G.R. No. L-47673; October 10, 1946
Koppel (Philippines), Inc., plaintiff-appellant, vs. Alfredo L. Yatco, Collector of Internal Revenue, defendant-appellee.

FACTS

Koppel (Philippines), Inc. (plaintiff), a domestic corporation, appealed from a judgment dismissing its complaint to recover a sum paid under protest as merchant’s sales tax. The plaintiff’s capital stock was predominantly owned (995 out of 1,000 shares) by Koppel Industrial Car and Equipment Company, a foreign corporation not licensed to do business in the Philippines. The plaintiff was licensed as a merchant and commercial broker. From 1929 to 1932, the plaintiff conducted business as follows: Local buyers requested price quotations for railway materials, machinery, and supplies. The plaintiff cabled these requests to the foreign Koppel company, which quoted its cost price (usually C.I.F. Manila). The plaintiff then quoted a higher price to the local buyer, based on the foreign company’s cost. Upon receiving an order, the plaintiff instructed the foreign company to ship the goods directly to the buyer in Manila. Shipping documents (bills of lading, invoices, insurance certificates) were issued in the buyer’s name or to order and endorsed, and were forwarded with drafts drawn by the foreign company on the buyer through banks. The buyers paid the drafts to obtain the documents and receive the goods. The plaintiff advanced duties in some cases, reimbursed by the foreign company. The plaintiff’s compensation was a percentage of the profits from these transactions, as per its contract with the foreign company, and it shared in any losses. The total gross sales from these transactions amounted to P3,772,403.82. The plaintiff reported its share of the profits (P132,201.30) and paid the 4% commercial broker’s tax thereon (P5,288.05). The Collector of Internal Revenue demanded a 1.5% merchant’s sales tax on the total gross sales value (P3,772,403.82), plus a surcharge, minus the broker’s tax already paid, totaling P64,122.51, which the plaintiff paid under protest.

ISSUE

Whether the plaintiff, Koppel (Philippines), Inc., acting in the manner described, was liable for the merchant’s sales tax under Section 1459 of the Revised Administrative Code on the total gross value of the sales, or whether it acted merely as a commercial broker liable only for the broker’s tax on its commissions.

RULING

The Supreme Court affirmed the judgment of the lower court, holding the plaintiff liable for the merchant’s sales tax. The Court ruled that the plaintiff was engaged in the business of selling personal property and was therefore a “merchant” under the law, subject to the sales tax on its gross sales. The transactions were not mere brokerage. The plaintiff quoted prices to buyers, accepted purchase orders, and instructed the foreign company to ship the goods. While title may have passed directly from the foreign seller to the local buyer, the plaintiff was the entity through which the sales were effected in the Philippines; it was the vendor in the domestic market. Its compensation, being a share of the profits, indicated it was a principal in the sales, not merely an agent earning a commission. The fact that it shared in losses further supported its role as a principal. The Court distinguished this from a pure brokerage arrangement where the broker merely negotiates sales for a commission without any interest in the profits or losses of the transaction itself. Therefore, the plaintiff was correctly assessed the merchant’s sales tax on the total gross proceeds of the sales.