CTA Case No. 2481 (Decision)

REP\JRt.IC OF THE PlliLIPPINU COURT 0~ T..\X APP~ QU&ZON CITY C 1~ G UG 1f - v rs ., - c . ..4 � � �. � 24c:; l Y. - - � e.; cn�ent . --- -- -----X D CI _titionrr i � a. � r ~ n c r 01 ti or d ul o r g - nized nd Yi t1n un c t 1 WS ,f th t te f 1 '7 G

.. n�:.Cibi CT C S� NC . 2 1 - 2- Illinois , � � � , with p~incip 1 plac. of busin 5- at 130:, .est 105tb �.n .. . , Cnic 'J , 11 i ois , U�. � � n cc .b r ~3 .. 1953 it as lie r s .d by �h :;ecu- n gage in busin~ss in the hili >I in .!::i , un Lie 11se o . 2 3 , �1h1ch lice se wa� c nc.ll o on ept her 5 , l'b3, �f~Fr fr � i [' uf! ness . it r!-- lied , n �as .is .... u d on 1~rch 1r , 1.6:> , icnn"" o . 42t� uu-c� ri in it to en< ge ir trad or ~u~in ~s in t hi i ~� 1n .s , par~ic~l rly in , the 'sellin cr p rsc lal prop rtv cr 11 k inns , in- clu ing l'Ut n<~t i mi u t t I CClt.in(rS ~ e t c . ; to carr r on t en r�l C( struo:.:ci n sir ~ s"" ail:::l to em an l~a e cticn �qui J� ent 0 l l } in s , ir1clu 1i t-. , qu i p � .t u _\ tc ern::; - tr cl, 1 ~ or r � ir the ,! � ve- _r.t onr.d rue- tur 0 tt (Exh ... . '' .. -1'*. � ~ 1, t:L Rec::..rds . ) �""J. cr i� c m ~ .ri during .:.he y .ars J ="c5 , 1966 , F 67� .nd 19 ' - ; �.,h c. c n- sis ... e ,f r nt 1.;; nd int ~re. t; p~ i t n(~r ! i l d i .s i1 c e t � r t' �rns c lai ing de~i�lctions <.. - r i n c.r cr tic.n .n1a1.. din tr ae rr busin~<:> � �ith- in t hili p �n ... ..ursuaJ1 tc) the ,r-:visions o � .J ction 24 ( ) ( 2) of tl (, Nnticn l Int n 1 vc:r. e p . ~l and 46 # Co � h s . ( E II II II t lr . �� nd II I I ; 57 ,' ~ ecor s . } nd or djvi ende> received r rn 177

DEC .... IoN - c c � ~o . 2481 - 3- I dom st.ic corpor tion in 1968 , p titioner in th m nn r o a forei n c~rpor tion enq in tra e or businesoa within the �hilippin s , r ,orted only 251. of s ch ividen s !or pur?o s cf i c m ation. in ceo d nee wicl1 c ~ th n ction 2 ( ) of he ~ tion 1 lnt rn 1 R v nue Code. ( xh. ' 0" , p . 57 , IR Rec rd . ) Som time in the y r 1970, r s on nt caus d the inv stig tion e inccme t X r t rns and book 0 acccunt of p ti ion r or the y ars 1~65 to 196 , incl sive . As r sult of such i v stj- --. g ti .n , he issued an a.oseo ::ir.t�mt le or a ted -'\U- gust 17 , 1970 , hicit d r.ceiv .d by th...:. l:w firm of Lich uco, ~ ic zo ;c oil! , t hi..:h 1 'i� ddre;;,s d , on cept�mb r 9. 1970, d m nding the pay- m nt o U total ~mount of 726 , 872 . 06 s defi,- ciency in<:::on,e tax, inclusive of inter st , for th ntire four - year p rioa, computea . s fellow ( r. I 2, P titian or Review, admitt d undP.r par . Il o the n w r . ) 178

~L 1 ut � 2481 cJ c - 4- 1 t 1C � � � �� � �� 210. 46 . 37 200 #01 . 1 n �� 1. ������ � 07 , 3. 7 2. e tDC E' r te 6 3. r.al , 876 . 2 ,.() """' 51& �� � � � �� �������� ���� �� �� ��� ��� . n�� � r� ��� � �� �� D ����

u . 2481 - 5- 967 Net inccm er return � � � � � � � � � 268 , . 32 248 , S1 0 . 12 Aod: Unallow ble deductiot .87 . 431 . 512 1. l~ng g ner dm . xt � � 15, 3(0 . 24 2. reci tion �������� 76 . �1. 3 . iff rPnc e i n excn n~e rat �er retur n (C�:1 hil . ) � � 607. 2' . 80 Per retur n (C I llitcis) � (~6~~~~~� per inv-stig ����� r"...on � � � � � � � � � � � Lesw : unt a r y ssesscd ���� Da l a n c e� � � � � � � � � � � � � v.d: 1/2 , o. int � .r . 4-16-68 to ~ 7- 70 �� � � �� .�� � �� �~ CL ���� 19 ~et i c .. per ret. trn � � � � � � � � � 250,436.91 ,d : Un llo ~bl ~uction~ & a dt � l 2S9, 036 . 53 11,29 .33 inc _w.: 750 , fl0 . oo 1 . -ell i ng general adm. Xt .nse 1, 310, 763 .7 7 2 . 0 preciati;n �� � � �� �� 425, 99 . 00 67 , 131 . 00 3 . Oi i nd r c ived � � � � � 358 , 865 . 00' Net inc m per inv st1g. ti n � � � � � 28, 70' � 4 4 T x due th reon � � � � � � � � � � � Less: .\mount ( lr ady p_id �� � � �� Ba 1 a n c e � � � � � � � � � � � � dd: l/2~ me. ' int . fr. -16-69 o 8- 17- 70 ������ � ����� ���� Th s e ba~is of th~ d~fici ncy a~sessm .t i th conten ion ' f r. span,.. nt. that tJ ti tit,.;n ... r. is non- r sir. nt f reign ccr oration nvt ngag d in tr�de or 180

. D�CI.,., I � - erA c ,.: ~ Nu.. 2 &1 - 6- bus~ness in th hilip~in~s . and , therefore , .n� ot en- titled t0 claim ny deduction fr m it., g ro .. s inco e d rived fro l ~ ilii p in source~ nor to .~elude fros e 7~ of th dividends receive ~y it fro m dcme~tic c rpor ticn . ( ar . 3, etiticn for Revie , dmitted in tt !n 1 tt. r d teu ... pte... er 17 , 1970 and filed ith the o ic of re �C ten on the sa.e d te , peti- ticn .r, thL ugh i ts u.it rs , cont s eo and isput d r . 4 , 1etition for evi~w . owcver , in a 1 t~er ated .tove1 t .. r 19 , 1972 an:l r c e iv Jd by etition-r's udi - tors on January 26 , 1 ~ 73 , r .st..ond nt d n i cd petition r � s protest an rei teratec. his e.n nd f .r the p yrren t of th alle ed efici .ncy inc' e tax in tl._ tot 1 amount of 726 , 872 . 06 . ence, the instant appeal . mhe issues to be r s l v ed in this case, s st ted by ....h rt.i s , ar (1) h 'th_r , f r iOC .e t . X pur.;OSeS , re"'ition.r is non - r~sident foreign ccrpc ration net nga'e in tr e or bu~~nrss in the lhilippines , or a r siaent (2) ssuming th t cti~icn �r is .. ncn- r s.l nt for iqn c ~ r or ticn nc � �enra !din tr a~ e or uc 1 ess in th hili pinf.S , 1hetner or nc the defici ncy 18 1

U�Cl!J �� CC ..u . 2461 - 7- . t x liabilit' fer th y r > in .uesticn w re in co corr ctly d ter nd co u �d,by r sp n nt . Durin Yr t ri 1 to t is c s , fo- ' reign c r or~tion n o o i g . jn_ in thl" 1 hi ip ; ines a t' x e on incc� ... �rem all sources i hin th ' hilippine � int r st , i 1 res , ren ::; , ;:;, 1 ies , wag s . re. iw , nn i' e� , c - ns t ns , r r:1un r io s , lu1< +: n _, , or 0 .r f ... � a o r d t n 1 or r1o ic 1 or c g ins, profi "s -n inc :e .nd c ~ i . 1 '-J. i " � ,h ta � ! 3 ,. f such . - gross inco � ( ec . 24 ( ) ( 1) � ,.. tional ln rn l v n Co ) On th her J. nd , a or "'i t cor r ti n oin u in i ) tt 'hi lip, in s s , nd still is , en incc .acl ly fret . rr:: h hi 1 in s , n i ... is t-� r . i t ~d to c t i ~l~ ro grc n i co. e to th �t nt. conn �it i rnEd in lC hili in s . h t .A w 22, -JOt 0 such net inc;::o � nd 37, i< .) divi n s rec iv by or .stic or r si ent for i n corporati n from an h r do tic c r tion " )j :-.ct to inc m t x er t . onJ.y to he .�t n..., of 2 of ~uch ivi en w� (....ec. ... 4 ( ) , i � ) he >rinci les of l~w r+ cle� r and in th < th ceci. i on in t ~ c s mu t r \,. on i .... own c liar an circu nc s . n maint inin t t 1 titioner is nut eng 182

' t:.Cl-Iv l - CT, CA ' � 24 1 in tr d or bus in s in the hili p, 1 � res r;on nt reli-d on th fin ing of i r th t (1) ti ic er ""' noof ice or plac of u in ss in th I hili pin s; (l) p titi ner h, n b s of cc unt in hili� in -=>1 ( 3) n titi ....n r ci e bu n only ith its '"' b idi ry , Chic go. ridg (' } 11 ippin , ) # nc. , s rictly on 1 "'sor-1 b �i frc l \1/hich it riv en y r n 1 nd in . rest !nee e; no { } tition~ � ~ cl� im t it al. un r.too c n~- . truction job~ in tl~ hili ) in cl h ...is in truth nd ct . 1 rev lin tr.J c n�i r t ti. OUt.;;. t th t in all th i c rr; t X return fil- by p ' titi r for th y rs J.n o lv in thi c ci 96 , 1966, 1 67 n 1968 - the addr ss g iven y 1 as i s prin- ci) 1 p c 0 b 1sin , s 1.or p r o ... - of hili ) ,ine inco t is 901 tre t. a roo � Illinois 60523. Unite ate t m ric � wittout ny t as tc th corr ~~on in9 r, pl c o is"u nd d te of i su o th r~si � nc c rt{ : icat s cf p ti ion r nd the ffice s il ng tl r turns, r s c s f r ch in ati n h ve , n cl rly rovi d th r in. atte of f ct, th n ary pu lie ho ..,ubscrib - or e hi jur t to th inc m tax r turn i a not ry public in ~nd f r Cook County, Illinoi � r j in' in th t County . Th financi 1 18 3

.. DECI ~ I CT CAvE NO . 2481 statements and auditor ' s reports of petitioner as of December 31 , 1967 , which are the only ones ttached t the .records , were certified by rthur Anders n & Co ., Chicago , Illino is . And even the letter forwarding petiti oner ' s incom t x return for such y ar to r s ondent Commissioner of nternal Revenue, tcgeth r with the p~ym-nt of the tax ue th reon , came d irect fr om Chicago Br i dge I r cn Company , 901 est 22nd [, trcet , Oa Brook , Illinois 60521 . (pp . 1- 66 , ill Rec rds : Exhs . "O" , " u lt II R" , pp . 41 , 46 , 57, IR Records . ) dince petiticner as a foreign cor~orati~n ha - ving incone f rom sources within the ~hilippines must make a return of incc derived from hilippine sources , did~ petitioner urinr tb: ye r" i. 1ulved in this case have an office or place of busin ss in this count ry which , u st m~. and file the r et. rr s? Or is yeti t~on(::-r a creign corp ,rat io .. not en<;a~ed in trade or business in tn~s coun .ry nd h ving no office , br- uch , or ayency in t:r.e ! h ili pin...,s -cha i t , by itself , h d to m ke t .e return�~ r-~i tn rospect t' income from s o rce., with in t he _hi lip in "s; Aga inst this bacJ--clrop, the Cou_ t CdD110 t: overlook �ection 2 of the e idence Tu.x w, Co~mu ntealth ct No . 465 , whicn prcvide<; t ot a 1 c r or ti ons , no matter how cr ated or organized, whether domestic

DF.C I C i - c J. ~ (_, /< � 2481 - 10 - or r sid nt creign, n in or in t.:u:...in_ss in th fJt i1i pin ar DU j ct t .... r. .t d "nce ax O.J e A r 1 ent for.~qn cor r ti n m an"' for ic n cor or tion enga in r � usin s it in the hili in s or ho.vin n of ice or c c bu in ss th r in . ( ec . 84{g). atic l lnterncl v nuc Coa i ,1 uli g o . 5 1 , ove .b r 5 , 1 .. 59 . ) n , when p rs n li 1 t re i d ence x s c. n wt d~ "' ny d cu. nt b.fore a not ry uklic (1 1Core tax re- turn t i l d ri tot~ y r inv lv d in h~ c ..,e h d to 0 cr u crH a b.-~� ore net ry u lie) , t: .e pr n'� tion .(: nc_ c ~ i ica .. ' ..tl" .ct o . 465 . ) If i<:> r ( i ed . (. ~"C � 6, Com.m n 1 all cor or t i n , ~het er omontic cr r ni ~nt f~ - r 1< n , eng c. a in or i ppines r ~ j ct to eti- tion ....... n v f a or i n c r wration eng d ~n t ed c becau~e i t never it.., 1 f t c i, 1 y .i tl +he rovL~i n"" o� th i ':i' X L ' � on-com .. 1ianc vision o t R- encA Ta,;; L n t ith'"' ... � nd g , a �. c- tuall urin., tr�. y ar,... 10\ v d in l i ca� 0 n~r 1 rule or ov� rnin. 1 1Ci lc r be 1 id d n s L t cor_tittt "d i ( II "en� c- g J n< " or 'tr ns ct1nc " b ine � ch c ... e ., t b 185

DECl I C A c ~ .0. 2 1 - 11 - judg in th i ht 0 ts own .culi r envir-:J .nt 1 ' he r-u h . v r , ~e t;O be . .lh th r at: n is c .. ntinulnl tL ... co t h . (:. o re~:.:~n L0 ody or . e () ,... bu in or nte.c r or .icl it erg ni~ d cr whet !:' i 1a > U l tc;~ntially retir i.ror. n urn d DVet" tc no bP-r . (T.r ction Th term Co . vs . oll . of I t. I venue. 223 . � 9e ) no ar- im lies o cent nuity co .�,ere i 1 o . line r ng 1 en s . n ccnte.n 1 t � s , tc t.h _xt .nt . t,l p .. ct... or rk �. o r h xc:-ci of SOt\ of th or,:::_l nci nt tc , or in o.- ressiv r r. ("I I th .c J .c o f its r t n . < enth lat co. vs . Man ali l n, 40 Ot � 0 7 . ~ 3 . ) n o t ur ~res, i t a~p.ars n - c ary, 1 u t l~ ur j r.is ictlo , tc c r ti "tr n .. ctin ... u in c h (1) ;;:> inuity o 1 .~ i ty , (2) con- tinuity o co nt.. * in c.nr � hiLl J.n s . ( on tl rei "' � 1 artin , Re � 2 )� r cordv tn t p �ti 11 mri.. t e rs J. n r(_ y nt reJ 1, to 1 '3e C(ntract with it:O i ry in th hil'p ln s , c ic go ri� e nili .~ine~) . l c ., !:cr 1� .... c�. s- tructi n �i m nt . he" contracts con rr ing t h. 186

DE CI S I O N CTA CASE NO . 2481 - 12 - lease of c onstruc t i on equ i pmen t of all k inds , howev er, as c o r rect ly not ed by respondent, WP-r e all entered i nto and c onsummated j n the Unit ed Sta t es . In f a ct, t he del i ver y and transfer of possession of the leased equi pment were all done i n the United States . I ndeed, the evidenc e p r esented supports ~he observ a ti on made i n the r eport o f Bureau of I nt ernal Revenue Senior Exam i n e r Gau dencio L . Vi llanueva, c ontained in the 2nd Indor sement to the Commissioner of Internal Revenue dat ed September 25, 197 2, t o the effec t that: . (Exh . " 4" , pp . 184- 196 at p . 190, BIR Rec ords. ) "In t he c ase a t bar, t he only part i ci- pa tio n of CBIC (petitione r here i n ) i n the p r operties is the ac t of leas i ng them . All c st of packing nd delivery tc the p i er- i n t he u. s ., ocean f r eight, i nsuranc e , i mport and export fees and duties, wharfage and l a nding charges and similar costs beth cut- bound and inbound ship~ents a t e for the ac c ~un t o f the Lesaee . The Lesse e defray s f or all t he o perating c osts , ma i ntenan c e and oper ator s of the equi pment s . The equi p- me n ts shall be re ~ urned to the Lesso r i n the s ame c onc1t i on s r eceived by the Le~see exc ept ordindr y we r nd t ear. In the c ase of damage or b r eakage the Less ee i s bound e ither t o repc: i r the equipmen t at its ex1Jense o r pay the Lessor fo r i ts cost of r e t urning the cquipmer t t its p r evicu.s c ondition . The Lessee is also bound t o i ndemni fy the Lesso r against all daHhges , .� lcssos, expenses and fees on a ccount of deat h , i n jury, damages or osses t o per sons , i n c lud ing but not l i mited to the employees o f the Lessee, or propert y o ccas i oned d~re c tly or i nd i rec tly by the c onditi on of any of the leased equi pment or by the operation, handling or ~rans~or t ation of any of the leased equi pment by the Lessee or sublessee or any agent or employee of either dur i ng the rental p eriod . In short, 18 7

�2 l - 13 - nu o �nersn1p 1~ dum� 1ntc ti .1 ther to . " {'" e h" , 'I" , . tt ,_, # Thus , i t t1 �~ture nd ext �nt cf \ th bu~in ""s n r � en by p titic;n r durinr;_ th. period in ucstiun - a lilt.i tee tc th me e ac of 1 . sine its variou tv so con rtction e1ui~ nt t i st ;s.idiary in t. � li.ii! r,ines , w1ich er u ed by the la t. in its o n c truction r j ct. i the h i l i � in~~ . n . rivin. r ntcls th~r . from . ...,uc h ctivi y a unts t:o nc ..r,.,r t an tL t f re- c i n9 in t � Un �t d . t~t� s thP or inarv .~.r lies th t ri e from it nt . L sine; of iffer nt c .ut.ruction ..; u i p lessee in t .e J. t..t r. i; ac�inatic e con� i er d on p rt o! th le�..; r �� ng :1inc or d in 1 us1n ss in h hili in.s , h-n .(;cr.s - tt� ct:ion � rk i � th bu i .es. of tt �1 P- . se~ � in the l hil .. L1es . t eti tionE:r s foreign ccr or .i <.1n is . not, tter fer , c n i uing in the thilitpines the o y r su �st. nee of tl! " sin ss or ent r ri<-�e for ~ ich it , s r~anized in the Unite -tat s . 'n if th re is ny c ntinui of co ~rei l ea ings n rr. ngl. nts in th. hi ip1 in Q so as to ccnsti .u~e d ing or en <gin_ ra e r b .,. in ss in t!1 hil1; ,i ncs, 188

Cl di r - (.I. C1... � N ,. � 4 1 - 14 - 1 is on t p rt o ~ its ~ t idi~ry , c �cag Briage 0 hili pines) 1 c .~ :tn" c rt<- in-ly !lQ.l o � t.n . p rt o peti i ~r . 1 _c nt . ion ��� p titloner e like Jis _ fin t tc effect that it 'lac of nusin sn cr ofr ic 1.n th without iz frc-1 , t ios lreauy ben stated earlitr, th e i ence r ent~.:d vis clos s tl t t o snid a arc s is the business re ic~nce of Chicag ri 9 ( hili ir:es) In� �., nd not th t othrein p iticr.r � . h~.- ctu lya:arsonre- � c rd is th~ t :' ti .:1 n r 1 �.., c U''titutc an~ �t 1 tirm of�~. auco , icazo an ,gcaoili s i �s attorn y-in- act t uct a resiocnt g,.;.nt for t . I 11r. c~ . of c cc ~t n; servic c sun., s .and ro- inc s es , � � 1 4-19S, o o r mine, t a t int- .. nt o � ~n ttor J� y-in- ct to ct , s r':!.:Ji< en a_, �.nt in t1 e hili pinN> .cr ....l ~ pur C"' of ._cc pting r- vice of su. 10ns n 1 y 1 roc s~-s 1~ entirely in- consist n with th exist. nee resi. nt forei n cor oration intra� e,or u in ss within tre J n~ 1 i. pir1es or ha inq n tice or pl ce cf bu lnes 1 r in. Thy are obvi usly op~osite s i{es of e s ~ c in for its ms cl . r thit, in the o1ain ry - 18 9

DECI~I f. - CTA CA~L Nu . 24 81 - 15 - cour se f busin .ss , a :ore igr co ~cr aticn ngaged in trade o r bu .... incss -.;JiLh in the r h i l i ppines o r having an office o r place f business t.h rein does not have t c o nstitute and appoint an attorney- in- fact to act as its r� siLent ag .n t i r. the Ph ilipp ines . Contrary t o t,l1 cl i m of petitio n e r that it had un erta en certain ccnstruction j bs in the fh i l i r - pines , thP. testimony of i s wi tness John J a es RomanP. discloses t hat it wa th_ Chicags Bri dge (P hilipn ines ) Inc . -1hich carri f'>d out the cons �truction wor s , to �-1it: � You said that your -utl'c.rity of "' p er- vision includes the Philippine Op ration of Chic aqo Dridge Ir n Cc �n1-a y . "A. That i right . ~ 11 \.J . Now, as such , have you fC1 ,, ili arized your- self with the past and present operations of Chicag o Bridge & Ir n COM! ny in the P hi 1 ippines �~� � II Yes # I have � ~~~- . Now, what did you do to familiarize your- self with Ch ica~c Bridge ' r past and present operations : "A . rior to co iny out 'of S ingapo re , I was required to r e view all tl e records and bcoks of all che c ompani s w ich are doing business in these parts of thr wcrld . That is part of my p ro gram with he c om- pany . This was a �erio of o.bout .fi e months - some of the training p rograms of the company . " u . Now , specifically , did ~ou take not o� che p~st and curr nt activiti s of the Chicago Bridg &: Iron Company , Philippine 190

DECl 1 N - CT C ~ � 2481 - 16 - � II br nch 0 erati n ( . � II Yes , 1 had t an the c �1 m ny at � It ,, I have � rd XXX XX XXX ( lesti ' ny of Jo n J 1'IJ -�s ctn ne; Hearing ~ Nov r 13 , 1'75~ � 4-6 , t .s.n. ) rh af re uid te ti y w s corro ~ rat d b y � etiti~r r�s ot1er ~itn lvarez . lv ry fiJ -c Wi l l h yu in u in ss � consh r t t ar� en ,g in he � 19 1

DECl.... l C ' - CT C �~ t� � 24 1 - 17 - ��hilip, inas bee us w have perform d cons ruction c~ntracts in tle �hilippincs for many y aro , since our registration in 1953 witJ tae ~ curities nd 4xch~nge Commi..,.;ion . re still in p sitior to perf �'rtrt c nstructicn c ntr-cts h re � diti n lly . 1..:e f l tr.a th r nting of ( uip n t i .. p rt of our orl J- wide norrr1:1l activity; nd th t . it cc.nsti utes doin t. in ss . "Ju g lvar z . ~s i t not - f .t that thi~ construction b.usin s~ ! the tr ther C0111.any i p r- forned oy he u'~idi rt in ~he lhili ines : *'A . lt is "' f ct thut ,, c�t o th co.jstructicn bu~in . s is perfor . d y th subsidi ry her � But Chic go 13ria,e lrcn Comp ny - i f , fer e.xa.pl , cust mer rec_iving ex r t-1 ~ort b n, f i n ncin~ fron th nitod ...1tatcs , tt at r quir. s th t rn �t of the c st incurr d i~ in v � � doll rs . Th t cu.,tcm r ,� .e ha s , .anil Electric or soma other co .,. any , .would com to Chic 9 l?ri g : ana �e have to p rforn~ the -.rk" XXX :XXX XXX (Te ti ��c:ny o J .�es C ...:ll , He ring , ... el.)tct. r 25 . 1975 , t.s . n. , pp � .51-:.;8) s corr�ctly ~o i nt d ut by r spon �ent . from th a ova t~sti onies ~f p~tition x t s :n witn .~ s- � 1 L: o v.ious th t th construction project..- claim .d tn h ve b _n un� rtak n by petitioner in t~ ~hi i;- t in s were c.Ct � e by its sursidiary , C~ic~g Briage ( hilip)ine..,) . Inc. , n not by h rein t.l- tion r . orr� v r. , hil~ �~ ~ t.i t on r !> e ;:>re - sent co i ct th ui ;ent r nt 1 ar r n s ting 'Vi y b ck fr ' lS65 t o 19fl ' enter , into h it ith it., su. 1 iary, not a sin< 1 c ncrc.;ct evic 'ncin the .- -t 9 ') .L . ""

CI I Ol - c c. ] ; � 2 1 -1 lle d c-nstr cticn r j cts s .v r pres nt d by h r-in p t tioner , vhic only in�ic tes th~t o ~uch con tructi n jcbs w_re actu lly un~ert en by th� latt r in th hili ~in ~. i c . t n c id , ~nothing is elder or co oner in the ar ini r ti n of 1 w in ll ccun ri .s th n h u , is len tc t:n s 1 th trj un�l i 1 , h ther jua e r jury. ! obj c ich f rni h evia nc .� n ( n ry v � , cl"'ini r- � 3 na. y. 3 ... , 3 6 . ) Th n. if ti ~on.r ~ o act lly ngaged i th c n truction - 1 in se in th . hili I i. i> ' it. its t:iti r "m ny p . s , va 1 �s", , i ~ ,i ,i, n ver in ~c in c t d yi r rs in lv t ir t l.S CtS Lxhs. , " " � II IfuI It �� p. 41-S6, .. ...~-. r ..:\,.r �,) th t I it i-.. eng 9 in uch .) -in. d the �a in~ r r its d .riv. fro I or lo ., s ust in d by it in any y ars C V r by 1;.1 n .. turns ? If th incurr din con1 ction wit th - of th - _in er .;.. 'll', y ih X e.~ r C .ipt.:> t.l': r from , w.re t e .r. tire r c i t.-: c rnt;letcly ign r d in r nt. rin h� re urn::~ �[ i C-.u tl t h C< ns- r r.u 1 c."s 0 l itio r ould not anym� re b he �n in th_ ret rn~ ? di 1 !Ctics em ployed, h p i t.ion of 1 t:. n r th i i ng g d in t c nst llC i n bu i . ,. ir. th 11 �l. � s is ~' 19 3

DEC t , . 2481 '. CT. - 19 - ntirely i;co.p ti 1 with tn ~ct , ata and in or- maticn o;> t d by 1 in its ret11rns : nd "inc und r ~ ction 46 (<) of h ati nal Int rn � l ev nu Cod ever u j ct t ax, .ust rcnd.r in ~lica . , a true n a c u r t e r turn of its nual net inc in he m nr, . r n ...orm r cribcd , nd cont ining s c f c s , t n i f r.ation s re a ropri n n c ( s rv �o tf.lrc, in ,. t . co,t;"rcct- . n s 0 it!:' net iii e nd to carry out th provision 0 ..e ncr... J�� I ll the in om.� t< .. r turn"' fi ��y titi n r for ... lo 1 inc ic i ns that i ~ n- g ed in t.h . c n!� tr 1ct ion lJ in .Wl in e hilippin s . f 11 .cy is nt �n the f i.lure of p ti- s lre _.(";ve, t Day tt nnu 1 b sic nd ( d t.1 ,l; 1 r - ic ~ nc taxes r ~� uir 0. of f3V.I"Y cor or t on, d mestic r r iu_nt f c r~1qn , en - g g in r cin ~ �o;)i1 ess in t. hilip ines . ( xh . n1u , ' ...; . 131-133, -l R c rcts . ) ti ion r ' s c n nti n th t it m int in d .oc n y be de lt r h 1 i .s itn c te�stifi .d that t tioner m intain d ..co}; ,f acccunt.. ii th I hi - li in s , lt 0 v t. s� . e c.ul no lon r b t'f:- ente c�u Qf t la pse cf h� t ...u t ry , _r d t kp 0 of cc ~ 1n �.�1., :: .n ' s ex � iner ablo scric tat d J.r"'"' g tl - h _rinq this cas 194

DECioL.. CTA C SE NO . 2481 :- 20 - t h t when he w nt to th of f ices of Chicago Bridg ( ~hil i ppines) , Inc ., at 7 22 Vi to Cr z , anila , whic h allegedly ate also t e offices of petition r (par . 1 , Petition for Review) , and asked forth books of a c~ counts and ther pertinent papers relating to the business of p titioner i n the Philippines, h was given -only wor sheets pertaining to certain ex e nses ere i ted to p titi n r and as t old, at that time, per sonnel i n the Phil i ppines . That as som- time in the year 1970 (par . 2, Petition f r eview) and the statutory period of 5 years f or the preserv tion of books and r cords had not yet expir , the years in- volv .d in this case bing 15765 to 1968 , inclusive . If petitioner had no books of acccunts in 19701 it J necessar ily follo's that no books of accounts could be presented in 1975 or 1 9 77 When this case ~as heard .by the Court . Thus - Re- Di rec t Examin tion by Atty . � everiano A. De Leon, Jr . "<� In the course of your inve ti .. aticn , Mr . Oso r io , did you not ask f r the books of accounts and the- pertinent papers relating to th business of the petitioner i n this cas from its agent or representati es in the hilippines: "A . I did but trey only g ave o me the worki nq sh et and th y t ld me that they don ' t have any books cf ' accounts , ..

C_1' ~ � 2481 -. 21 � - th t th Chic go g nd Iron Ccm- ny, Illin is , n t h ve personn 1 in th h 11 ines . "ti . ~y i tr1 to course of y~ur in- h � ct 1 b zine s r- o~ th: � ti ioner 1n � 1 dia, but th et nt d to me , an I could not tr c L in shi hil . � II � y io n t � r ~ nt any . n r . al~o sor o . earing , l':J77; t �� n., � � 81-S.t) ead in t e light cf t t h s alr day b~ n dis - cus ed arlier th t th o' r th e p l ce cf us - ne s of p titi ner f r pur .s s 0f hili ~i L c .c ta. t en i 9 1 e t 2 nd . t t , a!� rcoJ.; , lllir � ,is 60~21. Uni (an rc. all in i - .t t s (J ,r ri c ti o n t.h 1 c wh r, its � hilippin incom . t X . - r turns ;; rc r P r , incl cin~..:~ th fin nc al st t. ment .Jnd th au~,; it r ' re ..crt ttach~ to th a f rPcorus) , a., �. e 1 <: tt n ce~sit y f 1:-oiz tlng a resi .nt ag nt 1 ' hili p p i 1 ~ wit. o� r to cc .~t scrvlc of -.,u1 tens nd le r c vSe , it s I S 19G

� � 24t:l - 22 - / bunaan l y cl ar that petiti oner h s no books of Cicc unts in th o ... tice or place of �msin s t �rein , the nelf - se.rvin~ con - trary testi~o y or its int rnation�l ccountln\ rna- nag r not ithstar.:J n � he net rp�ult �ia th t p titio er Chicago ridge Iron Ccm~ ny* durin_ th eriod in a f, r ign corpcr~tion no n in tra e or L si- i thin Lh hilip in �a nd net h.viny any o . i ce cr plac of u.~in � 'th r �in. ccor i I�9 1 , pur uant to tl t e ational lnt en 1 vcnu Cc. �c , s a n n- r ��i - ent f_reig cor~ ratio not enq g d in t r ( e or l u_in .... in tl e 1 hil ip,.,in s * � t. is 1 on its gros;;:, incc..;r. . rit t.L 'JE. rs c vered I y th- as.::)e �s - ion . .. t un( e.:: c . ln t �...: c T �' ut.....ti n .;:; ... it:.a dc.fi i.:nc i l.c ... tax l i bilitje as fl(t-r � ia~nt f reign corJor~�icn not en in r or u,:,inc s in tl.e hilip ines du- r , tte p rid c vered by the asse eti .i ner u mi OJ , however , that r .s ._,n '. n t cor.., it {' d the .ollo in, .r: rors: " or th . ye3.r r s on d all 19 7

/ Dl! C l - 23 - CTA C C � � 2 l ax i .... , t of the t the h e- :in vs . tax n cc unt s ccrr ctly l inte Olt by et t (p. 13 of his . . n u ) nt err r . ~ CC.:f � 't i . tt � c ut tion 6 tX ncy 11 l 7,870 . 14 w 5 . 1lit:r of ' ti icner - ,r ~� ..,.�m of ctua }u t aiw unt l>y i t s ~ 1 in~, ner--1 nc: aa. iniher tiv c .. er. .., n t ret rn ,. an n t th. .. un of 5 , 1.3 . ,wic iarcwhc:r to l foun tl,- r on . ( xh � .. ~" � ) h r 11 , t � r - for , n ov tct8 nt in h ~e!ici ncy inctme tax 19

D CI...,I l - C1' C 5 O. 2 81 - 24 - d ag inst � titi n r for 1965. Cons qu ntly, t"' r:unt o 95 , 602 . 42 , s d icicncy incom t x du fro e iti n r fo r 1<65 , s c rr .ctly c 1 puted . he am is ru th res~ ct t th l 66 efi- ci nc y it t� li �i ity . 1 for l.l. n , g neral nd d .. ini!>-.. r tive xt~en. �ere n t over t t,.. s ).titio. r cl im only the mount of 17~,115 . 13 nd not 200,.01 . 18 � .( �xh . " ") h 1966 inco1. tw~ r turn of peti ioner cl rly s!";ows th t the u ount cl�irn th�r in f r �el~iny , yenor 1 nQ d .i i~tr tive x~ ns i ctual1y nd n t �17~ , 115 . 13 . n th � err r r 1 _iv t th diff renee in xc~un _ r t tw "n 518 , 876 . 21 ( 581 , 87~ . 21) p r Chic go Br i dge ( hilippines ) Inc . nd 51 , 340 . 34 r>er C icagc Brid9 . & Ircn COil an , Ill i ncis , ~s xr.,l ir c. � by rcspon � �.nt, w s ttri- ta 1 tc cl ric 1 error . Th ~u of llfi , 615 . ~6~as defici ncy incc. t x cf p.titi n.r for 1966 , th ref r , ccrr~ctly cc put � t 'h l~c7 deficiency s of 125, 07 . 24 . . I In c 1 utin th 1968 defici ncy - r ~ on~ . nt i-al cwed th d duct"c f d � r eci tion allo �nee in th"" ... ur1 of 11 , 90 . 33 cnl , .w. n th corr. ct tCUnt sl.t:: 1 ~ tn: e b n t lll , 2S0 . 33 . ( ee xhi it " 11 vi .g n ticed t error , r ~ ondent ) 19 9

/ . 2481 - 25 - sub"' u 1tly r cc. put o the de ici:.n y inccme t. nt of petiti rer ~or 1� 8 , n purs �nt to th ~1 icn of tlis C rt i n c , Ca e ~ � 2263 , ilc T i. s . u.... i 15 ing Cc . l.nc . vs . Co nrr�iv - s i n r 0 Int . .:1. l , C\�.n �e , .u c mb .r: 17 , J.073 r- tior ri eni ... in L- t.l54 and r.-3 476 , ..ay 10 , 1~7 ) , r . uc�d th t x rato nm 35~ to 3~ � 'ot that tt ~ monthly in~,r 1 DY n t.nt in th recc�.l utacio � u�.� i c.n d.;> f n... on and f(~ ur mo th. to tJ1 ro - th r , th i S u l t:O ,...,_ i 1. ] 6 , ~- 7 lt. line Wl.t the r vi- s i u �of 51 (a.) o _,. 'l'ax � u , int re�t on �fici n- c y ~l 11 e co l.ct I f. r from t I( 1. te p r e.., ril th J.ldyt .ent c i.... � ta -c . tn . th d.fic' cy m�.. nt ":.'i"-'5 rna e on AU u~t 17 , 1~7u , ~- ~~ monthly lnte �~ton i- ci ncy sh u. c crm u~ u on y u to ~h �t aa M� as follows: incnme per inv .ti~ ticn t )i. c;� t .r:eon ,r ount already � �~id nee m � int. fr n 4- 16-69 i.i-17 - 70 Toti.tl a.oun. du n< � c llec i le The d i tion 1 inc! 1 tdx payable by p i o ner f r they r 1.68 i.., , th<~refor , 3 4 , 5�5 . 4 .

DECI ' ION CT CASE NO . 2481 - 26 - I n resum~, the deficiency income tax due f r om petitioner are as follows: 1965 95,602 . 42 1966 118,615 . 96 1967 125,076 . 24 1968 384, 585 , 84 Total - - - 7 23, 880 . 46 Accordingly, having reached the conclusion that petiti oner Chicago Bridge & Iron Company is a non- resident foreign corporation not engag d in trade or business withi n the Phi lippines and, therefore, tax- able on its gross income, the de.cision of respondent Commissioner of Internal Revenue appealed from re- quiring it to pay the amounts of � 95, 602.42, 118, 615 . 96 and ~125 , 076 . 24 s deficiency income tax for 1965, 1966 and 1967, r spective1y, except with respect to the additional inc om tax for 198 w ich is hereby reduced from 420, 195 , 64 t o 384 , 5 5,84, or a total I of 723 , 880,46, plus 5% stircharge and 1% monthly in- terest thereon from August 17, 1970 until fully aid, pursuant to the provi3icns of Sect'on 5l(e) of the National Internal Revenue Code , as amended by Republic Act o . 234~ must be sustained . WHEREFORE, the decision of respondent Commis - sioner of Internal Rev nue is mod ified as indi cated �, 201

- � DECl J l . - CT CAw � 24 1 - 27 - in th v comput tion of th Court but ffi~ d in 1 p ct � if.h co t .s � 1 ~t p titione . $ u zon City , etro anil , y 31 , 1979 . f ct ng �r l C� .'C i~ c .~:-(, UI ociat � 202