Cir Vs Marubeni Corporation, G.R. No. 137377 Facts

CIR vs MARUBENI CORPORATION, G.R. No.
137377
FACTS:
Respondent Marubeni Corporation is a foreign corporation organized and existing under the laws of
Japan. It is engaged in general import and export trading, financing and the construction business. It is
duly registered to engage in such business in the Philippines and maintains a branch office in Manila.
Sometime in November 1985, petitioner Commissioner of Internal Revenue issued a letter of authority to
examine the books of accounts of the Manila branch office of respondent corporation for the fiscal year
ending March 1985. In the course of the examination, petitioner found respondent to have undeclared
income from two (2) contracts in the Philippines, both of which were completed in 1984. One of the
contracts was with the National Development Company (NDC) in connection with the construction and
installation of a wharf/port complex at the Leyte Industrial Development Estate in the municipality of
Isabel, province of Leyte. The other contract was with the Philippine Phosphate Fertilizer Corporation
(Philphos) for the construction of an ammonia storage complex also at the Leyte Industrial Development
Estate.
On March 1, 1986, petitioner’s revenue examiners recommended an assessment for deficiency income,
branch profit remittance, contractor’s and commercial broker’s taxes. Respondent questioned this
assessment in a letter dated June 5, 1986.
Petitioner found that the NDC and Philphos contracts were made on a “turn-key” basis and that the gross
income from the two projects amounted to P967,269,811.14. Each contract was for a piece of work and
since the projects called for the construction and installation of facilities in the Philippines, the entire
income therefrom constituted income from Philippine sources, hence, subject to internal revenue taxes.
On Aug 2, 1986, EO 41 declared a tax amnesty for unpaid income taxes for 1981-85, and that taxpayers
who wished to avail this should on or before Oct 31, 1986. Marubeni filed its tax amnesty return on Oct
30, 1986.
On Nov 17, 1986, EO 64 expanded EO 41’s scope to include estate and donor’s taxes under Title 3 and
business tax under Chap 2, Title 5 of NIRC, extended the period of availment to Dec 15, 1986 and stated
those who already availed amnesty under EO 41 should file an amended return to avail of the new
benefits. Marubeni filed a supplemental tax amnesty return on Dec 15, 1986.
CTA found that Marubeni properly availed of the tax amnesty and deemed cancelled the deficiency taxes.
CA affirmed on appeal.
ISSUE: Whether nor not Marubeni is tax exempt.
HELD: YES
Marubeni contends that assuming it did not validly avail of the amnesty, it is still not liable for the
deficiency tax because the income from the projects came from the “Offshore Portion” as opposed to
“Onshore Portion”. It claims all materials and equipment in the contract under the “Offshore Portion”
were manufactured and completed in Japan, not in the Philippines, and are therefore not subject to
Philippine taxes.
Under Section 205 of the NIRC, an independent contractor is a person whose activity consists essentially
of the sale of all kinds of services for a fee, regardless of whether or not the performance of the service
calls for the exercise or use of the physical or mental faculties of such contractors or their employees. The
word “contractor” refers to a person who, in the pursuit of independent business, undertakes to do a
specific job or piece of work for other persons, using his own means and methods without submitting
himself to control as to the petty details.
A contractor’s tax is a tax imposed upon the privilege of engaging in business. It is generally in the nature
of an excise tax on the exercise of a privilege of selling services or labor rather than a sale on products;
and is directly collectible from the person exercising the privilege. Being an excise tax, it can be levied by
the taxing authority only when the acts, privileges or business are done or performed within the
jurisdiction of said authority. Like property taxes, it cannot be imposed on an occupation or privilege
outside the taxing district.
In the case at bar, it is undisputed that respondent was an independent contractor under the terms of the
two subject contracts.
Clearly, the service of “design and engineering, supply and delivery, construction, erection and
installation, supervision, direction and control of testing and commissioning, coordination…”of the two
projects involved two taxing jurisdictions. These acts occurred in two countries – Japan and the
Philippines. While the construction and installation work were completed within the Philippines, the
evidence is clear that some pieces of equipment and supplies were completely designed and engineered
in Japan. The two sets of ship unloader and loader, the boats and mobile equipment for the NDC project
and the ammonia storage tanks and refrigeration units were made and completed in Japan. They were
already finished products when shipped to the Philippines. The other construction supplies listed under
the Offshore Portion such as the steel sheets, pipes and structures, electrical and instrumental apparatus,
these were not finished products when shipped to the Philippines. They, however, were likewise
fabricated and manufactured by the sub-contractors in Japan. All services for the design, fabrication,
engineering and manufacture of the materials and equipment under Japanese Yen Portion I were made
and completed in Japan. These services were rendered outside the taxing jurisdiction of the Philippines
and are therefore not subject to contractor’s tax.

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CIR vs MARUBENI CORPORATION, G.R. No.

ISSUE: Whether nor not Marubeni is tax exempt.

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