CIR v.

Juliane Baier-Nickel
(Multiplicity of Situs)

Facts:
Respondent Juliane Baier-Nickel, a non-residentGerman citizen, is the President
of JUBANITEX, Inc., adomestic corporation engaged in [m]anufacturing, marketingon
wholesale only, buying or otherwise acquiring, holding,importing and exporting,
selling and disposing embroideredtextile products. Through JUBANITEXs General Man
ager,Marina Q. Guzman, the corporation appointed and engagedthe services of resp
ondent as commission agent. It wasagreed that respondent will receive 10% sales
commission onall sales actually concluded and collected through her efforts.In 1
995, respondent received the amount of P1,707,772.64, representing her sales com
mission incomefrom which JUBANITEX withheld the corresponding 10%withholding tax
amounting to P170,777.26, and remitted thesame to the Bureau of Internal Revenu
e (BIR). On October 17, 1997, respondent filed her 1995 income tax returnreporti
ng a taxable income of P1,707,772.64 and a tax due of P170,777.26.Respondent fil
ed a claim to refund the amount of P170,777.26 alleged to have been mistakenly w
ithheld andremitted by JUBANITEX to the BIR. Respondent contendedthat her sales
commission income is not taxable in thePhilippines because the same was a compen
sation for her services rendered in Germany and therefore considered asincome fr
om sources outside the Philippines.The
CTA
rendered a decision denying her claim. Itheld that the commissions received by r
espondent wereactually her remuneration in the performance of her duties asPresi
dent of JUBANITEX and not as a mere sales agentthereof. The income derived by re
spondent is therefore anincome taxable in the Philippines because JUBANITEX is a
domestic corporation.On petition with the
Court of Appeals
, the latter reversed the Decision of the CTA, holding that respondentreceived t
he commissions as sales agent of JUBANITEX andnot as President thereof. And sinc
e the source of incomemeans the activity or service that produce the income, thesa
les commission received by respondent is not taxable in thePhilippines because i
t arose from the marketing activitiesperformed by respondent in Germany.
Petitioner
maintains that the income earned byrespondent is taxable in the Philippines beca
use the sourcethereof is JUBANITEX, a domestic corporation located in theCity of
Makati. It further argued that since respondent is thePresident of JUBANITEX, a
ny remuneration she received fromsaid corporation should be construed as payment
of her overallmanagerial services to the company and should not beinterpreted a
s a compensation for a distinct and separateservice as a sales commission agent.
Respondent
, on the other hand, claims that theincome she received was payment for her mark
eting services.She contended that income of nonresident aliens like her issubjec
t to tax only if the source of the income is within thePhilippines. Source, acco
rding to respondent is the situs of theactivity which produced the income. And s
ince the source of her income were her marketing activities in Germany, theincom
e she derived from said activities is not subject toPhilippine income taxation.
Issue/s:
W/N respondents sales commission income istaxable in the Philippines.
Held/Ratio: Yes.
Section 25 of the NIRC provides that non-residentaliens, whether or not engaged
in trade or business, aresubject to Philippine income taxation on their income r
eceivedfrom all sources within the Philippines. Thus, the keyword indetermining
the taxability of non-resident aliens is the incomessource.
Source of income relates to the property,activity or service that produced the inc
ome.
With respectto rendition of labor or personal service, as in the instant case,it
is the place where the labor or service was performed thatdetermines the source
of the income. There is therefore nomerit in petitioners interpretation which eq
uates source of income in labor or personal service with the residence of thepay
or or the place of payment of the income.
The decisive factual consideration here is not thecapacity in which respondent r
eceived the income, but thesufficiency of evidence to prove that the services sh
e rendered were performed in Germany.
The settled rule is that tax refunds are in the nature of tax exemptions and are
to be construed strictissimi jurisagainst the taxpayer. The faxed documents pre
sented byrespondent did not constitute substantial evidence, or thatrelevant evi
dence that a reasonable mind might accept asadequate to support the conclusion t
hat it was in Germanywhere she performed the income producing service whichgave
rise to the reported monthly sales in the months of Marchand May to September of
1995. She thus failed to dischargethe burden of proving that her income was fro
m sourcesoutside the Philippines and exempt from the application of our income t
ax law.
Petition GRANTED. The June 28, 2000 Decision of the Court of Tax Appeals in C.T.
A. Case No. 5633, which denied respondents claim for refund of income tax paid fo
r the year 1995 is REINSTATED