VIII. DOCTRINES IN TAXATION C. SITUS OF TAXATION Wells Fargo v. Collector June 28, 1940 Moran, J.

: Facts: Birdie Lillian Eye died at Los Angeles, California, the place of her last residence and domicile. She left her one-half conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining Company, an anonymous partnership, organized and existing under the laws of the Philippines, with principal office in the City of Manila. Wells Fargo was appointed trustee of the said will. Her will was duly admitted to probate in the state of California where the Federal and State of Californias inheritance taxes due on said shares have been duly paid. Here in the Philippines, Collector of Internal Revenue sought to subject anew the shares of stock to the Philippine inheritance tax. Wells Fargo objected and held that such transfer is not subject to said tax. It is contended that, as to intangibles, like the shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore, their transmission by death necessarily takes place under his domiciliary laws. CFI of Manila ruled that the transmission by will of the said 35K shares of stock is subject to Philippine tax. Hence this appeal to SC. ISSUE: WoN the Philippine Government has the power to tax the said intangible shares of stock. YES. RATIO: Originally, the settled law in the United States is that intangibles have only one situs for the purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of his death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam, upon which the rule rests, has been described as a mere "fiction of law having its origin in consideration of general convenience and public policy, and cannot be applied to limit or control the right of the state

to tax property within its jurisdiction" and must "yield to established fact of legal ownership, actual presence and control elsewhere, and cannot be applied if to do so result in inescapable and patent injustice." An examination of the adjudged cases will disclose that the relaxation of the original rule rests on either of two fundamental considerations: (1) upon the recognition of the inherent power of each government to tax persons, properties and rights within its jurisdiction and enjoying, thus, the protection of its laws; and (2) upon the principle that as to intangibles, a single location in space is hardly possible, considering the multiple, distinct relationships which may be entered into with respect thereto. When the taxpayer extends his activities with respect to his intangibles, so as to avail himself of the protection and benefit of the laws of another state, in such a way as to bring his person or properly within the reach of the tax gatherer there, the reason for a single place of taxation no longer obtains, and the rule even workable substitute for the reasons may exist in any particular case to support the constitutional power of each state concerned to tax. (Curry vs. McCanless) In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the certificates of stock have remained in this country up to the time when the deceased died in California, and they were in possession of one Syrena McKee, secretary of the Benguet Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit, without prejudice to her liability to the owner for violation of instructions. For all practical purposes, then, Syrena McKee had the legal title to the certificates of stock held in trust for the true owner thereof. In other words, the owner residing in California has extended here her activities with respect to her intangibles so as to avail herself of the protection and benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be upheld.

f. Construction of Statutes granting tax exemption i. General Rule CIR vs. CA, CTA and YMCA October 14, 1998 Panganiban, J.: FACTS: YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational and charitable objectives. YMCA earned income from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators and from parking fees collected from non-members. CIR issued an assessment to YMCA including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA formally protested the assessment to CTA. In due course, the CTA issued this ruling in favor of the YMCA. CTA held that the leasing of private respondents facilities to small shop owners, to restaurant and canteen operators and the operation of the parking lot are reasonably incidental to and reasonably necessary for the accomplishment of its objectives. It also held that the parking fees collected were just enough to cover maintaining expenses. CTA however sustained its ruling to collect Deficiency Expanded Withholding Tax. CIR elevated the case to CA. CA initially decided in favor of the CIR. CA asked for MR. CA reversed its ruling and affirmed in too the ruling of the CTA.

x x

x xxx

(g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member; x x x x xxx x x

ISSUE: Is the income derived from rentals of real property owned by the Young Mens Christian Association of the Philippines, Inc. (YMCA) established as a welfare, educational and charitable non-profit corporation -- subject to income tax under the National Internal Revenue Code (NIRC) and the Constitution? YES. RATIO: Relevant provisions of the NIRC: SEC. 27. Exemptions from tax on corporations. -The following organizations shall not be taxed under this Title in respect to income received by them as such --

Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457) Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. Furthermore, a claim of statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption must expressly be granted in a statute stated in a language too clear to be mistaken. In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income f the YMCA from its rental property, the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. The law does not make a distinction. The rental income is taxable regardless of whence such income is derived and how it used or disposed of. Where the law does not distinguish, neither should we. YMCA also submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, exempts charitable institutions from the payment not only of property taxes but also of income tax from any source. The Court is not persuaded. The debates, interpellations and expressions of opinion of the framers of the Constitution reveal their intent which, in turn, may have guided the people in

ratifying the Charter. Such intent must be effectuated. Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, who is now a member of this Court, stressed during the Concom debates that xxx what is exempted is not the institution itself xxx; those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. Father Joaquin G. Bernas, an eminent authority on the Constitution and also a member of the Concom, adhered to the same view that the exemption created by said provision pertained only to property taxes. In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that [t]he tax exemption covers property taxes only." Indeed, the income tax exemption claimed by private respondent finds no basis in Article VI, Section 28, par. 3 of the Constitution. YMCA also invokes Article XIV, Section 4, par. 3 of the Charter, claiming that the YMCA is a non-stock, non-profit educational institution whose revenues and assets are used actually, directly and exclusively for educational purposes so it is exempt from taxes on its properties and income. We reiterate that private respondent is exempt from the payment of property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. As previously discussed, laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. However, the Court notes that not a scintilla of evidence was submitted by private respondent to prove that it met the said requisites.

9. BIR Rules and Regulations (Secs. 244 and 4 of the NIRC) (iii) Sec. 246, NIRC CIR v. Burroughs June 19, 1986 Paras, J.: FACTS: Burroughs Limited is a foreign corporation authorized to engage in trade or business in the Philippines. Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of P6,499,999.30 computed as follows: Amount applied remittance................................ P7,647,058.00 Deduct: 15% branch profit remittance tax ..............................................1,147,058. 70 Net amount remitted.................................. P6,499,999.30 actually for

ISSUE: WoN Burroughs should be granted tax credit. YES. RATIO: The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii) which states: Sec. 24. Rates of tax on corporations.... (b) Tax on foreign corporations. ... (2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to its head office shall be subject to a tax of fifteen per cent (15 %) ... In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner of Internal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that "the tax base upon which the 15% branch profit remittance tax ... shall be imposed... (is) the profit actually remitted abroad and not on the total branch profits out of which the remittance is to be made. " CIR contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. The said memorandum circular states Considering that the 15% branch profit remittance tax is imposed and collected at source, necessarily the tax base should be the amount actually applied for by the branch with the Central Bank of the Philippines as profit to be remitted abroad. Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code which providesSec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shag not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152) The prejudice that would result to private respondent Burroughs Limited by a retroactive

Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax. Burroughs filed with CTA petition for review for the recovery of said amount. CTA ordered to grant a tax credit in favor of Burroughs. CIR filed instant petition to SC.

application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall under any of them.