GR 13250; (October, 1971) (Digest)
G.R. No. L-13250. October 29, 1971.
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. ANTONIO CAMPOS RUEDA, respondent.
FACTS
This case involves the estate of Maria de la Estrella Soriano Vda. de Cerdeira, a Spanish national who was a resident of Tangier, Morocco from 1931 until her death in 1955. Her estate included intangible personal properties situated in the Philippines. The administrator, Antonio Campos Rueda, filed tax returns and claimed exemption for these intangible assets under Section 122 of the National Internal Revenue Code, which provides an exemption if the decedent’s country of residence allows a reciprocal exemption for similar properties of Philippine citizens. The Collector of Internal Revenue denied the exemption, assessing deficiency estate and inheritance taxes totaling P161,874.95. The denial was based on two grounds: first, that Tangier’s laws did not provide the required reciprocity, and second, that Tangier, being a principality and not a sovereign state recognized in international law, did not qualify as a “foreign country” under the tax code.
ISSUE
The principal issue is whether the term “foreign country” in Section 122 of the National Internal Revenue Code requires the foreign entity to possess the attributes of statehood or an international personality to qualify for the reciprocal tax exemption.
RULING
The Supreme Court affirmed the decision of the Court of Tax Appeals, ruling that the exemption under Section 122 does not require the “foreign country” to be a sovereign state recognized in international law. The Court clarified that the legislative intent behind the provision was to establish tax reciprocity based on the foreign law’s substantive provisions regarding exemptions, not on the international status of the political entity. The term “foreign country” in this context refers to any foreign power or government whose laws grant a similar exemption to intangible personal property of Philippine citizens, irrespective of its recognition or international personality. Since the Court of Tax Appeals had already established, upon remand, that the laws of Tangier provided the requisite reciprocal exemption, the estate was entitled to the tax benefit. This interpretation aligns with the Court’s earlier precedent in Collector of Internal Revenue v. De Lara (102 Phil. 813), which settled that an international personality is not a prerequisite. Therefore, the deficiency assessment was correctly invalidated.