Beruflich Dokumente
Kultur Dokumente
Internal Revenue
same idea was expressed, though in connection with a
different levy, through Justice J.B.L. Reyes:
Neither do we find merit in the argument that the 20%
1. (1)In general.All the ordinary and necessary
retention of exporters foreign exchange constitutes an expenses paid or incurred during the taxable
export tax. A tax is a levy for the purpose of providing year in carrying on any trade or business,
revenue for government operations, while the proceeds of including a reasonable allowance for salaries or
the 20% retention, as we have seen, are applied to other compensation for personal services
strengthen the Central Banks international reserve. We actually rendered; traveling expenses while
conclude then that the margin fee was imposed by the State away from home in the pursuit of a trade or
in the exercise of its police power and not the power of business; and rentals or other payments
taxation. required to be made as a condition to the
Alternatively, ESSO prays that if margin fees are not continued use or possession, for the purpose of
taxes, they should nevertheless be considered the trade or business, of property to which the
necessary and ordinary business expenses and taxpayer has not taken or is not taking title or
therefore still deductible from its gross income. The in which he has no equity.
fees were paid for the remittance by ESSO as part of 2. (2)Expenses allowable to non-resident alien
the profits to the head office in the Unites States. Such individuals and foreign corporations.In the
remittance was an expenditure necessary and proper case of a non-resident alien individual or a
for the conduct of its corporate affairs. foreign corporation, the expenses deductible
are the necessary expenses paid or incurred in
carrying on any business or trade conducted ANNOTATED
within the Philippines exclusively. Esso Standard Eastern, Inc. vs. Comm'r. of
Internal Revenue
In the case of Atlas Consolidated Mining and allegation of the taxpayer that an item of expense is
Development Corporation v. Commissioner of Internal ordinary and necessary does not justify its deduction.
Revenue, the Court laid down the rules on the
4 While it is true that there is a number of decisions in the
deductibility of business expenses, thus: United States delving on the interpretation of the terms
The principle is recognized that when a taxpayer claims a ordinary and necessary as used in the federal tax laws, no
deduction, he must point to some specific provision of the adequate or satisfactory definition of those terms is possible.
statute in which that deduction is authorized and must be Similarly, this Court has never attempted to define with
able to prove that he is entitled to the deduction which the precision the terms ordinary and necessary. There are
law allows. As previously adverted to, the law allowing however, certain guiding principles worthy of serious
expenses as deduction from gross income for purposes of the consideration in the proper adjudication of conflicting
income tax is Section 30(a) (1) of the National Internal claims. Ordinarily, an expense will be considered necessary
Revenue which allows a deduction of all the ordinary and where the expenditure is appropriate and helpful in the
necessary expenses paid or incurred during the taxable development of the taxpayers business. It is ordinary
year in carrying on any trade or business. An item of when it connotes a payment which is normal in relation to
expenditure, in order to be deductible under this section of the business of the taxpayer and the surrounding
the statute, must fall squarely within its language. circumstances. The term ordinary does not require that the
We come, then, to the statutory test of deductibility payments be habitual or normal in the sense that the same
where it is axiomatic that to be deductible as a business taxpayer will have to make them often; the payment may
expense, three conditions are imposed, namely: (1) the be unique or non-recurring to the particular taxpayer
expense must be ordinary and necessary, (2) it must be paid affected.
or incurred within the taxable year, and (3) it must be paid There is thus no hard and fast rule on the matter. The
or incurred in carrying on a trade or business. In addition, right to a deduction depends in each case on the particular
not only must the taxpayer meet the business test, he must facts and the relation of the payment to the type of business
substantially prove by evidence or records the deductions in which the taxpayer is engaged. The intention of the
claimed under the law, otherwise, the same will be taxpayer often may be the controlling fact in making the
disallowed. The mere determination. Assuming that the expenditure is ordinary
_______________ and necessary in the operation of the taxpayers business,
the answer to the question as to whether the expenditure is
4 102 SCRA 246. an allowable deduction as a business expense must be
158 determined from the nature of the expenditure itself, which
158 SUPREME COURT REPORTS
in turn depends on the extent and permanency of the work business in the Philippines exclusively or were incurred for
accomplished by the expenditure. purposes proper to the conduct of the affairs of petitioners
branch in the Philippines exclusively or for the purpose of
In the light of the above explanation, we hold that the realizing a profit or of minimizing a loss in the Philippines
Court of Tax Appeals did not err when it held on this exclusively. If at all, the margin fees were incurred for
issue as follows: purposes proper to the conduct of the corporate affairs of
Considering the foregoing test of what constitutes an Standard Vacuum Oil Company in New York, but certainly
ordinary and necessary deductible expense, it may be not in the Philippines.
asked: Were the margin fees paid by petitioner on its profit
remittances to its Head Office in New York appropriate and ESSO has not shown that the remittance to the head
helpful in the taxpayers business in the Philippines? Were office of part of its profits was made in furtherance of
the margin fees incurred for purposes proper to the conduct its own trade or business. The petitioner merely
of the affairs of petitioners branch in the Philippines? Or presumed that all corporate expenses are necessary
were the margin fees incurred for the purpose of realizing a and appropriate in the absence of a showing that they
profit or of minimizing a loss in the Philippines? Obviously are illegal or ultra vires. This is error. The public
not. As stated in the Lopez case, the margin fees are not respondent is correct when it asserts that the
expenses in connection with the production or earning of
paramount rule is that claims for deductions are a
petitioners incomes in the Philippines. They were expenses
matter of legislative grace and do not turn on mere
incurred in the disposition of said incomes; expenses
equitable considerations x x x. The taxpayer in every
159 instance has the burden of justifying the allowance of
VOL. 175, JULY 7, 1989 159 any deduction claimed. 5
Esso Standard Eastern, Inc. vs. Comm'r. of It is clear that ESSO, having assumed an expense
Internal Revenue properly attributable to its head office, cannot now
for the remittance of funds after they have already been claim this as an ordinary and necessary expense paid
earned by petitioners branch in the Philippines for the or incurred in carrying on its own trade or business.
disposal of its Head Office in New York which is already WHEREFORE, the decision of the Court of Tax
another distinct and separate income taxpayer. Appeals denying the petitioners claims for refund of
xxx
P102,246.00 for 1959 and P434,234.92 for 1960, is
Since the margin fees in question were incurred for the
AFFIRMED, with costs against the petitioner.
remittance of funds to petitioners Head Office in New York,
which is a separate and distinct income taxpayer from the SO ORDERED.
branch in the Philippines, for its disposal abroad, it can
never be said therefore that the margin fees were
appropriate and helpful in the development of petitioners