CIR vs.

BAIER-NICKEL

GR No. 153793

Facts:

CIR appeals the CA decision, which granted the tax refund of respondent and reversed that of the CTA. Juliane
Baier-Nickel, a non-resident German, is the president of Jubanitex, a domestic corporation engaged in the
manufacturing, marketing and selling of embroidered textile products. Through Jubanitex’s general manager,
Marina Guzman, the company appointed respondent as commission agent with 10% sales commission on all
sales actually concluded and collected through her efforts.

In 1995, respondent received P1, 707, 772. 64 as sales commission from w/c Jubanitex deducted the 10%
withholding tax of P170, 777.26 and remitted to BIR. Respondent filed her income tax return but then claimed a
refund from BIR for the P170K, alleging this was mistakenly withheld by Jubanitex and that her sales commission
income was compensation for services rendered in Germany not Philippines and thus not taxable here.

She filed a petition for review with CTA for alleged non-action by BIR. CTA denied her claim but decision was
reversed by CA on appeal, holding that the commission was received as sales agent not as President and that the
“source” of income arose from marketing activities in Germany.

Issue: W/N respondent is entitled to refund

Held:

No. Pursuant to Sec 25 of NIRC, non-resident aliens, whether or not engaged in trade or business, are subject to
the Philippine income taxation on their income received from all sources in the Philippines. In determining the
meaning of “source”, the Court resorted to origin of Act 2833 (the first Philippine income tax law), the US
Revenue Law of 1916, as amended in 1917.

US SC has said that income may be derived from three possible sources only: (1) capital and/or (2) labor; and/or
(3) the sale of capital assets. If the income is from labor, the place where the labor is done should be decisive; if
it is done in this country, the income should be from “sources within the United States.” If the income is from
capital, the place where the capital is employed should be decisive; if it is employed in this country, the income
should be from “sources within the United States.” If the income is from the sale of capital assets, the place
where the sale is made should be likewise decisive. “Source” is not a place, it is an activity or property. As such,
it has a situs or location, and if that situs or location is within the United States the resulting income is taxable to
nonresident aliens and foreign corporations.

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.
The settled rule is that tax refunds are in the nature of tax exemptions and are to be construed strictissimi
juris against the taxpayer. To those therefore, who claim a refund rest the burden of proving that the
transaction subjected to tax is actually exempt from taxation.

In the instant case, respondent failed to give substantial evidence to prove that she performed the incoming
producing service in Germany, which would have entitled her to a tax exemption for income from sources
outside the Philippines. Petition granted.