G.R. No. L-8886; May 22, 1957
A. SORIANO Y CIA., petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

FACTS

On December 20, 1950, A. Soriano y Cia. (petitioner) and Philippine Iron Mines, Inc. entered into an agreement whereby petitioner was employed as a Technical Consultant. The contract stipulated that petitioner would render engineering direction and consulting services on mining operations and, additionally, undertake to “negotiate and consummate the sale of all the products obtained from the said mining properties.” For these services, petitioner was to receive a fixed monthly consulting fee of P1,200 and a sum equivalent to 2.5% of the gross receipts from all minerals shipped, payable monthly. Petitioner voluntarily paid the 6% broker’s percentage tax on the amounts received under the 2.5% gross receipts provision. Subsequently, petitioner sought a refund from the Collector of Internal Revenue for these tax payments, covering periods from the second quarter of 1950 to the second quarter of 1954, totaling P69,679.07 (P19,621.06 and P50,058.01). The basis for the refund was a BIR ruling that compensation of a local broker for work rendered outside the country is not subject to the percentage tax, arguing that the sales negotiation services were performed in Japan. The Collector did not act on the refund requests, leading petitioner to file a petition with the Court of Tax Appeals. The Court of Tax Appeals ruled against the petitioner, finding that the principal purpose of the contract was for petitioner to act as a broker in negotiating sales, and that the tax was properly levied on the compensation received. Petitioner appealed this decision.

ISSUE

Whether the 6% percentage tax under Section 195 of the National Internal Revenue Code, imposed on the compensation (2.5% of gross receipts) received by A. Soriano y Cia. from Philippine Iron Mines, Inc., is valid despite the sales negotiation services being allegedly rendered outside the Philippines.

RULING

The Supreme Court affirmed the decision of the Court of Tax Appeals, ruling that the tax was validly imposed. The Court distinguished between two taxes on brokerage: (1) a fixed annual tax on the business of brokerage under Section 193(q) of the Tax Code, and (2) a percentage tax equivalent to 6% of the gross compensation received by brokers under Section 195. The Court held that the tax in question, under Section 195, is not a levy on the brokerage transactions themselves, nor on the business, but on the compensation received by the broker. Since the compensation was received by petitioner, a domestic corporation, from another domestic corporation under a contract executed in the Philippines, the income was subject to the taxing jurisdiction of the Philippines. The fact that the sales negotiations may have been effected in Japan did not exempt the compensation received in the Philippines from taxation. Therefore, the petitioner was not entitled to a refund of the broker’s percentage tax paid.