G.R. No. 137377 ; December 18, 2001
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MARUBENI CORPORATION, respondent.

FACTS

The Commissioner of Internal Revenue (CIR) assessed Marubeni Corporation, a Japanese foreign corporation with a Manila branch, for deficiency taxes for its fiscal year ending March 1985. The assessment was based on alleged undeclared income from two construction contracts in the Philippines with the National Development Company and Philippine Phosphate Fertilizer Corporation, completed in 1984. The CIR argued the entire contract price constituted Philippine-sourced income subject to income, branch profit remittance, and contractor’s taxes. Marubeni protested and filed petitions with the Court of Tax Appeals (CTA).
While the cases were pending, Marubeni availed of the tax amnesty under Executive Orders Nos. 41 and 64, covering unpaid income and business taxes for 1981-1985. It filed the required sworn statement of net worth and paid the amnesty tax. The CTA ruled in favor of Marubeni, holding it validly availed of the amnesty, a decision affirmed by the Court of Appeals. The CIR appealed, contending the amnesty did not cover the specific taxes assessed and that Marubeni’s contracts were for the sale of personal property, not construction, thus generating income not from Philippine sources.

ISSUE

Whether Marubeni validly availed of the tax amnesty under E.O. Nos. 41 and 64, thereby absolving it from the deficiency tax assessments for 1985.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ rulings. The legal logic is twofold. First, the tax amnesty was validly availed of. E.O. No. 41 granted amnesty for unpaid income taxes for 1981-1985. E.O. No. 64 expanded this to include the tax on business. The deficiency contractor’s tax and branch profit remittance tax, which are business taxes, thus fell within the amnesty’s scope. Marubeni strictly complied with all procedural requirements by filing its sworn statement and paying the amnesty tax within the prescribed period.
Second, the Court examined the nature of the contracts and found them to be contracts of sale, not construction. The contracts were for a “package deal” or “turn-key” basis for specific port and storage complexes. A meticulous review of the contract stipulations, vendor lists, and testimonies revealed that Marubeni’s primary obligation was to deliver complete, operable plants. The construction and installation activities were incidental to the sale and were performed by subcontractors, not by Marubeni itself. Consequently, the income derived was from the sale of personal property. As a non-resident foreign corporation, the income from the sale was considered derived entirely from sources outside the Philippines because the property was manufactured in Japan and title passed to the buyer upon delivery abroad. Therefore, even without the amnesty, the income was not subject to the Philippine income and business taxes as assessed. The amnesty, however, provided a complete and absolute defense.