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CIR vs.

GR No. 153793
August 29, 2006

Juliane Baier-Nickel, a non-resident German citizen and President of
JUBANITEX, Inc. (domestic corporation), was appointed and engaged as
commission agent of JUBANITEX by its General Manager Marina Guzman. It
was agreed that she will receive 10% sales commission on the sales actually
concluded & collected through her efforts.
1995. She received P1,707,772.62 sales commission income from which
JUBANITEX withheld 10% withholding tax amounting to P170,777.26 which
was remitted by JUBANITEX to BIR.
1997. Baier-Nickel filed her 1995 ITR reporting a taxable income of
P1,707,772.62 and a tax due of P170,777.26.
1998. Baier-Nickel filed a claim for refund amounting to P170,777.26 alleging
that it was mistakenly withheld & remitted to BIR. She contended that her
sales commission income is not taxable in Phil. Because it was a
compensation for her services rendered in Germany and, therefore,
considered as income from source outside Phil.
CTA: commission received was actually a remuneration in the performance of
her duties as President of JUBANITEX and not as a mere sales agent,
therefore, it is an income taxable in Phil. Because JUBANITEX is a domestic
CA: reversed CTA; it was a commission received as a sales agent & not as
President. Source of income means the activity or services that produced
the income, the sales commission received by the respondent is not taxable
in Phil. Because it arose from marketing activities performed by respondent in

Issue: WON the sales commission is taxable in Philippines.

The sales commission received by Baier-Nickel is taxable in the Philippines.
Sec. 25 of NIRC permits a non-resident alien, WON engaged in business or
trade, to be subjected to Philippine income taxation on their income received
from all sources within Philippines.
Source of income relates to the property, activity or service that produced
the income.
o With respect to rendition of labor or personal service, it is the place
where the labor/service was performed that determines the source of
the income.
There is no substantial evidence presented to prove that the services she
rendered were performed outside in Phil. Particularly in Germany and other
European countries.
Tax refunds are in the nature of tax exemptions and are to be construed
strictissimi juris against taxpayer. Those who claim a refund rest the burden
of proving that the transaction subject to tax is actually exempt from tax.
o The faxed document from abroad presented did not show that the
instructions/orders faxed ripened intro concluded/collected sale in
National Development Company vs Commissioner of Internal Revenue
GR No. L-53961
June 30, 1987

The National Development Company (NDC) incurred delay in a contract
entered into in Japan with different Japanese shipbuilding companies for the
construction of 14 ocean-going vessels. NDC executed 14 promissory notes in
relation with such obligations guaranteed by the Philippines as required by
the shipbuilders.
Upon the completion and delivery of the vessels, NDC remitted to the
shipbuilders in Tokyo the amount of 4,066,580.70USD as interest on the
balance of the purchase price in which no tax was withheld.
Commissioner held NDC liable for the payment of tax on the interest
amounting to 5,115,234.74Php.
CTA sustained the decision of BIR except for a slight reduction of the tax
deficiency in the amount of 900Php, representing the compromise penalty.

Whether or not the interest paid by NDC is taxable?
o WON the interest cannot be taxable because all the related activities,
such as the signing of the contract, the construction of the vessels,
etc., were conducted in Tokyo.
o WON the Republic of the Philippines, being the guarantor, is not bound
to pay the taxes due on the interest as written in the undertaking
signed in each of the promissory notes by the Secretary of Finance.
o WON by virtue of the tax imposed on the interest, NDC is being taxed.

The interest paid by NDC is taxable.
o Section 37 of the Tax Code did not speak of activity but of source,
that is the NDC which is a domestic corporation organized under the
Corporation Code.
The residence of the obligor who pays the interest rather than
the physical location of the securities, bonds or notes or the
place of payment, is the determining factor of the source of
interest income.
o Such undertaking only reflects that the Republic of the Philippines is a
guarantor of the obligations of the NDC. It was without diminution of
the taxing power of the Republic under existing laws.
o It is not the NDC that is being taxed. The tax due on the interests
earned by the Japanese shipbuilders. It was the income of the Japanese
companies and not the Republic that was subject to the tax the NDC
did not withhold.