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Cir Vs Merubeni
Cir Vs Merubeni
Marubeni Morada
Facts:
-Marubeni Corporation is a foreign corporation organized and existing under the laws of Japan. It is engaged in
import and export trading, financing, and the construction business. It is duly registered in the Philippines and has a
branch office in Manila
-In 1985, the CIR examined the books of accounts of Marubeni and found it to have undeclared income from two
contracts in the Philippines, both of which were completed in 1984. One contract was with the National Development
Company for the construction of a wharf complex in Leyte, and the other contract was with the Philippine Phosphate
Fertilizer Corp. (Philphos) for the construction of an ammonia storage complex, also in Leyte.
-CIR assessed Marubeni for deficiency income, branch profit remittance, contractors and commercial brokers taxes.
-Marubeni filed two petitions with the CTA questioning the assessment.
-Earlier, E.O. 41 was issued, declaring a one-time amnesty for unpaid income taxes for the years 1981 to 1985. It
was provided in the same E.O., however, that those with income tax cases already filed in Court was of the
effectivity hereofmay not avail themselves of the tax amnesty herein granted.
-E.O. 64 was subsequently issued amending E.O. 41 and extending its coverage to business, estate and donors
taxes.
-CTA granted the petitions of Marubeni because the latter had properly availed of the tax amnesty under E.O. Nos. 41
and 64.
-CA affirmed the CTA decisions
Issue:
W/N Marubeni is liable for income and branch profit remittance tax.
Held: NO, Marubeni is not liable for any of the taxes assessed by CIR.
-As to the income and branch profit remittance tax (branch profit remittance also falls under income tax), Marubeni
had properly availed of the tax amnesty provided by E.O. 41. It is not one of the taxpayers disqualified from availing
of the amnesty for income tax since it filed the cases with CTA in Sept.26,1986, while E.O. 41 took effect in
Aug.22,1986. This means when E.O. 41 became effective, the CTA cases had not yet been filed in court.
Issue:
W/N Marubeni is liable for contractors tax.
Held: NO.
-As to the contractors tax, however, this falls under business taxes covered by E.O. 64, which took effect on Nov.17,
1986. This E.O. contained the same disqualification clause as mentioned in E.O. 41. Marubeni filed the cases with
CTA in Sept.26, prior to the effectivity of E.O.64. Thus it was already disqualified from availing of the tax amnesty
under the said E.O.
-It is Marubenis argument, however that even if it had not availed of the amnesty under the two executive orders, it is
still not liable for the deficiency contractors tax because the income from the projects came from the Offshore
Portion of the contracts. The two contracts were divided into two parts, i.e., the Onshore Portion and the Offshore
Portion. 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.
-The income derived from the Onshore Portion of the two projects had been declared for tax purposes and the taxes
thereon had already been paid. It is with regard to the Foreign Offshore Portion of the two contracts that the
assessment liabilities in this case arose.
-It is clear that some pieces of equipment and supplies were completely designed and engineered in Japan. The
other construction supplies listed under the Offshore Portion were fabricated and manufactured by sub-contractors in
Japan. All services for the design, fabrication, engineering, and manufacture of the materials and equipment under
the Offshore Portion were made and completed in Japan. These services were rendered outside the taxing
jurisdiction of the Philippines and are therefore not subject to the contractors tax.
-The case of CIR v. Engineering Equipment & Supply Co.(EESC) cited by the petitioner CIR finds no application in
the present case. In that case, the Court found that although EESC was an independent contractor which designs,
supplies, and installs airconditioning units in the Philippines, it is not engaged in the manufacture of air conditioning
units in the Philippines. The issues in that case dealt with services performed within the Philippines. There was no
foreign element involved in the supply of materials and services.