VOL. 42, OCTOBER 29, 1971 23 impressed with an element of novelty.

Four days thereafter, however, on January

6, 1958, it was held by this Court that the aforesaid provision does not require that
Collector of Internal Revenue vs. Campos Rueda the “foreign country” possess an international personality to come within its
terms.2 Accordingly, we have to affirm.
The decision of the Court of Tax Appeals, now under review, sets forth the
No. L-13250. October 29, 1971.
background facts as follows: “This is an appeal interposed by petitioner Antonio
THECOLLECTOR OF INTERNAL REVENUE, petitioner, vs. ANTONIO
Campos Rueda, as administrate of the estate of the deceased Doña Maria de la
CAMPOS RUEDA, respondent.
Estrella Soriano Vda. de Cerdeira, from the decision of the respondent Collector of
Internal Revenue, assessing against and demanding from the former the sum
Taxation; Estate and inheritance taxes; Reciprocity in exemption does not
P161,874.95 as deficiency estate and inheritance taxes, including interests and
require the “foreign country” to possess international personality.—–The fact that
penalties, on the transfer of intangible personal properties situated in the
the laws of Tangier, Morocco, do not impose transfer or death taxes upon intangible
Philippines and belonging to said Maria de la Estrella Soriano Vda. de Cerdeira.
personal properties of our citizens not residing therein, entitles to a reciprocal
Maria de la Estrella Soriano Vda. de Ceideira (Maria Cerdeira for short) is a
exemption similar properties belonging to the decedent who at the time of his
Spanish national, by reason of her marriage to a Spanish citizen and was a
death resides in Tangiers, no matter that the latter country does not possess
resident of Tangier, Morocco from 1931 up to her death on January 2, 1955. At the
international personality in the traditional sense.
time of her demise she left, among others, intangible personal properties in the
Philippines.”3 Then came this portion: “On September 29, 1955, petitioner filed a
APPEAL from a decision of the Court of Tax Appeals.
provisional estate and inheritance tax return on all the properties of the late Maria
Cerdeira. On the same date, respondent, pending investigation, issued an
The facts are stated in the opinion of the Court. assessment for estate and inheritance taxes in the respective amounts of
P111,592.48 and P157,791.48, or a total of P369,383.96 which tax liabilities were
Assistant Solicitor General Jose P. Alejandro and Special paid by petitioner * * *. On November 17, 1955, an amended return was filed * * *
Attorney Jose G. Azurin, (O.S.G.) for petitioner. wherein intangible personal properties with the value of P396,308.90 were claimed
Ramirez & Ortigas for respondent. as exempted from taxes. On November 23, 1955, respondent, pending
investigation, issued another assessment for estate and inheritance taxes in the
amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24 *
* *. In a letter dated January 11, 1956, respondent denied the request for
FERNANDO, J.: exemption on the ground that the law of Tangier is not reciprocal to Section 122 of
the National Internal Revenue Code. Hence, respondent demanded the payment
The basic issue posed by petitioner Collector of Internal Revenue in this appeal of the sums of P239,439.49 representing deficiency estate and inheritance taxes
from a decision of the Court of Tax Appeals as to whether or not the requisites of including ad valorem penalties, surcharges, interests and compromise penalties *
statehood, or at least so much thereof as may be necessary for the acquisition of * *. In a letter dated February 8, 1956, and received by respondent on the following
an international personality, must be satisfied for a “foreign country” to fall within day, petitioner requested for the reconsideration of the decision denying the claim
the exemption of Section 122 of the National Internal Revenue Code 1 is now ripe for tax exemption of the intangible personal properties and the imposition of the
for adjudication. The Court of Tax Appeals answered the question in the negative, 25% and 5% ad valorem penalties * * *. However, respondent denied this request,
and thus reversed the action taken by petitioner Collector, who would hold in his letter dated May 5, 1956 * * * and received by petitioner on May 21, 1956.
respondent Antonio Campos Rueda, as administrator of the estate of the late Respondent premised the denial on the grounds that there was no reciprocity [with
Estrella Soriano Vda. de Cerdeira, liable for the sum of P161,874.95 as deficiency Tangier, which was moreover] a mere principality, not a foreign country.
estate and inheritance taxes for the transfer of intangible personal properties in Consequently, respondent demanded the payment of the sums of P73,851.21 and
the Philippines, the deceased, a Spanish national having been a resident of P88,023.74 respectively, or a total of P161,874.95 as deficiency estate and
Tangier, Morocco from 1931 up to the time of her death in 1955. In an earlier inheritance taxes including surcharges, interests and compromise penalties.”4
resolution promulgated May 30, 1962, this Court on the assumption that the need The matter was then elevated to the Court of Tax Appeals. As there was no
for resolving the principal question would be obviated, referred the matter back to dispute between the parties regarding the values of the properties and the
the Court of Tax Appeals to determine whether the alleged law of Tangier did grant mathematical correctness of the deficiency assessments, the principal question as
the reciprocal tax exemption required by the aforesaid Section 122. Then came an noted dealt with the reciprocity aspect as well as the insistence by the Collector of
order from the Court of Tax Appeals submitting copies of legislation of Tangier Internal Revenue that Tangier was not a foreign country within the meaning of
that would manifest that the element of reciprocity was not lacking. It was not Section 122. In ruling against the contention of the Collector of Internal Revenue,
until July 29, 1969 that the case was deemed submitted for decision. When the the appealed decision states: “In fine, we believe, and so hold, that the expression
petition for review was filed on January 2, 1958, the basic issue raised was ‘foreign coun-try’, used in the last proviso of Section 122 of the National Internal
Revenue Code, refers to a government of that foreign power which, although not It does not admit of doubt that if a foreign country is to be identified with a
an international person in the sense of international law, does not impose transfer state, it is required in line with Pound’s formulation that it be a politically
or death taxes upon intangible personal properties of our citizens not residing organized sovereign community independent of outside control bound by
therein, or whose law allows a similar exemption from such taxes. It is, therefore,
not necessary that Tangier should have been recognized by our Government in _______________
order to entitle the petitioner to the exemption benefits of the last proviso of
Section 122 of our Tax Code.”5 8 Section 122 of the National Internal Revenue Code (1939) reads insofar as
Hence this appeal to this Court by petitioner. The respective briefs of the relevant: “For the purposes of this Title the terms ‘gross estate’ and ‘gift’ include
parties were duly submitted, but as above indicated, instead of ruling definitely on real estate and tangible personal property, or mixed, physically located in the
the question, this Court, on May 30, 1962, resolved to inquire further into the Philippines; franchise which must be exercised in the Philippines; shares,
question of reciprocity and sent back the case to the Court of Tax Appeals for the obligations, or bonds issued by any corporation orsodedad anonima organized or
reception of evidence thereon. The dispositive portion of such resolution reads as constituted in the Philippines in accordance with its laws; shares, obligations, or
follows: ‘‘While section 122 of the Philippine Tax Code aforequoted speaks of bonds issued by any foreign corporation eighty-five percentum of the business of
‘intangible personal property’ in both subdivisions (a) and (b); the alleged laws of which is located in the Philippines; shares, obligations, or bonds issued by any
Tangier refer to ‘bienes muebles situados en Tanger’, ‘bienes muebles radicantes foreign corporation if such shares, obligations, or bonds have acquired a business
en Tanger’, ‘movables’ and ‘movable property’. In order that this Court may be able situs in the Philippines; shares or rights in any partnership, business or industry
to determine whether the alleged laws of Tangier grant the reciprocal tax established in the Philippines; or any personal property, whether tangible or
exemptions required by Section 122 of the Tax Code, and without, for the time intangible, located in the Philippines; Provided, however, That in the case of a
being, going into the merits of the issues raised by the petitioner-appellant, the resident, the transmission or transfer of any intangible personal property,
case is [remanded] to the Court of Tax Appeals for the reception of evidence or regardless of its location, subject to the taxes prescribed in this Title; And provided,
proofs on whether or not the words ‘bienes muebles’, ‘movables’ and ‘movable further, that no tax shall be collected under this Title in respect of intangible
property’ as used in the Tangier laws, include or embrace ‘intangible personal personal property (a) if the decedent at the time of his death was a resident of a
property’, as used in the Tax Code.”6 In line with the above resolution, the Court foreign country which at the time of his death did not impose a transfer tax or
of Tax Appeals admitted evidence submitted by the administrator, petitioner death tax of any character in respect of intangible personal property of citizens of
Antonio Campos Rueda, consisting of exhibits of laws of Tangier to the effect that thePhilippines not residing in that foreign country, or (b) if the laws of the foreign
“the transfers by reason of death of movable properties, corporeal or incorporeal, country of which the decedent was a resident at the time of his death allow a
including furniture and personal effects, as well as of securities, bonds, shares, * * similar exemption from transfer taxes or death taxes of every character in respect
*, were not subject, on that date and in said zone, to the payment of any death tax, of intangible personal property owned by citizens of the Philippines not residing in
whatever might have been the nationality of the deceased or his heirs and that foreign country.”
legatees.” It was further noted in an order of such Court referring the matter back 29
to us that such ‘exhibits were duly admitted in evidence during the hearing of the
VOL. 42, OCTOBER 20, 1971 29
case on September 9, 1963. Respondent presented no evidence.”7
Collector of Internal Revenue vs. Campos Rueda
The controlling legal provision as noted is a proviso in Section 122 of the ties of nationhood, legally supreme within its territory, acting through a
National Internal Revenue Code. It reads thus: “That no tax shall be collected government functioning under a regime of law.’9 It is thus a sovereign person with
under this Title in respect of intangible personal property (a) if the decedent at the the people composing it viewed as an organized corporate society under a
time of his death was a resident of a foreign country which at the time of his death government with the legal competence to exact obedience to its commands.10 It has
did not impose a transfer tax or death tax of any character in respect of intangible been referred to as a body-politic organized by common consent for mutual defense
personal property of citizens of the Philippines not residing in that foreign country, and mutual safety and to promote it he general welfare.11 Correctly has it been
or (b) if the laws of the foreign country of which the decedent was a resident at the described by Esmein as “the juridical personification of the nation.” 12 This is to
time of his death allow a similar exemption from transfer taxes or death taxes of view it in the light of its historical development. The stress is on its being a nation,
every character in respect of intangible personal property owned by citizens of the its people occupying a definite territory, politically organized, exercising by means
Philippines not residing in that foreign country.”8 The only obstacle therefore to a of its government its sovereign will over the individuals within it and maintaining
definitive ruling is whether or not as vigorously insisted upon by petitioner the its separate international personality. Laski could speak of it then as a territorial
acquisition of internal personality is a condition sinequa non to Tangier being society divided into government and subjects, claiming within its allotted area a
considered a “foreign country.” Deference to the De Lara ruling, as was made clear supremacy over all other institutions.13 McIver similarly would point to the power
in the opening paragraph of this opinion, calls for an affirmance of the decision of entrusted to its government to maintain within its territory the conditions of a
the Court of Tax Appeals. legal order and to enter into international relations.14With the latter requisite
satisfied, international law does not exact independence as a condition of
statehood. So Hyde did opine.15Even on the assumption then that Tangier is bereft
of international personality petitioner has not successfully made out a case. It
bears repeating that four days after the filing of this petition on January 6, 1958
in Collector of Internal Revenue v. De Lara,16 it was specifically held by us:
“Considering the State of California as a foreign country in relation to section 122
of our Tax Code we believe and hold, as did the Tax Court, that the Ancilliary
Administrator is entitled to exemption from the inheritance tax on the intangible
personal property found in the Philippines.”17 There can be no doubt that
California as a state in the American Union was lacking in the alleged requisite of
international personality. Nonetheless, it was held to be a foreign country within
the meaning of Section 122 of the National Internal Revenue Code.18
What is undeniable is that even prior to the De Lara ruling, this Court did
commit itself to the doctrine that even a tiny principality, that of Liechtenstein,
hardly an international personality in the traditional sense, did fall under this
exempt category. So it appears in an opinion of the Court by the then Acting Chief
Justice Bengzon, who thereafter assumed that position in a permanent capacity,
in Kiene v. Collector of Internal Revenue.19 As was therein noted: ‘The Board found
from the documents submitted to it—– proof of the laws of Liechtenstein—– that
said country does not impose estate, inheritance and gift taxes on intangible
personal property of Filipino citizens not residing in that country. Wherefore, the
Board declared that pursuant to the exemption above established, no estate or
inheritance taxes were collectible, Ludwig Kiene being a resident of Liechtenstein
when he passed away.”20 Then came this definitive ruling: “The Collector—–
hereafter named respondent—– cites decisions of the United States Supreme
Court and of this Court, holding that intangible personal property in the
Philippines belonging to a non-resident foreigner, who died outside of this country
is subject to the estate tax, in disregard of the principle ‘mobilia sequuntur
personam’. Such property is admittedly taxable here. Without the proviso above
quoted, the shares of stock owned here by the Ludwig Kiene would be concededly
subject to estate and inheritance taxes. Nevertheless our Congress chose to make
an exemption where conditions are such that demand reciprocity—– as in this case.
And the exemption must be honored.”21
WHEREFORE, the decision of the respondent Court of Tax Appeals of October
30, 1957 is affirmed. Without pronouncement as to costs.

Note.—–Meaning of foreign country under Section 122, National Internal

Revenue Code.—–See also Collector of Internal Revenue vs. McGrath, L-12710, and
L-12721, Feb. 28, 1961, 1 SCRA 638.

________________