N.V. Reederij Amsterdam and Royal Interocean Lines v.

CIR

In order that a foreign corporation may be considered engaged in trade or business, its
business transactions must be continuous

FACTS:
Both vessels of petitioner N.V. Reederij Amsterdam called on Philippine ports to load
cargoes for foreign destinations.
The freight fees for these transactions were paid in abroad. In these two transactions,
petition Royal Interocean Lines acted as husbanding agent for a fee or commission on
said 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-resident foreign corporation NOT engaged in trade or business.
On the assumption that the said petitioner is a foreign corporation engaged in trade or
business in the Philippines, petitioner Royal Interocean Lines filed an income tax return of
the aforementioned vessels and paid the tax in pursuant to their supposed classification.
On the same date, petitioner Royal Interocean Lines, as the husbanding agent of
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 the SC.

ISSUE: Whether or not N.V. Reederij Amsterdam

should be taxed as a foreign corporation not engaged
in trade or business in the Philippines?
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.

1. CIR v. British Overseas Airways Corporation

2. British Overseas Airways Corp (BOAC) is a 100%
British Government-owned corporation engaged
 in international airline business and is a member
of the Interline Air Transport Association, and
thus, it operates air transportation services and
sells transportation tickets over the routes of the
other airline members.
3.
4. From 1959 to 1972, BOAC had no landing rights
for traffic purposes in the Philippines and thus,
did not carry passengers and/or cargo to or from
the Philippines but maintained a general sales
agent in the Philippines - Warner Barnes & Co.
Ltd. and later, Qantas Airways - which was
responsible for selling BOAC tickets covering
passengers and cargoes. The Commissioner of
Internal Revenue assessed deficiency income
taxes against BOAC.
5.
6. Issue: Whether the revenue derived by BOAC
from ticket sales in the Philippines, constitute
income of BOAC from Philippine sources, and
accordingly taxable.
7.
8. Held: The source of an income is the property,
activity, or service that produced the income. For
the source of income to be considered as coming
from the Philippines, it is sufficient that the
income is derived from activity within the
Philippines. Herein, the sale of tickets in the
Philippines is the activity that produced the
income. The tickets exchanged hands here and
 payment for fares were also made here in the
Philippine currency.
9.
10. The situs of the source of payments is the
Philippines. The flow of wealth proceeded from,
and occurred within Philippine territory, enjoying
the protection accorded by the Philippine
government. In consideration of such protection,
the flow of wealth should share the burden of
supporting the government. PD 68, in relation to
PD 1355, ensures that international airlines are
taxed on their income from Philippine sources.
The 2 1/2% tax on gross billings is an income tax.
If it had been intended as an excise tax or
percentage tax, it would have been placed under
Title V of the Tax Code covering taxes on
business

British Overseas Airways Corp. (BOAC) is a British government owned

corporation. It's an international airline business.

This is the British Airways nowadays. I think about around 1970s (yup,
you got that right, the setting of Conjuring2, London 1972) when a
British parliament act merged BOAC with another state-owned airline,
the British European Airways (BEA) and formed what is now known as
the British Airways...

Although I'm not sure if British Airways today have landing rights for
traffic purposes in the Philippines co'z BOAC from 1959 to 1972 had no
landing rights and thus did not carry passengers and/or cargo to or
from the Philippines...
Meaning no direct flights. Well since the dates had been stated
exclusionary then I infer that British Airways have landing rights in
Manila these days. Well correct me if I'm wrong airport people, I'm
afraid I'm not much of a traveler, and unfortunately not even one of
those wonderful cosmopolitan souls. Although I doubt if there are direct
flights from Manila to London. And I'm too lazy to call some travel
agencies to verify my claim..

Moving right along, the thing with BOAC was it was a bonafide member
of the Interline Air Transport Association (IATA) and as such mean it can
operate air transportation service and sell transportation tickets over
the routes of other airline members.

What happened was using its IATA privilege it maintained a general

sales agent in the Philippines through Warner Barnes & Co. Ltd., and
later, Qantas Airways. These sales agents were selling for BOAC airline
tickets covering passengers and cargoes.

So simply put.. that is income being generated within Philippine

territory where the BIR naturally had to come in...

And so the Commissioner of Internal Revenue (CIR) assessed

deficiency income taxes against BOAC.

Thereby BOAC protested.

ISSUE:

Whether the revenue derived by BOAC from ticket sales in the

Philippines for air transportation, while having no landing rights in the
Philippines, constitute income of BOAC from Philippine sources, and
accordingly, taxable.

RULING:

Court said..
The source of an income is the property, activity or service that
produced the income. For the source of income to be considered as
coming from the Philippines, it is sufficient that the income is derived
from activity within the Philippines.

In this case, the sale of tickets in the Philippines is the activity that
produced the income. The tickets exchanged hands here and payments
for fares were also made here in Philippine currency. The SITUS of the
source of payments is the Philippines. The flow of wealth proceeded
from, and occurred within, Philippine territory, enjoying the protection
accorded by the Philippine Government.

So court said, in consideration of such protection, the flow of wealth

should share the burden of supporting the government.

(PD 68, in relation to PD 1355, ensures that international airlines are

taxed on their income from Philippine sources. The 2 1/2 %tax on gross
billings is an income tax. If it had been intended as an excise or
percentage tax, it would have been placed under Title V of the Tax
Code covering taxes on business.)

BOAC lost this case.

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 subject to
Branch Profit Remittance Tax.

Marubeni Corporation v. CIR

Facts:
Marubeni Corporation is a Japanese corporation licensed to engage in business in the
Philippines. When the profits on Marubenis investments in Atlantic Gulf and Pacific Co. of
Manila were declared, a 10% final dividend tax was withheld from it, and another 15%
profit remittance tax based on the remittable amount after the final 10% withholding tax
were paid to the Bureau of Internal Revenue. Marubeni Corp. now claims for a refund or
tax credit for the amount which it has allegedly overpaid the BIR.
Issues and Ruling:
1. Whether or not the dividends Marubeni Corporation received from
Atlantic Gulf and Pacific Co. are effectively connected with its
conduct or business in the Philippines as to be considered
branch profits subject to 15% profit remittance tax imposed
under Section 24(b)(2) of the National Internal Revenue Code.
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 Corporations 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.

3. At what rate should Marubeni be taxed?

15%. The applicable provision of the Tax Code is Section 24(b)(1)(iii) in conjunction with
the Philippine-Japan Tax Treaty of 1980. As a general rule, it is taxed 35% of its gross
income from 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 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