CTA Case No. 3140 (Decision)

REPtYaUC 0 F THE PHILIPPINES [. COURT OF TAX APPEALS QUEZON CITY PHILIPP BROTHERS OCEANIC , INC., (Philippine Branch) 'Petitioner, - ve:r.sus - C. T.A . CASE NO . 3140 THE COMMISSIONER OF INTERNAL REVENUE , -Respondent . :K. - - - .- -- - X DE C I S I 0 N J Philipp BrotheFs Oceanic , I nc. L~HIBRO (Ph i lippine Branch ) .for brevi t:(/, pe�ti tioner in the above-entitled case , file~ with this Court on September 8 , 1980, a Petition for Review, praying therein, among others , that r espondent Commissioner of Internal Revenue, re- fund to it the amount of P494,735 . 25 representing com- me:rcial broker � s tax of 6% alle'<]ed to have been paid erroneously on "commissions" received by i t from its head office in New York,. u . s . A. R~spondent Commi ssioner of Internal Revenue , thru counsel , during the hearing "opted to submit the case for resolution and disposition on the basis of the pleadings submitted by the par ties and the BIP records X X x . �� (p . 69 , CTA re:e. ) . � PHIBRO (Philippine Branch) is a resident foreign corporation ouly organized and licensed t o engage in 52 �

DECISION - CTA CASE NO. 3140 - 2- business in the Philippines in accordance with the laws of the: ~public of the Philippines. It i s specifically authorize-d to engage in the buying , selling and trading of ore:s , metals, minerals , chem, icals, animal feeds , agricultural commodities and other raw materials and in i nvesting and arrang.ing investments in related enter - pr ises. As trader , PHIBI~O (Philippine Branch ) .is gene - rally e�ngaged in two activities , namely : import and . export. In these transactions, PHIBRO ' s (Philippine Branch ) acts as a l}aison between PHIBRO ' s Head Office (New York , U. S . A. ) .and its Philippine customers. According to the records of the case , it appears that for the pe�riod f rom the: third quarter of 1978 to the 1st quarter of 1980 , petitioner herein made pay- ments of 6% commercial broker ' s tax in the amount of P494 , 735. 25, based on alleged "commissions" which it received from the head office of PHIBRO in Ne\i York, u.s.A . , which taxes paid are it~mized as follows : CB Revenue Tax Period Rece-ipt No. Amount Date lrd Quarter 1978 36777075 p 56,779.00 17 Oct. 1978 4th Quarte:r 1978 A-029252520/CB Confirmaticn 76 , 320.25 25 Jan . 1979 Receipt No. A-010569 3 s t Quarter 1979 A-1853883 W/CB Ccnfirmation Receipt No . 4l,804.00 19 April 1979 � A-1580839 53

DECISION - CTA CASE NO . 3140 - 3- 2nd Quarter 1979 A-2142255 W/CB p 80,822.00 16 July 1979 3rd Quarter 1979 Confirmation 12 Oct. 1979 4th Quarter 1979 17 Jan . 1979 1st Quarter 1980 Receipt No. 15 April 1980 A-2543842 A-2~74599 W/CB Confirmation Receipt No. # A-29286{)4 60,413.00 A-2997289 W/CB 85,317. 00 Confirmation Receipt No. A-3048157. A-4479647 W/CB 93,280 . 15 �conf irrnation Receipt No. A-1090349 Said amount of P494 , 735.25 was paid by petitioner PHIBRO (Philippine branch) .on the mistaken belief that i t is subject to the 6% commercial broker ' s tax pursuant to the provisions of Section 208 of the National Internal Revenue Code , as amended . I t wa~ only on August 20, 1980 , af t er the discovery of the erroneous payment to the Bureau of Internal Re- venue , that petitioner wrote a formal letter to res- pendent Commissioner of Internal Revenue requesting that the refund of the amount of P494, 735.25 be made to i t . But respondent failed to definitely act on the claim for the refund in favor: of petitioner . Hence u this appeal. .. The issue is whether or not petiti oner herein is a commercia l broker subject to the 6% percentage tax 54 �I

DECISION - CTA CASE NO. 3140 - 4- contemplated under �Section 208 of the Tax Code . In his answer to petitioner's appeal filed with th is Court on December 9, 1980, re sponden t countered that 11 petitioner is a comme r cial b ro ker as contemplated in Section 208 of the Tax Code of 1977 and therefore, li able to pay the pe rce�ntage tax equivalent to 6% of t he gross compensation receive~ ." Section 208 of the Tax Code provides, in par~ as follows: 11 SEC. 208. ~ Percentage tax on stock, real estate, commerc1~l, customs a nd immigration brokers and cinematographic film owneks, les- sors or distributors. - Stoqk, real ~state, commercial, custom and immig J:: ation brokers shall pay a percentage tax ,quivalent to six per centum of the gross comp~nsation received by them. XXX XXX �~ 11 It was on the basis of th~ ~forequoted provision of law that respondent Commiss ~~n~r of Internal Revenue stoutly premised his stand that petitioner i s indeed liable to pay the 6% commercial broker ' s tax. At t his precise po int , it is noteworthy t o state that i t was only on August 26 , 1983 (pp . 7-8 , BIR rec .) that respondent ' s Ass t. Revenue Service Chief , Librada R. Nat ividad , acted on the r equest for r e fund of petiti oner dated August 20 , 1980 . Said Asst. Revenue Service Chief Natividad, in her l etter to t he Chief , International Operat i on s Div isi on , di rected a~ i nvestigation to be con - ducted i nto PHIBRO's (Philippine branch ) claim tha t it 55

I �I DECISION - CTA CASE NO . 3140 - 5- made some erroneou~ payments: to the Bure:au of I nterna l Revenue: in the for m of commercial broker us taxes . Also, said Asst . Revenue Service Chief further directed that in the investigation to be ,conducted , t he following points: must be ascertained, � namely: 1 . Whethe:r or not the herein taxpayer , is a Philippine Branch of Philipp Brothers � Oceanic , Inc., a u.s .. corpora t ion , duly l icensed to engage in business in the Philipp i nes:; 2. Kind of business of the Philippine Branch; J 3 . Whether or not the herein taxpayer had received commissions from 3rd quart.er of 1978 to lst quarter of 1980, both on the importations: and exportations handled by it for the account of the Head Office; and 4:. Whether or not the proce:eds of the sale's in the Philippines were re~mi tted to its head office. She furth e r directed that the result of inve�stigation will be used as evidence by re�spondent i n the Tax Court, as shown in the last paragraph of said order of investi- gation: "It i s furthe�r ie�quested that the result of investigation as well as comment and/or ~ecommenda tion, be forw arded to this Office , Attention : The Chief, Li~igation Division , the soonest as the same is to be used as evidence in the Tax Court." Meanwhile, in pursuing its claim for refund from r eB:pondent, PHIBRO (Philippine� branch ) .further claimed that �it i s not subject to the 6% percentage tax: as a 56

DECISION - CTA CASE NO . 3140 - 6- commercial broker for the following grounds and t o which we fully agree : 1 . The Head Office (PHIBRO , New York ) ~nd PHIBRO (Philippine Branch ) .are one and , the same entity. The latter is. merely a branch of . the Amer i can c orporation bearing the corporate name "Philipp Brothers Oceanic , I nc . , " whose head off i ce ~z in New Yor k, u. s.A . (Exh . A, p . 38 , CTA rec . ) .and by which the ���brokers" commissions were paid . Accordingl y , when the Philippine Branch . exports or imports pjoducts for the account of i ts Head Office (PHIBRO , New York)'� the Ph i lippine Branch acts as the foreign ciorporation i tself . Necessarily , the concept of age~ncy- principa l re:lationship assumes that one is separate and distinct f rom the other . Since, in a sense, the interests of an agent against his prin- cipal , and vice- v:ersa , bear some confl i ct , i t is not conceivable that princi pal can act as an agent for him- self . If he acts at all in respect of a t ransaction that might be delegated � to an agent , he acts for himself as principal, protecting and promoting his interest as pr.inc:ipa l and not as agent. / 2 . There be�ing one single entity , the commissions rece i ved by the Phil i ppine Branch from the Head Off i ce (PHIBRO r New York } represents only 'the income allocated to it by the latter Head Office � . As a matter of fact , . the amount of any commiss i ons whi c h ma y be allocated to 57

DECISION - CTA CASE NO e 3140 - 7- the Philippine Brartch is not dictated or determined by L---- the amount, bulk, quantity or volume of the import and/ or export transaction / It is based on a uniform Intercom- pany Commission Schedule suppli~d by the Head Office . (Exhs. B, � B-1 to B-7, pp. 41-48, CTA rec. ) More�over, the fac t that PHIBRO (Philippine branch) . is not a commercial broker. is bolstered by the f ac-t that when "After performing its liaising s ervice, thePhilippine / Branch receives a c�ompensation - the so called commissions intercompany - from the Head Office (PHIBRO, New York) ~ The amount of c:ommission is based on pre-determined rates embodied in a document furnished by Head Office (PHIBRO , New York) .to Philippine Branch . These commissions were paid by the Head Office (PHIBRO, New York ) .to Philippine Branch in the form of foreign remittances and only after the latter has submitte�d a de�bit memo." (See Exhs. C-2, . C-4, C-5, C-7 1 C-19 , C-22 1 C-28 1 C-~1, C-3.6, CTA rec.) As generally defined , a broker is an agent who , for a commission or brokerage fee , barg.ains or carries on negotiations in behalf of his principal as an intermediary between ~he l atter and t hird persons in transacting business relative to the acqu isi tion of contractual rights, or to the sale or purchase of any form of pro- pertyo real or personal , the cu�stody of which i s not entrusted to him for the purpose uf discharging his 58

I� I l DECISION - CTA CASE NO. 3140 - 8- agency . Brokers have also been defined as those who are engaged for others in the negotiation of contracts relat ive to property with the cus.tody of which they have no concern . They act as negotiators in bring~ng other persons together to bargain�; generally, they ought not to sell in their own names, have no ~mplied authority to receive payment, are not entrusted with the .physical possession of the principal's goods when engaged to buy or sell, and have no speci al property therein or lien thereon . (8 Am. Jur. 889-890. ) And then again, citing the case of Cadwallader Pacific Co . vs . Commi~sioner of I nternal Revenue , 18 SCRA 827 , 831 , it was corre~ctly pointed out by petitioner that where a company "does not act as negotiator or middleman t o close a deal between one person and another", it is not a commercial broker; hence, it is not liable . for t he payment of the fixed and percentage taxes as commercial broker. . Moreove~ r , it is fu ndamental that petitioner is not a comme�rcial broker under Section 208 of t he Tax Code because " the duty assumed by the broker is t o bri~g the minds of the buyer and seller to an agree- ment for a sale, and the price and terms on which it is to be paid . x x x." (Commissioner of Inte rna l Revenue vs. Cadwall ader Pacific Co. , 18 SCRA' 827, 831-8.32 ).. Peti- tioner has not acted as such broker , and hence, is not � 59

DECISION - CTA CASE NO. 3140 - 9- li able for the 6% tax as a commercial broker . As truly observed by petitioner, the commissions received from the Head Office were more in the nature of income allo- c:ated to it not s.ubject to t he 6~. brokers tax. Meanwhile , the inve:stigation i nto PHIBRO ' s. (Ph ilippine Branch) _ac tivities having been completed, BIR Examiner Herme:negildo Dimaculangan of the Bureau of Inte:rnal Revenue, who conducted said investigation, . reported to the Chief, Litigation Division, in his letter dated Octobe:r 7 1 198~ (p . 42 , BIR rec.) .as follows: 1. That the Philippine: Branch of Philipp Brothers Oceanic, Inc., a u.s. corporation, is duly licensed to � engage in business in the Philippines by the Securities and Exchange Comm ission under Registration Certificate No. 553 dated Dece�mbe .r 19, 1969, x x x . 2. That subject taxpayer is authori zed to engage in the buying, selling and trading of ores, metals, minerals , chemicals, animal feeds, agricultural commodities and other raw materials, and in investing and arranging in- vestments i n related enterprises . x x x � . 3. That from the third quarter of 1978 up to fir st quarte:r of 1980 , subject taxpayer received the total commission i ncome of ~8 , 245,591.00, to which they have paid ~494,735 . 00 representing 6% commercial brokers tax . Ana lys is of above-mentioned account is shown below (x x: x) �. � Received from Commission 6% Tax Income paid 1 . Home Office, New York ~6 , 8~9 ,1 4 1. 00 ~409 ,7 50 . 00 2e Affiliates 1 ,416,450 .00 84,985 . 00 . T0 t a 1 ~~,f~~?,f~~J::!:~2 ~~~~,fz~~:!:QQ 60

DECISION - CTA CASE NO. 3140 - 10 - 4. That 'proceeds from sales i n the Philippines were directly remitted by im- porters to its head office . That on the basis of the above findings, said Examiner recommended the refund ,andior tax credit of the sum of !1409,750.25 representing tax: paid on commissions received from Home Office, New York, and excluding the sum . of ~84,945.00 representing tax: paid on commissions received from affiliates inasmuch as said affiliates . and petitioner are separate taxable entities � Based on the ab~ve report of Examiner Dimaculangan, t he Chief , International Operations Division , Jose M. Alvarez , in his second indorsement dated October 13, 1983, recommended approval of the refund of alleged erroneous payment of 6% commercial broker's. tax: (p. 45, BIR rec. ) to wit: 2nd Indorsement October 13, 1983 Respectfully forwarded to the Revenue Service Chief (Legal Officej, Attention : The Chief , Litigatio~ Division , ihe herein report of i nvestigation of Examiner Hermenegildo Dimaculangan of this Division, relative to th e cla i m of Philipp .Brothers Oceanic , Inc ~ f or refund on alleged erroneous payment of 6% bommercial broker v ~ tax: , recommending approval thereof . (Sgd.) JOSE M. ALVAREZ Chief , intl �. Operations Division TAN: A 4161-E 1124-A-9I'' , During the hearing of this case before this Court, � petitione r did not show by satisfactory and convincing 61

.- DECISION - CTA CASE NO . 314:0 - 11 - evidence, and against the finding of Examiner Dimaculangan, that the ~8 4,9 85.00 was a 6% brokers commission paid by it on commission income in the amount of ~1 , 416,450.00 of affiliate c ompanies; and tha, t thes e affil1ates and the petitioner are one and �the same companies. Since the burden of proof to entitle refund r ests with the claimant o r petit i oner in . this case, and not having ac, - q~itted itse lf of that burden, peti tioner is no t entitled . to the ref und o f ~84,985.00 . In sum , petitioner is only en ti tled to the re f 4Pd in the amoun t of ~409,750.2 5. WHEREFORE, respondent Commissioner of Internal Revenue is hereby ordered to refund t.o petitioner the amou nt of P409,750 .25 representing the 6% commercial broker'~ t ax erroneously paid by petitioner, withou~ interest . No p ronouncement as to costs . SO ORDERED. Que zon City, Metro Ma nila , March 8, ~84. / CO~~ R6AQUIN /'Associa e Judge ( WE CONCUR : � 62