CBK POWER COMPANY LIMITED v COMMISSIONER OF INTERNAL REVENUE

Facts:
 CBK Power is a limited partnership in the Philippines that operates hydroelectric power plants in Laguna (Caliraya, Botocan,
and Kalayaan).
 It is registered with the Board of Investments (BOI) as a pioneer investment under the Omnibus Investment Code of 1987,
potentially granting it tax incentives.
 To finance its operations, CBK Power secured a syndicated loan in August 2000 from several foreign banks, including:
o BNP Paribas
o Dai-ichi Kangyo Bank, Limited
o Industrial Bank of Japan, Limited
o Société Générale
 The syndicated loan was managed by an Inter-Creditor Agent, Dai-ichi Kangyo Bank (a Japanese bank).
 Bank Merger and Taxation:
o Dai-ichi Kangyo Bank, Industrial Bank of Japan, and Fuji Bank merged to form Mizuho Corporate Bank (Mizuho
Bank).
o Fuji Bank, which had a branch in the Philippines, became part of Mizuho Bank after the merger.
 Industrial Bank of Japan and Mizuho Bank are recognized as Japanese tax residents under the Philippines-Japan Income Tax
Treaty, which may impact taxation on interest from the loan.
 Initially, CBK Power borrowed money from several foreign banks to finance its hydroelectric project. Over time, portions of
this loan were transferred to other banks, including those based in the Netherlands, Austria, and Belgium.
 Later, in February 2001, CBK Power took another loan from a mix of original and new lenders. When CBK Power made
interest payments on these loans between May 2001 and May 2003, it withheld taxes before remitting the payments to the
banks. The tax rates applied were 15% for some banks (Belgium, Netherlands, Austria) and 20% for others (Japan). These
tax payments were submitted to the Bureau of Internal Revenue (BIR), Revenue District Office No. 55.
 However, CBK Power later challenged these tax rates, claiming that under tax treaties between the Philippines and the
banks’ respective countries, the correct withholding tax rate should have been only 10%.
 CBK Power filed a claim for a refund of excess final withholding taxes for the years 2001, 2002, and 2003 with the Bureau of
Internal Revenue (BIR) in Revenue Region No. 9.
 The claim was based on alleged erroneous tax withholdings on interest income paid to foreign lenders.
CTA First Division Decision (August 28, 2008)
 The CTA First Division ruled in favor of CBK Power and ordered the refund of ₱15,672,958.42.
 The court found that the tax treaties between the Philippines and Japan, Austria, and Belgium were applicable.
 The ruling was based on DA-ITAD Rulings from the Bureau of Internal Revenue (BIR):
o DA-ITAD Ruling No. 099-03 (July 16, 2003): Confirmed that Industrial Bank of Japan and Raiffeisen Bank were
subject to a 10% withholding tax rate under the RP-Japan and RP-Austria tax treaties.
o DA-ITAD Ruling No. 126-03 (August 18, 2003): Applied the same 10% tax rate to Fortis-Belgium under the RP-
Belgium Tax Treaty (amended protocol effective January 1, 2000).
o Fortis-Netherlands: The court also granted the preferential rate for interest payments made to Fortis-
Netherlands before it assigned its loan to Fortis-Belgium.
CTA First Division Amended Decision (February 12, 2009)
 After the Commissioner of Internal Revenue (CIR) filed a motion for reconsideration, the CTA reduced the refund to
₱14,835,720.39.
 The reason: CBK Power failed to secure an ITAD ruling for transactions involving Fortis-Netherlands.
 The CTA First Division now required an ITAD ruling as a prerequisite for availing of the preferential tax rate—a
departure from its original decision.
 It cited the case of Mirant (Philippines) Operations Corporation v. CIR, where the court ruled that an ITAD ruling must
be obtained prior to claiming a preferential tax rate.
CTA En Banc Decision (March 29, 2010)
o The CTA En Banc upheld the CTA First Division’s ruling that an ITAD ruling is required before a taxpayer can
claim tax treaty relief.
o The basis for this requirement was Revenue Memorandum Order (RMO) 1-2000, which states that:
 Any availment of a tax treaty relief must be preceded by an application using BIR Form No. 0901,
filed with the International Tax Affairs Division (ITAD) at least 15 days before the transaction (e.g.,
payment of interest, dividends, royalties, etc.).
Rejection of the Mirant Case as a Precedent
o The CTA En Banc rejected the Mirant case as a binding precedent.
o It reasoned that Mirant was resolved through a minute resolution, which lacks precedential value.
 o Instead, it relied on RMO 1-2000, which has the force and effect of law and is just as binding as a tax treaty.
CBK Power’s Petitions Were Filed on Time
o The CTA En Banc ruled that CBK Power filed its judicial claim within the two-year prescriptive period, as
required under Section 229 of the National Internal Revenue Code (NIRC) of 1997.
o The court clarified that CBK Power was not required to wait for the final resolution of its refund claim by the
BIR before filing with the CTA.
o If CBK Power had waited, it might have lost its right to file a judicial claim once the two-year prescriptive
period expired.
Denial of Motions for Reconsideration
 Both CBK Power and the CIR filed motions for reconsideration, but the CTA En Banc denied both on August 16, 2010,
ruling that their arguments lacked merit.
 This led to the filing of consolidated petitions before the Supreme Court.

HELD:
The Supreme Court ruled in favor of CBK Power, holding that:
Tax Treaties Take Precedence Over Administrative Issuances
 The Philippine Constitution mandates adherence to international law, and under the principle of pacta sunt
servanda, the government must honor its treaty obligations.
 Tax treaties, like domestic laws, have the force and effect of law in the Philippines.
Strict Compliance with RMO No. 1-2000 Is Not Required to Avail Tax Treaty Benefits
 The Court followed its ruling in Deutsche Bank AG Manila Branch v. CIR, where it emphasized that:
o A tax treaty must be followed over an administrative issuance (RMO No. 1-2000).
o Denying treaty benefits due to procedural non-compliance would undermine the tax treaty's objectives
and violate good faith obligations in international law.
RMO No. 1-2000 Cannot Be Used to Deny a Taxpayer’s Right to a Refund
 The purpose of RMO No. 1-2000 is to prevent errors in tax treaty application, such as overpayment or
underpayment of taxes.
 However, in refund cases, where a taxpayer erroneously paid taxes at the regular rate instead of the preferential
treaty rate, requiring prior application for tax relief is moot and illogical.
 Like in Deutsche Bank, CBK Power wrongly paid the higher regular tax rate, so it could not have anticipated the
need to apply for tax treaty relief before making the payments.
 The Supreme Court ruled that such an administrative requirement should not be used to deprive taxpayers of
their treaty rights.
The BIR Cannot Impose Additional Requirements Not Found in Tax Treaties
 The Supreme Court reiterated its ruling in Deutsche Bank, emphasizing that the BIR cannot impose additional
conditions that would negate the benefits granted by tax treaties.
 Since the relevant tax treaties do not require prior application for tax relief, requiring compliance with RMO No.
1-2000 is unwarranted.
CBK Power Substantially Complied with RMO No. 1-2000
 CBK Power requested confirmation from the ITAD on June 8, 2001, and October 28, 2002, before filing its refund
claim on April 14, 2003.
 This is deemed substantial compliance, similar to Deutsche Bank, where the Court ruled that strict compliance
should not deprive a taxpayer of rightful tax treaty benefits.
 Denying tax relief based solely on non-compliance with an administrative requirement would defeat the purpose
of Section 229 of the NIRC, which provides a remedy for erroneously paid taxes.
The Government Has a Duty to Refund Erroneously Collected Taxes
 The Supreme Court emphasized the reciprocal duty of the government to return taxes that were erroneously or
excessively collected, citing Republic v. GST Philippines, Inc..
 The taxpayer must honestly pay the correct taxes, but in turn, the government must implement tax laws in good
faith and return what is excessively or erroneously collected.
CBK Power Is Entitled to a Full Refund of ₱15,672,958.42
 The CTA En Banc erred in reducing the refund to ₱14,835,720.39 by excluding transactions with Fortis-
Netherlands, for which no ITAD ruling was obtained.
 The Supreme Court reversed this ruling, granting CBK Power’s petition in G.R. Nos. 193383-84 and ordering the
full refund of ₱15,672,958.42.
CBK Power Did Not Violate the Doctrine of Exhaustion of Administrative Remedies
  The Commissioner argued that CBK Power filed its judicial claim too soon—it filed its administrative claim for
refund on March 4, 2005 and elevated the case to the CTA on March 9, 2005, giving the BIR only three working
days to act.
 The Supreme Court rejected this argument, ruling that taxpayers do not need to wait indefinitely for the
Commissioner’s decision, as this would cause them to lose their right to a refund due to the strict two-year
prescriptive period under Section 229 of the NIRC.
Judicial Claims for Refund Are Proper Even Without the Commissioner’s Prior Action
 Section 229 of the NIRC states that a judicial claim for refund may only be filed after an administrative claim is
made.
 However, the Supreme Court clarified that taxpayers can file their judicial claims without waiting indefinitely for
the Commissioner’s resolution, especially when the two-year deadline is approaching.
 This prevents the BIR from delaying administrative action until the prescriptive period lapses, effectively depriving
taxpayers of their right to a refund.
Sections 204 and 229 of the NIRC Govern Refunds of Erroneously or Illegally Collected Taxes
 Section 204 applies to administrative claims for refunds, giving the Commissioner the authority to refund taxes or
penalties erroneously or illegally collected.
 Section 229 applies to judicial claims, requiring that before filing a lawsuit for a refund, the taxpayer must first file
a claim with the Commissioner.
The Two-Year Prescriptive Period is Mandatory
 Both administrative and judicial refund claims must be filed within two years from the date of payment of the
tax.
 The Supreme Court has consistently held that this two-year period is mandatory, meaning taxpayers must timely
file their claims, or they lose their right to a refund.
CBK Power Properly Filed Both Its Administrative and Judicial Claims
 CBK Power filed its administrative claim on March 4, 2005, and elevated the case to the CTA on March 9, 2005,
within the two-year prescriptive period.
 The Supreme Court ruled that it is not necessary for the taxpayer to wait indefinitely for the BIR's resolution, as
this could effectively deprive the taxpayer of its right to judicial recourse.
Taxpayers Are Not Required to Wait for the Commissioner’s Action Before Seeking Judicial Relief
 The CTA correctly exercised jurisdiction over CBK Power’s petition, as waiting for the Commissioner’s ruling could
have resulted in the expiration of the two-year prescriptive period.
 The Court reaffirmed that taxpayers can file judicial claims once an administrative claim is made, without waiting
for an actual decision from the BIR.
The Supreme Court Affirms the CTA’s Rejection of the "Failure to Exhaust Administrative Remedies" Argument
 CBK Power filed its administrative claim on March 4, 2005 and its judicial claim on March 9, 2005, just days later.
 The Court emphasized that had CBK Power waited for the BIR’s action, it would have risked losing its right to
judicial recourse, thereby suffering irreparable harm.
Prior Administrative Filing is a Condition, Not a Procedural Barrier
 The Court recognized that Section 229 of the NIRC does not require the BIR to act on the claim before a taxpayer
can seek judicial relief.
 Citing the case of P.J. Kiener Co., Ltd. v. David, the Court clarified that an administrative claim serves as a warning
to the BIR, not a procedural roadblock that suspends the two-year prescriptive period.
CBK Power’s Refund for the March 10, 2003 Remittance is Justified
 If CBK Power had waited for the Commissioner’s action, it would have lost its right to recover excess taxes paid,
violating its right to due process.
CBK Power’s Refund for the June 10, 2003 Remittance is Also Justified
 The Court acknowledged that CBK Power could have waited for three months before filing its judicial claim but
ruled that this was not required under the law.
 The Court emphasized that compliance with Section 229 was met since the only condition set by law is that a
prior administrative claim must be filed.
Final Judgment of the Supreme Court
✅ CBK Power’s petition (G.R. Nos. 193383-84) is GRANTED—the CTA En Banc ruling is REVERSED and SET ASIDE, and the
CTA First Division’s original

Light Rail Transit Authority (LRTA) v. Quezon City

FACTS:
Pursuant to Executive Order No. 603 (EO 603) dated July 12, 1980, the Light Rail Transit Authority (LRTA) was created
primarily to construct, operate, maintain, and/or lease the light rail transit system of the country. To fulfill its mandate,
LRTA acquired real properties and commenced operations in 1984.
On October 12, 2000, the Supreme Court ruled in LRTA v. Central Board of Assessment Appeals (CBOA) that LRTA’s
properties had been classified as patrimonial and thus subject to tax. Subsequently, on October 15, 2007, LRTA received
several Statements of Delinquency and Final Notices of Tax Delinquency from Quezon City for unpaid real property taxes.
LRTA responded by citing MIAA v. Court of Appeals, asserting its status as a government instrumentality and exemption
from real property tax.
Despite continuous communications, Quezon City proceeded to issue warrants of levy on LRTA's properties, auctioning
them off in December 2007 due to unpaid taxes amounting to P515,204,769.13. As there were no interested bidders, the
properties were sold to Quezon City under Sec. 263 of RA 7160.
A second auction took place on April 6, 2010, involving additional LRTA properties. The right of redemption for these
properties expired on April 4, 2011. In response, LRTA filed a petition for certiorari, prohibition, and injunction before the
Regional Trial Court (RTC) to contest the tax assessment.
LRTA’s Position:
 Invoked MIAA v. Court of Appeals, asserting that as a government instrumentality, it is exempt from real property tax.
 Contended that the levied and auctioned properties should not be subject to taxation as they are used for public
purposes.
Quezon City’s Position:
 Argued that LRTA is a government-owned and controlled corporation (GOCC), not a government instrumentality.
 Asserted that LRTA’s activities are proprietary in nature and not purely governmental.
 Maintained that EO 603 does not exempt LRTA from real property taxes.
 Cited the LRTA v. CBOA decision and the Local Government Code of 1991, which withdrew tax exemptions for GOCCs.
Trial Court’s Ruling (Decision dated March 5, 2015)
 The trial court dismissed LRTA's petition.
 It ruled that LRTA properties are taxable based on the Local Government Code and the Constitution.
 It held that the issue of taxability was already settled in LRTA v. CBOA, making LRTA’s reliance on MIAA v. CA misplaced.
 LRTA’s motion for reconsideration was denied on November 3, 2015.
Present Petition
 LRTA petitions the Court to nullify the trial court’s ruling on its tax liability.
 LRTA argues:
o It is a government instrumentality, not a GOCC, and should be tax-exempt.
o The ruling in Mactan Cebu International Airport v. City of Lapu-Lapu, citing MIAA v. CA (2006), superseded
LRTA v. CBOA.
o Its properties belong to the Republic of the Philippines and are for public use, making them tax-exempt.
Quezon City’s Response
 LRTA is a GOCC, not a government instrumentality.
 Its activities are proprietary, not purely governmental.
 It operates for profit like a private corporation.
Local Government Code and Taxation
 The Local Government Code (LGC) grants local government units (LGUs) the power to impose real property taxes
(Section 232).
 Exemptions from real property tax are listed under Section 234, which includes:
o Properties owned by the Republic of the Philippines or its political subdivisions, unless granted for beneficial
use to a taxable entity.
o Properties used for religious, charitable, educational, or environmental purposes.
o Properties owned by registered cooperatives and specific GOCCs engaged in water and power distribution.
 General rule: Exemptions for GOCCs were withdrawn unless explicitly provided in the LGC.

LRTA’s Status: Not a GOCC

 Definition of a GOCC (Administrative Code of 1987):
o Organized as a stock or non-stock corporation.
o Owned by the government (at least 51% of capital stock).
o Engages in public service (governmental or proprietary).
  Stock Corporation Test:
o A stock corporation must have:
1. Capital stock
2. Shares divided among stockholders
3. Authority to distribute dividends
o LRTA does not have capital stock, shares, or stockholders.
 Non-Stock Corporation Test:
o A non-stock corporation must have members and be organized for charitable, religious, or professional
purposes.
o LRTA does not have members and is a public utility (not for charitable or religious purposes).
Comparison with MIAA
 LRTA’s Charter (Sec. 15) and MIAA’s Charter (Sec. 10) both provide for capital but not capital stock.
 Neither LRTA nor MIAA has shares of stock or stockholders, meaning they are not stock corporations.
 LRTA is also not a non-stock corporation since it lacks members and does not serve a charitable purpose.
Implication on Tax Exemption
 Even if LRTA were a GOCC, it would still need a legal basis for tax exemption.
 Since LRTA is a government instrumentality, it qualifies for exemption from real property tax.

Is LRTA a Government Instrumentality Exempt from Real Property Tax?

 Quezon City argues that LRTA is not a government instrumentality but a corporate entity operating like a private
business in the mass transport industry.
 In LRTA v. CBAA, the Supreme Court ruled that LRTA had corporate status and corporate powers, reinforcing the view
that it was engaged in an ordinary business for profit and its properties were patrimonial, making them subject to real
property tax.
Revisiting LRTA v. CBAA in Light of New Jurisprudence
 The Supreme Court did not rule that LRTA’s corporate status automatically disqualified it from tax exemption. Instead,
the decision was based on the predominant use of LRTA properties for revenue-generating purposes.
 Later rulings in MIAA v. CA (2006) and MCIAA v. City of Lapu-Lapu (2015) clarified that government instrumentalities
with corporate powers (GICP) remain part of the national government and may still be tax-exempt.
Defining Government Instrumentalities with Corporate Powers (GICP)
 Under Section 2(10) of the Administrative Code of 1987, an instrumentality is:
o An agency of the national government,
o Not integrated within a department,
o Vested with special functions,
o Endowed with corporate powers,
o Enjoys operational autonomy through its charter.
 The Supreme Court in MIAA v. CA ruled that vesting corporate powers does not automatically turn an instrumentality
into a GOCC unless it is explicitly organized as a stock or non-stock corporation.
EO 596 and RA 10149 Recognized GICPs
 Executive Order No. 596 (2006) and Republic Act No. 10149 (2011) officially recognized Government Instrumentalities
with Corporate Powers (GICP) as a separate category from GOCCs.
 Examples of GICPs include:
o Manila International Airport Authority (MIAA)
o Mactan-Cebu International Airport Authority (MCIAA)
o Philippine Ports Authority (PPA)
o Metropolitan Waterworks and Sewerage System (MWSS)
Applying This to LRTA
 LRTA meets the criteria for a GICP because:
1. It performs a governmental function (public mass transport system).
2. It enjoys operational autonomy but is not a GOCC.
3. Its capital and operations depend on the resources of the national government.
 Thus, LRTA should be classified as a GICP, meaning its properties, as public assets, are exempt from real property tax.
LRTA’s Corporate Nature
 Created under Executive Order No. 603, it has corporate powers but remains an instrumentality of the national
government.
 It performs governmental functions—constructing, operating, and maintaining the light rail transit system for public
welfare.
 It enjoys operational autonomy through its Board of Directors.
Principles Governing Government Tax Exemption
 Local governments cannot tax the national government unless explicitly authorized by law.
 Tax exemptions for government entities are liberally construed to favor non-taxability.
 The power to tax cannot be used to regulate or destroy a government instrumentality.
 RTA's Public Nature & Tax Exemption
 LRTA is a government instrumentality with corporate powers.
 Its operations and properties serve public welfare, making them properties of public dominion.
 As properties of public dominion, they are exempt from real property tax under Section 234(a) of the Local
Government Code.
Charging Fees Does Not Remove Public Character
 LRTA charges fees, but this does not mean it operates as a profit-oriented business.
 Like MIAA (Manila International Airport Authority), fees help maintain operations but do not change the public nature
of the service.
 The government cannot fund all public services alone, so user fees are necessary.
Legal Precedents Supporting Tax Exemption
 Supreme Court cases (e.g., MIAA v. CA, City of Lapu-Lapu v. PEZA) affirm that properties used for public services are
tax-exempt.
 Properties of public dominion cannot be levied, auctioned, or foreclosed because this would disrupt essential public
services.
LRTA's Purpose & Financial Status
 LRTA was created to develop and operate a mass transit system, not to generate profits.
 Revenues are used for operations, maintenance, and loan payments for transit infrastructure.
 Government subsidies and foreign exchange gains help cover financial shortfalls.
Strategic Importance of LRTA Properties
 LRT lines 1 & 2 serve millions in Metro Manila and pass through multiple local government units.
 Essential infrastructure like rail tracks, stations, and terminals cannot be compromised, as it would paralyze public
transport.
 Even if LRTA partners with private entities for operations, its properties remain for public use and retain tax-exempt
status.

Facts:
 Marubeni Corporation, a foreign corporation from Japan, is engaged in import/export trading, financing, and
construction and has a branch office in Manila.
 In November 1985, the CIR issued a letter of authority to examine Marubeni’s Manila branch’s books for the fiscal year
ending March 1985.
 The CIR found undeclared income from two construction contracts in 1984:
1. National Development Company (NDC) – Construction of a wharf/port complex in Leyte Industrial
Development Estate.
 2. Philippine Phosphate Fertilizer Corporation (Philphos) – Construction of an ammonia storage complex in
Leyte Industrial Development Estate.
 On March 1, 1986, CIR revenue examiners recommended a tax assessment for deficiency taxes.
 On August 15, 1986, the CIR formally assessed deficiency internal revenue taxes, including surcharges and interest.
 Marubeni contested the assessments, claiming it had availed of tax amnesty under EO Nos. 41 and 64, as amended.
 The CIR found that the NDC and Philphos contracts were turn-key projects, with a total gross income of
P967,269,811.14.
 Since the projects involved construction in the Philippines, the CIR ruled that the entire income was from Philippine
sources, making it subject to local taxes.
 The assessment letter served as the CIR’s final decision, and Marubeni was given 30 days to appeal to the Court of Tax
Appeals (CTA).
Marubeni’s Appeal to the CTA
 September 26, 1986: Marubeni filed two (2) petitions for review with the CTA:
o CTA Case No. 4109 – Challenging the deficiency income, branch profit remittance, and contractor’s tax
assessments.
o CTA Case No. 4110 – Challenging the deficiency commercial broker’s tax assessment.
Tax Amnesty under Executive Orders Nos. 41 and 64
 August 2, 1986: The government issued EO No. 41, granting a one-time tax amnesty covering unpaid income taxes for
1981-1985.
 To avail of the amnesty, taxpayers had to:
1. File a sworn statement of their net worth as of December 31, 1985.
2. Submit a certified net worth statement as of December 31, 1980, or a new declaration subject to BIR
verification.
3. Pay a 10% tax on the increase in net worth from 1980 to 1985.
 October 30, 1986: Marubeni filed its tax amnesty return and submitted the required documents.
 November 3, 1986: The BIR received Marubeni’s amnesty return, and Marubeni paid P2,891,273.00 (10% of net worth
increase).
 EO No. 54 (November 4, 1986): Extended the amnesty period from October 31, 1986, to December 5, 1986.
 EO No. 64 (November 17, 1986): Expanded the scope of the amnesty to include:
o Estate tax, donor’s tax, and business tax (1981-1985).
o Extended the deadline to December 15, 1986.
o Allowed taxpayers who had already filed under EO No. 41 to file an amended return and pay an additional
5% tax to cover newly included taxes.
 EO No. 95 (December 17, 1986) further extended the tax amnesty period under EO No. 64 to January 31, 1987.
 December 15, 1986: Marubeni filed a supplemental tax amnesty return under EO No. 64 and paid an additional
P1,445,637.00 (5% of net worth increase).
Court of Tax Appeals (CTA) Decision (July 29, 1996)
 After 10 years of litigation, the CTA ruled in favor of Marubeni, stating that it properly availed of the tax amnesty
under EO Nos. 41 and 64.
 The 1985 deficiency taxes were declared cancelled and withdrawn, and the CIR was ordered to desist from collecting
the assessed taxes.
Court of Appeals (CA) Decision (January 15, 1999)
 The CIR appealed to the CA via CA-G.R. SP No. 42518.
 The CA affirmed the CTA decision, ruling in favor of Marubeni.
Issues Raised Before the Supreme Court:
1. Did the CA err in ruling that Marubeni’s deficiency tax liabilities were extinguished by the tax amnesty under EO
Nos. 41 and 64?
2. Is Marubeni still liable to pay the assessed income, branch profit remittance, and contractor’s taxes?
Key Legal Controversy:
 Interpretation of the exception to tax amnesty under EO Nos. 41 and 64, particularly Section 4(b) of EO No. 41, which
disqualifies taxpayers with pending income tax cases already filed in court at the time of the amnesty.
CIR’s Argument:
 Marubeni was disqualified from the amnesty because, at the time it applied (October 30, 1986), CTA Case No. 4109
was already filed (September 26, 1986).
Supreme Court’s Ruling:
1. Marubeni was qualified for tax amnesty under EO No. 41
o EO No. 41 became effective on August 22, 1986.
o CTA Case No. 4109 was filed on September 26, 1986, which was after EO No. 41’s effectivity.
 o Since no case was filed against Marubeni when EO No. 41 took effect, it did not fall under the
disqualification in Section 4(b).
2. Branch Profit Remittance Tax is also covered by the amnesty
o Since it is a tax on income, it falls under Title II of the Tax Code and is covered by EO No. 41.
3. Contractor’s Tax & EO No. 64
o EO No. 64 expanded amnesty coverage to include business, estate, and donor’s taxes.
o EO No. 64 did not explicitly state any exceptions like EO No. 41.
o However, Section 8 of EO No. 64 incorporated EO No. 41’s provisions unless inconsistent.
o The phrase “income tax cases” in Section 4(b) of EO No. 41 applies only to income tax and not to business
taxes like the contractor’s tax.
4. Strict Interpretation Against the Taxpayer – The ambiguity in Section 4(b) of E.O. No. 64 must be interpreted against
the taxpayer. "Income tax cases" should include estate, donor's, and business taxes. Since E.O. No. 64 became
effective on November 17, 1986, this date applies as the reference for Section 4(b) of E.O. No. 41.
5. Disqualification from Amnesty – Marubeni filed its case on September 26, 1986. Since E.O. No. 64 took effect on
November 17, 1986, the case was already pending, making Marubeni ineligible for the tax amnesty.
6. Offshore vs. Onshore Income – Marubeni argues that its income from the "Offshore Portion" of the contracts
(materials and equipment manufactured in Japan) is not subject to Philippine taxes. The contracts were divided into:
o Onshore Portion (work performed in the Philippines)
o Offshore Portion (materials and equipment completed in Japan)
7. Project Background – Marubeni won two government contracts:
o NDC Contract (1982) – A turn-key agreement for a port complex in Leyte.
o Philphos Contract (1982) – A turn-key agreement for an ammonia storage complex.
o Both contracts had financing from Japan’s Overseas Economic Cooperation Fund (OECF) and supplier’s credit
from the Export-Import Bank of Japan.
8. Contract Breakdown – Each contract had:
o Japanese Yen Portion I (Offshore work: materials and equipment)
o Japanese Yen Portion II & Philippine Peso Portion (Onshore work: installation and construction)
9. Philippine Tax Authority’s Argument – The contracts are turn-key agreements, making them indivisible. Since the
projects are in the Philippines, all income, including the Offshore Portion, should be subject to contractor’s tax.
10. Marubeni’s Defense – The Offshore Portion consists of completed equipment manufactured in Japan, tested there,
and delivered as finished products (e.g., ship unloaders, storage tanks, tugboats). Payments for these were made in
Japan, so they should not be taxable in the Philippines.
11. Contractor’s Tax – Defined under the National Internal Revenue Code (NIRC) as a tax on businesses providing services.
It applies only to work done within Philippine jurisdiction.
12. Court's View – The Offshore Portion involves activities completed outside the Philippines (design, fabrication, and
engineering in Japan). Since the services were rendered outside the Philippines, the income from this portion is not
subject to contractor's tax.
13. Distinguishing from Previous Case Law – The Supreme Court differentiated this case from Commissioner of Internal
Revenue v. Engineering Equipment & Supply Co., where the company was taxed for designing, supplying, and installing
air-conditioning systems in the Philippines.
Conclusion – The court sided with Marubeni, ruling that the Offshore Portion is not taxable in the Philippines since the work was
done and paid for in Japan.