CTA Case No. 3170 (Decision)

ttU\Jf:iUC: O P fttl P�IUPI't:"<i�� \.!OURT OF TAX APP�AL.tt QU!i:O N Cl~ ROGER E. WELlNER, C.T.A. CASE No: 3170 Petitio :le r , - versus - THE COMM I SSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - X DECI S I 0 N This is an appea l from the decision of respondent Commissi oner of Internal Revenue assessing against petitione r the sum of ?26,162.08 as~come tax f or the year 1975, inclusive of interest. It appears that petitioner, an Australi a n citizen, was employed by Envirotech Corporation, a United States Corpo r ation with headquarters/offices at Palo, Alto, California, U. S.A., r ep resented by B. B. Fisher & Co., a Philippine co r poration, as its Area Manager in South- east Asia and in the Middle East up to December 51, 1977. His salary as such Area Manager was paid directly to petitio ner' s . bank, Bank of America, at Belmont, California, U.S.A . During his entire period of employment, he had to make va r ious t r ips to different countries in So uth east Asia and in the Middle East, all expenses incurred arising from or in connection with such trips and travels were born e exclusively by his employer, Enviro- tech Corporation. 97

DECISI ON - CTA CAS E NO. 31 70 - 2- Amon g the various coun t ries in Southeast Asia which petitioner travelled to as area manager, was the Philippines in the year 197 5, by reason of the fact that B.B. Fisher & Co., a Philippine dome st ic corporation, was the excl usiv e representat ive in the Philippines of petitioner's employer, Envirotech Corpo- ration , for the latterts various e quipment in mining, sugar, en viron menta l and gene ra l processing industries. His vari ous visits to the Philippines as such a r ea manager of the Enviro tech Corporation in the calendar ye ar 1975 was the basis of the resp ondent in classify- ing petitioner as a non-resident alien engaged in trade or business within the Philippines under Section 22(a) of the Tax Code . Conseq uently, on the last week of February, 19 80, petitioner was ass essed the sum of Pl8,424.00 and interest thereon of P7,738.08 or a total sum of P26,16 2.08 under Assessment No. 01-1-FR-005401 - 75 ( Annex "A", p. 7, CTA rec.) On March 3, 1980, p et itioner protested the s a id assessm e nt (A i1nex "B", pp. 8-9, CTA rec.) and requested f or the setting aside of the same. I n a letter dated June 5, 1980, respondent denied s a i d r e ~i u e s t ( An n e x " C" , p p � 1 0 -11 , CTA r e c � ) an d pe t i - tioner filed � a request for reconsi de ration (An nex "D", pp. 12-13, CTA rec.) on August 18, 1980. 98

DECISION - CTA CASE NO. 3170 - 3- On September 24, 1980 (Annex "E", pp. 14-15, CTA rec.) respondent denied the request for reconsideration, hence this appeal. This case has been submitted for decision based on che records and pleadings. The sole issue to be resolved is whether or not petitioner could be legally classified as a non-r e sident alien engaged in trade or bubi~ e ss within the Philippines in the year 1975 in accordance with Section 22(a) of the Tax Code. The la'<'l involved are Sections 22(a) and 37 of the Tax Co de, in relation to Sections 8 and 155 of Revenue Regulation No. 2, implementing Sections 22 and 37 of the National Internal Revenue Code, which read as follows: "Sec. 22. Tax on non-resident alien individuals � .- (a) non-resident alien engaged in trade or business within the Philippines. - There shall be levied, collected and paid for each taxable year upon the ent i re net income received from all source within the Philippines by every non-resident alien individual engaged in trade or business within the Philippines the tax imposed by Section twenty-one: Provided, That for pur- poses of this title, a non-resident alien individual who shall come to the Philippines and stay therein for an aggregate period o f more than one hundred el..9..!:ty days during any calendar year s hall be deemed a non-resident alie n doin busine~s in the Phili ines; t he provision of Section 20 g of this Code to the contrary notwithstanding. (under scoring s upplied) ----� "Sec. 37. Income from sources with i n the Philippines. - (a) Gross in c ome from sources within the Philippines. The follow- ing items of gross income shall be treated 99

DECI SI ON - CTA CASE NO. 3170 - 4- as gross income from sou rce s within the Ph i lippines: XXX XXX XXX ( 3) Service. - Compensation for l abo r or personal services performed in t he Phi li ppines; XXX XXX XXX Revenue Regulation No. 2 " Se c t i o n 8 - Ta xa U -~ n o f n o n - r e s i d en t al i ens; Classification.� x- x x The phrase "engaged in trade or busines withi n the Philippines" includes the perform- ance of perso nal services within the Philippines. X X X. 11 XXX XXX XXX Section 155. - Compensation for labor or perso nal services. - Gross income from sources within t h e Ph ili ppines includes compensation for labor or personal services perform ed wi thin the Phi l ippines regardles of the residence of the payor, or the place in which the contract f o r s e r v i c e wa s ~a de , o r o f t he p 1 a c e o f p a y_m e n t � x x x." ( un derscoring supplied) Fr om the above-quoted provisions of law (Sees. 22(a) and 37, Na tional Internal Revenue Code ), and its imp l ementing rules and regulations cited above, it could r e adily be seen that pe titioner could be legally class- ified as a non-resident alien engaged in trade or busi- ness within t he Philippines in the year 1975. Under the said provision of law, the following r equisites mu s t conc ur before the i~come tax imposed there- in shall apply: firstly, there is a non-resident alien i ndividual engaged in trade or business within the 10 0

DECISION - CTA CASE NO. 3170 - 5- Philippines or a non-resident alien deemed doing business in the Philippines, and secondly, income must have been received from sources within the Philippines. These two requisites are present in the instant case. Petitioner, in the year 1975, stayed and performed services for 191 days in the Philippines in behalf of his foreign employer, the Envirotech Corporation of Palo Alto, Californ i a, U.S.A., represented in the Philippines by B.B. Fisher & Co., as the former's area manager in Southeast Asia and the Middle East. He received income from sources wi th in the Philippines corresponding to the 191 days although payment of his salary dur:ng this period was made by Envirotech Corporatlon directly to his bank at Belmont, California, U.S.A. Petitioner's contention that he is not liable to pay any tax as he was only deemed doing business in tne Philippines but did not actually receive any income from sources within the Philippines as his salary as area manager in Southeas t Asia and Middle East was alleg edly paid directly to his bank, Bank o f America at Belmont, California, U.S.A. is without merit. Suffice it to state that Revenue Regulation No. 2, particulary Sections 8 and 155, implementing Sections 22 and 37, respectively, of the National Internal Revenue Code above - quoted states that the phrase "engaged in trade or business within the Philippines" includes the 10 1

DECISION - CTA CA SE NO. 317 0 - 6- perform ance of personal services within the Philippines a nd that "gross income from s our ces witrin the Philippines in clude s compensation for labor or personal servic e s pe rform ed ~dt hin t he Phi lippines regardless of the resi- dence of the payor, or the place in which the contract for service was made, or of the place o r' payment." MGreove r, eve r y person, like pet it ioner in this case, who work as area managGr uf the Envirotech Co r po- ration and who was per form ing perso nal services in the Phili ppi nes for compensation, was therefore "engaged in trade or bus in ess wi thin the Philippines". (Sec. 22(a), NIRC, taken in relation to Se es. 8 and 155 of Rev. Reg . No. 2) L-Jos e A~a~as, National Internal Revenue Code, Vol. I, p. 44, citing Mertens, La w of Federal Inc o me Taxation, Vo l. IV, Chap. 2 5, pp. 21-22 ~7 Accordingl y, pet ition er having been temporarily s ta y ing in the Ph i lipp ines and having ren dered personal servi ce to Envirotech Corporation, which is represented by B.S. Fish er & Co. in the Philippines, and having ac tually stayed f or 191 days here is rightfully consi- der ed non- reside nt alien engaged in trade or business in the Ph ilippi nes and a s such subjec t to income tax on income ea rned f or pe rso nal services performed in the Philippines in 1975 . WHEREFORE, we find no error in the decision appealed from and the s eme is hereby affirmed. Petitioner i s 10 2

DECISION - CTA CASE NO. 3170 - 7- hereby ordered to pay the sum of ?26,162.08 as income tax for 1975, plus 5% surcharge and 14% interest per annum from August 6, 1979 up to July 31, 1980, and 20% interest per annum from August 1, 1980, pursuant to the provisions of Section 5l(e) of the 1977 Tax Code, as amended. SO ORDERED. Quezon City, Metro Manila, May 23, 86. WE CONCUH: ,�~ ~iateZ. REYJ age 10 3