the Philippines does not reco!ni1e 6an!ier as a forei!n country.

$SSUE( 3hether or not 6an!ier is a state.

&EL)( @es. "or purposes of the 6a2 Code, 6an!ier is a forei!n country.

A forei!n country to be identified as a state must be a politically or!ani1ed soverei!n community independent of

outside control bound by penalties of nationhood, le!ally supreme %ithin its territory, actin! throu!h a !overnment

functionin! under a re!ime of la%. 6he stress is on its bein! a nation, its people occupyin! a definite territory, politically

or!ani1ed, e2ercisin! by means of its !overnment its soverei!n %ill over the individuals %ithin it and maintainin! its

separate international personality.

"urther, the &upreme Court noted that there is already an e2istin! urisprudence /Collector vs e $ara0 %hich provides

that even a tiny principality, that of $iechtenstein, *+/ +n nen+on+ e3on+/ n *e 3en3e, did fall under the

e2empt cate!ory provided for in &ection ++ of the 6a2 Code. 6hus, reco!nition is not necessary. ;ence, since it %as

proven that 6an!ier provides such e2emption to personal properties of "ilipinos found therein so must the Philippines

honor the e2emption as provided for by our ta2 la% %ith respect to the doctrine of reciprocity.


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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-1250 Ooe 29, 1971

T&E COLLECTOR OF $NTERNL RE'ENUE, petitioner,vs.NTON$O CMPOS RUE), respondent..

Assistant Solicitor General !ose P. Aleandro and Special Attorne+ !ose G. Az'rin, 7O.S.G.8 for petitioner.

Ra"irez and Orti%as for respondent.

FERNN)O, J.:

6he basic issue posed by petitioner Collector of #nternal Revenue in this appeal from a decision of the Court of6a2 Appeals as to %hether or not the re>uisites of statehood, or at least so much thereof as may be necessary forthe ac>uisition of an international personality, must be satisfied for a 8forei!n country8 to fall %ithin the e2emptionof &ection '++ of the National #nternal Revenue Code1is no% ripe for adudication. 6he Court of 6a2 Appealsans%ered the >uestion in the ne!ative, and thus reversed the action taen by petitioner Collector, %ho %ould holdrespondent Antonio Campos Rueda, as administrator of the estate of the late Estrella &oriano Dda. de Cerdeira, liablefor the sum of P'(',.): as deficiency estate and inheritance ta2es for the transfer of intan!ible personal propertiesin the Philippines, the deceased, a &panish national havin! been a resident of 6an!ier, Morocco from ')*' up to the

time of her death in ')::. #n an earlier resolution promul!ated May *, ')(+, this Court on the assumption that theneed for resolvin! the principal >uestion %ould be obviated, referred the matter bac to the Court of 6a2 Appeals todetermine %hether the alle!ed la% of 6an!ier did !rant the reciprocal ta2 e2emption re>uired by the aforesaid &ection'++. 6hen came an order from the Court of 6a2 Appeals submittin! copies of le!islation of 6an!ier that %ould manifestthat the element of reciprocity %as not lacin!. #t %as not until Guly +), ')() that the case %as deemed submitted fordecision. 3hen the petition for revie% %as filed on Ganuary +, '):, the basic issue raised %as impressed %ith anelement of novelty. "our days thereafter, ho%ever, on Ganuary (, '):, it %as held by this Court that the aforesaidprovision does not re>uire that the 8forei!n country8 possess an international personality to come %ithin itsterms.2Accordin!ly, %e have to affirm.

6he decision of the Court of 6a2 Appeals, no% under revie%, sets forth the bac!round facts as follo%s 86his isan appeal interposed by petitioner Antonio Campos Rueda as administrator of the estate of the deceased oLaMaria de la Estrella &oriano Dda. de Cerdeira, from the decision of the respondent Collector of #nternal Revenue,

assessin! a!ainst and demandin! from the former the sum P'(',.): as deficiency estate and inheritanceta2es, includin! interest and penalties, on the transfer of intan!ible personal properties situated in the Philippinesand belon!in! to said Maria de la Estrella &oriano Dda. de Cerdeira. Maria de la Estrella &oriano Dda. deCerdeira /Maria Cerdeira for short0 is a &panish national, by reason of her marria!e to a &panish citi1en and %asa resident of 6an!ier, Morocco from ')*' up to her death on Ganuary +, ')::. At the time of her demise she left,amon! others, intan!ible personal properties in the Philippines.86hen came this portion 8


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respectively, or a total of P(),((:.+ ... . #n a letter dated Ganuary '', '):(, respondent denied the re>uest fore2emption on the !round that the la% of 6an!ier is not reciprocal to &ection '++ of the National #nternal Revenue Code.;ence, respondent demanded the payment of the sums of P+*),*).) representin! deficiency estate and inheritanceta2es includin! ad &alore"penalties, surchar!es, interests and compromise penalties ... . #n a letter dated "ebruary ,'):(, and received by respondent on the follo%in! day, petitioner re>uested for the reconsideration of the decisiondenyin! the claim for ta2 e2emption of the intan!ible personal properties and the imposition of the +: and : ad&alore" penalties ... . ;o%ever, respondent denied re>uest, in his letter dated May :, '):( ... and received bypetitioner on May +', '):(. Respondent premised the denial on the !rounds that there %as no reciprocity H%ith 6an!ier,

%hich %as moreoverI a mere principality, not a forei!n country. Conse>uently, respondent demanded the payment ofthe sums of P*,:'.+' and P,+*. respectively, or a total of P'(',.): as deficiency estate and inheritanceta2es includin! surchar!es, interests and compromise penalties.84

6he matter %as then elevated to the Court of 6a2 Appeals. As there %as no dispute bet%een the parties re!ardin!the values of the properties and the mathematical correctness of the deficiency assessments, the principal>uestion as noted dealt %ith the reciprocity aspect as %ell as the insistin! by the Collector of #nternal Revenuethat 6an!ier %as not a forei!n country %ithin the meanin! of &ection '++. #n rulin! a!ainst the contention of theCollector of #nternal Revenue, the appealed decision states 8#n fine, %e believe, and so hold, that the e2pression8forei!n country8, used in the last proviso of &ection '++ of the National #nternal Revenue Code, refers to a!overnment of that forei!n po%er %hich, althou!h not an international person in the sense of international la%,does not impose transfer or death upon intan!ible person properties of our citi1ens not residin! therein, or %hosela% allo%s a similar e2emption from such ta2es. #t is, therefore, not necessary that 6an!ier should have been

reco!ni1ed by our =overnment order to entitle the petitioner to the e2emption benefits of the proviso of &ection'++ of our 6a2. Code.8 5

;ence appeal to this court by petitioner. 6he respective briefs of the parties duly submitted, but as aboveindicated, instead of rulin! definitely on the >uestion, this Court, on May *, ')(+, resolve to in>uire further intothe >uestion of reciprocity and sent bac the case to the Court of 6a2 Appeals for the motion of evidence thereon.6he dispositive portion of such resolution reads as follo%s 83hile section '++ of the Philippine 6a2 Codeafore>uoted speas of 7intan!ible personal property7 in both subdivisions /a0 and /b09 the alle!ed la%s of 6an!ierrefer to 7bienes muebles situados en 6an!er7, 7bienes muebles radicantes en 6an!er7, 7movables7 and 7movableproperty7. #n order that this Court may be able to determine %hether the alle!ed la%s of 6an!ier !rant thereciprocal ta2 e2emptions re>uired by &ection '++ of the 6a2 Code, and %ithout, for the time bein!, !oin! into themerits of the issues raised by the petitioner-appellant, the case is HremandedI to the Court of 6a2 Appeals for thereception of evidence or proof on %hether or not the %ords bienes muebles7, 7movables7 and 7movable propertiesas used in the 6an!ier la%s, include or embrace 7intan!ible person property7, as used in the 6a2 Code.8 6#n line%ith the above resolution, the Court of 6a2 Appeals admitted evidence submitted by the administrator petitioner AntonioCampos Rueda, consistin! of e2hibits of la%s of 6an!ier to the effect that 8the transfers by reason of death of movableproperties, corporeal or incorporeal, includin! furniture and personal effects as %ell as of securities, bonds, shares, ...,%ere not subect, on that date and in said 1one, to the payment of any death ta2, %hatever mi!ht have been thenationality of the deceased or his heirs and le!atees.8 #t %as further noted in an order of such Court referrin! the matterbac to us that such %ere duly admitted in evidence durin! the hearin! of the case on &eptember ), ')(*. Respondentpresented no evidence.87

6he controllin! le!al provision as noted is a proviso in &ection '++ of the National #nternal Revenue Code. #treads thus 86hat no ta2 shall be collected under this 6itle in respect of intan!ible personal property /a0 if thedecedent at the time of his death %as a resident of a forei!n country %hich at the time of his death did not impose

a transfer ta2 or death ta2 of any character in respect of intan!ible person property of the Philippines not residin!in that forei!n country, or /b0 if the la%s of the forei!n country of %hich the decedent %as a resident at the time ofhis death allo% a similar e2emption from transfer ta2es or death ta2es of every character in respect of intan!iblepersonal property o%ned by citi1ens of the Philippines not residin! in that forei!n country.8 86he only obstacletherefore to a definitive rulin! is %hether or not as vi!orously insisted upon by petitioner the ac>uisition of internalpersonality is a condition sine *'a nonto 6an!ier bein! considered a 8forei!n country8. eference to the e $ararulin!, as %as made clear in the openin! para!raph of this opinion, calls for an affirmance of the decision of the Courtof 6a2 Appeals.

#t does not admit of doubt that if a forei!n country is to be identified %ith a state, it is re>uired in line %ith Pound7sformulation that it be a politically or!ani1ed soverei!n community independent of outside control bound bypenalties of nationhood, le!ally supreme %ithin its territory, actin! throu!h a !overnment functionin! under a


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re!ime ofla%.9#t is thus a soverei!n person %ith the people composin! it vie%ed as an or!ani1ed corporate society under a!overnment %ith the le!al competence to e2act obedience to its commands. 10#t has been referred to as a body-politicor!ani1ed by common consent for mutual defense and mutual safety and to promote the !eneral %elfare. 11Correctlyhas it been described by Esmein as 8the uridical personification of the nation.8 126his is to vie% it in the li!ht of itshistorical development. 6he stress is on its bein! a nation, its people occupyin! a definite territory, politically or!ani1ed,e2ercisin! by means of its !overnment its soverei!n %ill over the individuals %ithin it and maintainin! its separateinternational personality. $asi could spea of it then as a territorial society divided into !overnment and subects,

claimin! %ithin its allotted area a supremacy over all other institutions.1

Mc#ver similarly %ould point to the po%erentrusted to its !overnment to maintain %ithin its territory the conditions of a le!al order and to enter into internationalrelations. 143ith the latter re>uisite satisfied, international la% do not e2act independence as a condition of statehood.&o ;yde did opine. 15

Even on the assumption then that 6an!ier is bereft of international personality, petitioner has not successfullymade out a case. #t bears repeatin! that four days after the filin! of this petition on Ganuary (, '): in Collector ofnternal Re&en'e &. De Lara, 16it %as specifically held by us 8Considerin! the &tate of California as a forei!n countryin relation to section '++ of our 6a2 Code %e believe and hold, as did the 6a2 Court, that the Ancilliary Administrator isentitled the e2emption from the inheritance ta2 on the intan!ible personal property found in the Philippines.8 176herecan be no doubt that California as a state in the American 5nion %as in the alle!ed re>uisite of internationalpersonality. Nonetheless, it %as held to be a forei!n country %ithin the meanin! of &ection '++ of the National #nternalRevenue Code. 18

3hat is undeniable is that even prior to the e $ara rulin!, this Court did commit itself to the doctrine that even atiny principality, that of $iechtenstein, hardly an international personality in the sense, did fall under this e2emptcate!ory. &o it appears in an opinion of the Court by the then Actin! Chief Gusticem Ben!son %ho thereafterassumed that position in a permanent capacity, in 9iene &. Collector of nternal Re&en'e. 19As %as therein noted76he Board found from the documents submitted to it F proof of the la%s of $iechtenstein F that said country does notimpose estate, inheritance and !ift ta2es on intan!ible property of "ilipino citi1ens not residin! in that country.3herefore, the Board declared that pursuant to the e2emption above established, no estate or inheritance ta2es %erecollectible, $ud%i! ?iene bein! a resident of $iechtestein %hen he passed a%ay.8 206hen came this definitive rulin!86he Collector F hereafter named the respondent F cites decisions of the 5nited &tates &upreme Court and of thisCourt, holdin! that intan!ible personal property in the Philippines belon!in! to a non-resident forei!ner, %ho diedoutside of this country is subect to the estate ta2, in disre!ard of the principle 7mobilia se>uuntur personam7. &uchproperty is admittedly ta2able here. 3ithout the proviso above >uoted, the shares of stoc o%ned here by the $ud%i!

?iene %ould be concededly subect to estate and inheritance ta2es. Nevertheless our Con!ress chose to mae ane2emption %here conditions are such that demand reciprocity F as in this case. And the e2emption must behonored.8 21

3;ERE"


10/19

Marcos II vs. CA

27 %R* 47 1997

Facts:Fer!inan! R/ Marcos ;; assaile! t.e !ecision o- t.e ourt o- *&&eals !eclarin+ t.e !e@cienc$

inco'e ta assess'ents an! estate ta assess'ents u&on t.e estate an! &ro&erties o- .is late -at.er!es&ite t.e &en!enc$ o- t.e &roate &rocee!in+s o- t.e ill o- t.e late 5resi!ent/ uestionin+ t.e late &resi!entEs

oners.i& or interests in several &ro&erties (ot. real an! &ersonal) 'a3e t.e total value o- .is estate,

an! t.e conse>uent estate ta !ue, inca&ale o- eact &ecuniar$ !eter'ination at t.is ti'e/ .us,

res&on!entsE assess'ent o- t.e estate ta an! t.eir issuance o- t.e otices o- "ev$ an! sale are

&re'ature an! o&&ressive/ Be &oints out t.e &en!enc$ o- %an!i+ana$an ivil ase os/ 0001004

an! 0141, .ic. ere @le! $ t.e +overn'ent to >uestion t.e oners.i& an! interests o- t.e late

5resi!ent in real an! &ersonal &ro&erties locate! it.in an! outsi!e t.e 5.ili&&ines/ 5etitioner, .oever,

o'its to alle+e .et.er t.e &ro&erties levie! u&on $ t.e ;R in t.e collection o- estate taes u&on t.e

!ece!entEs estate ere a'on+ t.ose involve! in t.e sai! cases &en!in+ in t.e %an!i+ana$an/ ;n!ee!,

t.e court is at a loss as to .o t.ese cases are relevant to t.e 'atter at issue/ .e 'ere -act t.at t.e

!ece!ent .as &en!in+ cases involvin+ ill+otten ealt. !oes not aHect t.e en-orce'ent o- ta

assess'ents over t.e &ro&erties in!uital$ inclu!e! in .is estate/

Issue:;s t.e contention o- Marcos correctI

Held:o/ .e a&&roval o- t.e court, sittin+ in &roate or as a settle'ent triunal over t.e !ecease!sestate, is not a 'an!ator$ re>uire'ent in t.e collection o- estate taes/

.ere is not.in+ in t.e a o!e, an! in t.e &ertinent re'e!ial las t.at i'&lies t.e necessit$ o- t.e

&roate or estate settle'ent courtEs a&&roval o- t.e stateEs clai' -or estate taes, e-ore t.e sa'e can

e en-orce! an! collecte!/

.e en-orce'ent o- ta las an! t.e collection o- taes are o- &ara'ount i'&ortance -or t.e

sustenance o- +overn'ent/ aes are t.e li-eloo! o- +overn'ent an! s.oul! e collecte! it.out

unnecessar$ .in!rance/ Boever, suc. collection s.oul! e 'a!e in accor!ance it. la as an$

aritrariness ill ne+ate t.e eistence o- +overn'ent itsel-/

;t is not t.e De&art'ent o- Justice .ic. is t.e +overn'ent a+enc$ tas3e! to !eter'ine t.e a'ount o-

taes !ue u&on t.e suect estate, ut t.e ureau o- ;nternal Revenue .ose !eter'inations an!

assess'ents are &resu'e! correct an! 'a!e in +oo! -ait./ .e ta&a$er .as t.e !ut$ o- &rovin+

ot.erise/ ;n t.e asence o- &roo- o- an$ irre+ularities in t.e &er-or'ance o- ocial !uties, an

assess'ent ill not e !isture!/ #ven an assess'ent ase! on esti'ates is &ri'a -acie vali! an!

la-ul .ere it !oes not a&&ear to .ave een arrive! at aritraril$ or ca&riciousl$/ .e ur!en o- &roo- is

u&on t.e co'&lainin+ &art$ to s.o clearl$ t.at t.e assess'ent is erroneous/ Failure to &resent &roo- o-


11/19

error in t.e assess'ent ill usti-$ t.e u!icial ar'ance o- sai! assess'ent/ ;n t.is instance, &etitioner

.as not &ointe! out one sin+le &rovision in t.e Me'oran!u' o- t.e %&ecial *u!it ea' .ic. +ave rise

to t.e >uestione! assess'ent, .ic. ears a trace o- -alsit$/ ;n!ee!, t.e &etitionerEs attac3 on t.e

assess'ent ears 'ainl$ on t.e alle+e! i'&roale an! unconscionale a'ount o- t.e taes c.ar+e!/

ut 'ere r.etoric cannot su&&l$ t.e asis -or t.e c.ar+e o- i'&ro&riet$ o- t.e assess'ents 'a!e/

&ECuestions the actuations of therespondent Commissioner of #nternal Revenue in assessin!, and collectin! throu!h the summary remedy of$evy on Real Properties, estate and income ta2 delin>uencies upon the estate and properties of his father,despite the pendency of the proceedin!s on probate of the %ill of the late president, %hich is doceted as&p. Proc. No. '+) in the Re!ional 6rial Court of Pasi!, Branch ':(.

Petitioner had filed %ith the respondent Court of Appeals a Petition for Certiorariand Prohibition %ith anapplication for %rit of preliminary inunction andOor temporary restrainin! order on Gune +, '))*, seein! to-
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12/19

I' 3nnul and set aside the $otices of 4evy on real property dated ebruary , !55 and 1ay 6, !55, issued by

respondent &ommissioner of Internal %evenue7

II' 3nnul and set aside the $otices of Sale dated 1ay 8, !557

III' n/oin the +ead %evenue xecutive 3ssistant 0irector II (&ollection Service), from proceeding with the 3uction of

the real properties covered by$otices of Sale'

After the parties had pleaded their case, the Court of Appeals rendered its ecisionH+Ion November +),')), rulin! that the deficiency assessments for estate and income ta2 made upon the petitioner and theestate of the deceased President Marcos have already become final and unappealable, and may thus beenforced by the summary remedy of levyin! upon the properties of the late President, as %as done by therespondent Commissioner of #nternal Revenue.

"*+%.%, premises considered /udgment is hereby rendered 0IS1ISSI$2 the petition for &ertiorari with

prayer for %estraining .rder and In/unction'

$o pronouncements as to cost'

S. .%0%0'"

5nperturbed, petitioner is no% before us assailin! the validity of the appellate court7s decision,assi!nin! the follo%in! as errors

A. RE&P


13/19

#&&5E A 3R#6


14/19

In response to a letter dated 1arch !, !55 sent by 3tty' 4oreto 3ta (counsel of herein petitioner) calling the attention

of the EI% and requesting that they be duly notified of any action ta=en by the EI% affecting the interest of their client

erdinand


15/19

immediately. 6he probate court is not the !overnment a!ency to decide %hether an estate is liable forpayment of estate of income ta2es. 3ell-settled is the rule that the probate court is a court %ith special andlimited urisdiction.

Concededly, the authority of the Re!ional 6rial Court, sittin!, al)eit%ith limited urisdiction, as a probatecourt over estate of deceased individual, is not a triflin! thin!. 6he court7s urisdiction, once invoed, andmade effective, cannot be treated %ith indifference nor should it be i!nored %ith impunity by the very partiesinvoin! its authority.

#n testament to this, it has been held that it is %ithin the urisdiction of the probate court to approve thesale of properties of a deceased person by his prospective heirs before final adudication9H:Ito determine%ho are the heirs of the decedent9 H(Ithe reco!nition of a natural child9 HIthe status of a %oman claimin! to bethe le!al %ife of the decedent9HIthe le!ality of disinheritance of an heir by the testator9 H)Iand to pass uponthe validity of a %aiver of hereditary ri!hts. H'I

6he pivotal >uestion the court is tased to resolve refers to the authority of the Bureau of #nternalRevenue to collect by the summary remedy of levyin! upon, and sale of real properties of the decedent,estate ta2 deficiencies, %ithout the co!nition and authority of the court sittin! in probate over the supposed%ill of the deceased.

6he nature of the process of estate ta2 collection has been described as follo%s

"Strictly spea=ing, the assessment of an inheritance tax does not directly involve the administration of a decedent


16/19

"&laims for taxes, whether assessed before or after the death of the deceased, can be collected from the heirs even after

the distribution of the properties of the decedent' hey are exempted from the application of the statute of non-

claims' he heirs shall be liable therefor, in proportion to their share in the inheritance'":!;

"hus, the 2overnment has two ways of collecting the taxes in question' .ne, by going after all the heirs and collecting

from each one of them the amount of the tax proportionate to the inheritance received' 3nother remedy, pursuant to the

lien created by Section !C of the ax &ode upon all property and rights to property belong to the taxpayer for unpaid

income tax, is by sub/ecting said property of the estate which is in the hands of an heir or transferee to the payment of

the tax due the estate' (&ommissioner of Internal %evenue vs' 9ineda, ! S&%3 !6C, September !C, !58?')

"rom the fore!oin!, it is discernible that the approval of the court, sittin! in probate, or as a settlementtribunal over the deceased is not a mandatory re>uirement in the collection of estate ta2es. #t cannottherefore be ar!ued that the 6a2 Bureau erred in proceedin! %ith the levyin! and sale of the propertiesalle!edly o%ned by the late President, on the !round that it %as re>uired to see first the probate court7ssanction. 6here is nothin! in the 6a2 Code, and in the pertinent remedial la%s that implies the necessity ofthe probate or estate settlement court7s approval of the state7s claim for estate ta2es, before the same canbe enforced and collected.

uired estate ta2 return %ithin the time re>uired for the filin! of the same,petitioner, and the other heirs never >uestioned the assessments served upon them, allo%in! the same tolapse into finality, and promptin! the B#R to collect the said ta2es by levyin! upon the properties left byPresident Marcos.

Petitioner submits, ho%ever, that 8%hile the assessment of ta2es may have been validly undertaen bythe =overnment, collection thereof may have been done in violation of the la%. 6hus, the manner andmethod in %hich the latter is enforced may be >uestioned separately, and irrespective of the finality of theformer, because the =overnment does not have the unbridled discretion to enforce collection %ithout re!ardto the clear provision of la%.8H'I

Petitioner specifically points out that applyin! Memorandum Circular No. *-(, implementin! &ections*' and *+ of the old ta2 code /Republic Act :+*0, the B#R7s Notices of $evy on the Marcos properties,%ere issued beyond the allo%ed period, and are therefore null and void
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17/19

"'''the $otices of 4evy on %eal 9roperty (3nnexes 6 to $$ of 3nnex & of this 9etition) in satisfaction of said

assessments were still issued by respondents well beyond the period mandated in %evenue 1emorandum &ircular $o'

#-8#' hese $otices of 4evy were issued only on ebruary !55 and 6 1ay !55 when at least seventeen (!?)

months had already lapsed from the last service of tax assessment on ! September !55!' 3s no notices of distraint of

personal property were first issued by respondents, the latter should have complied with %evenue 1emorandum

&ircular $o' #-8# and issued these $otices of 4evy not earlier than three () months nor later than six (8) months

from ! September !55!' In accordance with the &ircular, respondents only had until ! 1arch !55 (the last day of

the sixth month) within which to issue these $otices of 4evy' he $otices of 4evy, having been issued beyond the

period allowed by law, are thus void and of no effect'":!C;

3e hold other%ise. 6he Notices of $evy upon real property %ere issued %ithin the prescriptive periodand in accordance %ith the provisions of the present 6a2 Code. 6he deficiency ta2 assessment, havin!already become final, e2ecutory, and demandable, the same can no% be collected throu!h the summaryremedy of distraint or levy pursuant to &ection +: of the N#RC.

6he applicable provision in re!ard to the prescriptive period for the assessment and collection of ta2deficiency in this instance is Article ++* of the N#RC, %hich pertinently provides

"Sec' ' xceptions as to a period of limitation of assessment and collection of taxes'- (a) In the case of a false or

fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in

court for the collection of such tax may be begun without assessment, at any time within ten (!6) years after thediscovery of the falsity, fraud, or omissionF Provided, hat, in a fraud assessment which has become final and

executory, the fact of fraud shall be /udicially ta=en cogniAance of in the civil or criminal action for the collection

thereof'

222

(c) 3ny internal revenue tax which has been assessed within the period of limitation above prescribed, may be

collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax'

222

6he omission to file an estate ta2 return, and the subse>uent failure to contest or appeal theassessment made by the B#R is fatal to the petitioner7s cause, as under the above-cited provision, in case offailure to file a return, the ta2 may be assessed at any time %ithin ten years after the omission, and any ta2so assessed may be collected by levy upon real property %ithin three years follo%in! the assessment of theta2. &ince the estate ta2 assessment had become final and unappealable by the petitioner7s default asre!ards protestin! the validity of the said assessment, there is no% no reason %hy the B#R cannot continue%ith the collection of the said ta2. Any obection a!ainst the assessment should have been pursuedfollo%in! the avenue paved in &ection ++) of the N#RC on protests on assessments of internal revenueta2es.

Petitioner further ar!ues that 8the numerous pendin! court cases >uestionin! the late president7so%nership or interests in several properties /both real and personal0 mae the total value of his estate, andthe conse>uent estate ta2 due, incapable of e2act pecuniary determination at this time. 6hus, respondents7assessment of the estate ta2 and their issuance of the Notices of $evy and sale are premature andoppressive.8 ;e points out the pendency of &andi!anbayan Civil Case Nos. '-* and '', %hich%ere filed by the !overnment to >uestion the o%nership and interests of the late President in real andpersonal properties located %ithin and outside the Philippines. Petitioner, ho%ever, omits to alle!e %hetherthe properties levied upon by the B#R in the collection of estate ta2es upon the decedent7s estate %ereamon! those involved in the said cases pendin! in the &andi!anbayan. #ndeed, the court is at a loss as toho% these cases are relevant to the matter at issue. 6he mere fact that the decedent has pendin! casesinvolvin! ill-!otten %ealth does not affect the enforcement of ta2 assessments over the propertiesindubitably included in his estate.
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18/19

Petitioner also e2presses his reservation as to the propriety of the B#R7s total assessmentof P+*,+)+,(,(*., statin! that this amount deviates from the findin!s of the epartment of Gustice7sPanel of Prosecutors as per its resolution of + &eptember '))'.Alle!edly, this is clear evidence of theuncertainty on the part of the =overnment as to the total value of the estate of the late President.

6his is, to our mind, the petitioner7s last ditch effort to assail the assessment of estate ta2 %hich hadalready become final and unappealable.

#t is not the epartment of Gustice %hich is the !overnment a!ency tased to determine the amount ofta2es due upon the subect estate, but the Bureau of #nternal RevenueH'(I%hose determinations andassessments are presumed correct and made in !ood faith.H'I6he ta2payer has the duty of provin!other%ise. #n the absence of proof of any irre!ularities in the performance of official duties, an assessment%ill not be disturbed. Even an assessment based on estimates ispri"a facievalid and la%ful %here it doesnot appear to have been arrived at arbitrarily or capriciously. 6he burden of proof is upon the complainin!party to sho% clearly that the assessment is erroneous. "ailure to present proof of error in the assessment%ill ustify the udicial affirmance of said assessment. H'I#n this instance, petitioner has not pointed out onesin!le provision in the Memorandum of the &pecial Audit 6eam %hich !ave rise to the >uestionedassessment, %hich bears a trace of falsity. #ndeed, the petitioner7s attac on the assessment bears mainlyon the alle!ed improbable and unconscionable amount of the ta2es char!ed. But mere rhetoric cannotsupply the basis for the char!e of impropriety of the assessments made.

Moreover, these obections to the assessments should have been raised, considerin! the ampleremedies afforded the ta2payer by the 6a2 Code, %ith the Bureau of #nternal Revenue and the Court of 6a2

Appeals, as described earlier, and cannot be raised no% via Petition forCertiorari, under the prete2t of !raveabuse of discretion. 6he course of action taen by the petitioner reflects his disre!ard or even repu!nanceof the established institutions for !overnance in the scheme of a %ell-ordered society. 6he subect ta2assessments havin! become final, e2ecutory and enforceable, the same can no lon!er be contested bymeans of a dis!uised protest. #n the main, Certiorarimay not be used as a substitute for a lost appeal orremedy.H')I6his udicial policy becomes more pronounced in vie% of the absence of sufficient attac a!ainstthe actuations of !overnment.


19/19

the &ourt of ax 3ppeals, - the tax assessments sub/ect of this case, upon which the levy and sale of properties were

based, could no longer be contested (directly or indirectly) via this instant petition for certiorari.":6;

Petitioner ar!ues that all the >uestioned Notices of $evy, ho%ever, must be nullified for havin! beenissued %ithout validly servin! copies thereof to the petitioner. As a mandatory heir of the decedent,petitioner avers that he has an interest in the subect estate, and notices of levy upon its properties shouldhave been served upon him.

3e do not a!ree. #n the case of notices of levy issued to satisfy the delin>uent estate ta2, thedelin>uent ta2payer is the Estate of the decedent, and not necessarily, and e2clusively, the petitioner as heirof the deceased. #n the same vein, in the matter of income ta2 delin>uency of the late president and hisspouse, petitioner is not the ta2payer liable. 6hus, it follo%s that service of notices of levy in satisfaction ofthese ta2 delin>uencies upon the petitioner is not re>uired by la%, as under &ection +'* of the N#RC, %hichpertinently states

8222

'''4evy shall be effected by writing upon said certificate a description of the property upon which levy is made' 3t the

same time, written notice of the levy shall be mailed to or served upon the %egister of 0eeds of the province or city

where the property is located and upon the delinquent taxpayer, or if he be absent from the 9hilippines, to his agent or

the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property inquestion'

2228

6he fore!oin! not%ithstandin!, the record sho%s that notices of %arrants of distraint and levy of sale%ere furnished the counsel of petitioner on April , '))*, and Gune ', '))*, and the petitioner himself on

April '+, '))* at his office at the Batasan! Pambansa.H+'I3e cannot therefore, countenance petitioner7sinsistence that he %as denied due process. 3here there %as an opportunity to raise obections to!overnment action, and such opportunity %as disre!arded, for no ustifiable reason, the party claimin!oppression then becomes the oppressor of the orderly functions of !overnment. ;e %ho comes to courtmust come %ith clean hands.

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