CIR v.
Marubeni
Facts:
CIR assails the CA decision which affirmed CTA, ordering CIR to desist from
collecting the 1985 deficiency income, branch profit remittance and contractor’s
taxes from Marubeni Corp after finding the latter to have properly availed of the
tax amnesty under EO 41 & 64, as amended.
Marubeni, a Japanese corporation, engaged in general import and export
trading, financing and construction, is duly registered in the Philippines with
Manila branch office. CIR examined the Manila branch’s books of accounts for
fiscal year ending March 1985, and found that respondent had undeclared
income from contracts with NDC and Philphos for construction of a wharf/port
complex and ammonia storage complex respectively.
On August 27, 1986, Marubeni received a letter from CIR assessing it for several
deficiency taxes. CIR claims that the income respondent derived were income
from Philippine sources, hence subject to internal revenue taxes. On Sept 1986,
respondent filed 2 petitions for review with CTA: the first, questioned the
deficiency income, branch profit remittance and contractor’s tax assessments
and second questioned the deficiency commercial broker’s assessment.
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:
W/N Marubeni is exempted from paying tax
Held:
Yes.
1. On date of effectivity 
CIR claims Marubeni is disqualified from the tax amnesty because it falls under the exception
in Sec 4b of EO 41:
“Sec. 4. Exceptions.—The following taxpayers may not avail themselves of the amnesty herein
granted: xxx b)  Those with income tax cases already filed in Court as of the effectivity hereof;”
Petitioner argues that at the time respondent filed for income tax amnesty on Oct 30, 1986, a
case had already been filed and was pending before the CTA and Marubeni therefore fell
under the exception. However, the point of reference is the date of effectivity of EO 41 and
that the filing of income tax cases must have been made before and as of its effectivity.
EO 41 took effect on Aug 22, 1986. The case questioning the 1985 deficiency was filed with
CTA on Sept 26, 1986. When EO 41 became effective, the case had not yet been filed.
Marubeni does not fall in the exception and is thus, not disqualified from availing of the
amnesty under EO 41 for taxes on income and branch profit remittance.
The difficulty herein is with respect to the contractor’s tax assessment (business tax) and
respondent’s availment of the amnesty under EO 64, which expanded EO 41’s coverage. When
EO 64 took effect on Nov 17, 1986, it did not provide for exceptions to the coverage of the
amnesty for business, estate and donor’s taxes. Instead, Section 8 said EO provided that:
“Section 8. The provisions of Executive Orders Nos. 41 and 54 which are not contrary to or
inconsistent with this amendatory Executive Order shall remain in full force and effect.”
Due to the EO 64 amendment, Sec 4b cannot be construed to refer to EO 41 and its date of
effectivity. The general rule is that an amendatory act operates prospectively. It may not be
given a retroactive effect unless it is so provided expressly or by necessary implication and no
vested right or obligations of contract are thereby impaired.
2. On situs of taxation 
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.
(BG: Marubeni won in the public bidding for projects with government corporations NDC and
Philphos. In the contracts, the prices were broken down into a Japanese Yen Portion (I and II)
and Philippine Pesos Portion and financed either by OECF or by supplier’s credit. The
Japanese Yen Portion I corresponds to the Foreign Offshore Portion, while Japanese Yen
Portion II and the Philippine Pesos Portion correspond to the Philippine Onshore Portion.
Marubeni has already paid the Onshore Portion, a fact that CIR does not deny.)
CIR argues that since the two agreements are turn-key, they call for the supply of both
materials and services to the client, they are contracts for a piece of work and are indivisible.
The situs of the two projects is in the Philippines, and the materials provided and services
rendered were all done and completed within the territorial jurisdiction of the Philippines.
Accordingly, respondent’s entire receipts from the contracts, including its receipts from the
Offshore Portion, constitute income from Philippine sources. The total gross receipts covering
both labor and materials should be subjected to contractor’s tax (a tax on the exercise of a
privilege of selling services or labor rather than a sale on products).
Marubeni, however, was able to sufficiently prove in trial that not all its work was performed
in the Philippines because some of them were completed in Japan (and in fact subcontracted)
in accordance with the provisions of the contracts. 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 Philippines’ taxing
jurisdiction and are therefore not subject to contractor’s tax. Petition denied.