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G.R.No.L13250
TodayisSunday,November13,2016
RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC
G.R.No.L13250October29,1971
THECOLLECTOROFINTERNALREVENUE,petitioner,
vs.
ANTONIOCAMPOSRUEDA,respondent..
AssistantSolicitorGeneralJoseP.AlejandroandSpecialAttorneyJoseG.Azurin,(O.S.G.)forpetitioner.
RamirezandOrtigasforrespondent.
FERNANDO,J.:
ThebasicissueposedbypetitionerCollectorofInternalRevenueinthisappealfromadecisionoftheCourtof
TaxAppealsastowhetherornottherequisitesofstatehood,oratleastsomuchthereofasmaybenecessaryfor
theacquisitionofaninternationalpersonality,mustbesatisfiedfora"foreigncountry"tofallwithintheexemption
of Section 122 of the National Internal Revenue Code 1 is now ripe for adjudication. The Court of Tax Appeals
answered the question in the negative, and thus reversed the action taken by petitioner Collector, who would hold
respondent Antonio Campos Rueda, as administrator of the estate of the late Estrella Soriano Vda. de Cerdeira, liable for
the sum of P161,874.95 as deficiency estate and inheritance taxes for the transfer of intangible personal properties in the
Philippines, the deceased, a Spanish national having been a resident of Tangier, Morocco from 1931 up to the time of her
deathin1955.InanearlierresolutionpromulgatedMay30,1962,thisCourtontheassumptionthattheneedforresolving
the principal question would be obviated, referred the matter back to the Court of Tax Appeals to determine whether the
alleged law of Tangier did grant the reciprocal tax exemption required by the aforesaid Section 122. Then came an order
fromtheCourtofTaxAppealssubmittingcopiesoflegislationofTangierthatwouldmanifestthattheelementofreciprocity
was not lacking. It was not until July 29, 1969 that the case was deemed submitted for decision. When the petition for
reviewwasfiledonJanuary2,1958,thebasicissueraisedwasimpressedwithanelementofnovelty.Fourdaysthereafter,
however, on January 6, 1958, it was held by this Court that the aforesaid provision does not require that the "foreign
country"possessaninternationalpersonalitytocomewithinitsterms.2Accordingly,wehavetoaffirm.
ThedecisionoftheCourtofTaxAppeals,nowunderreview,setsforththebackgroundfactsasfollows:"Thisis
anappealinterposedbypetitionerAntonioCamposRuedaasadministratoroftheestateofthedeceasedDoa
MariadelaEstrellaSorianoVda.deCerdeira,fromthedecisionoftherespondentCollectorofInternalRevenue,
assessing against and demanding from the former the sum P161,874.95 as deficiency estate and inheritance
taxes,includinginterestandpenalties,onthetransferofintangiblepersonalpropertiessituatedinthePhilippines
and belonging to said Maria de la Estrella Soriano Vda. de Cerdeira. Maria de la Estrella Soriano Vda. de
Cerdeira(MariaCerdeiraforshort)isaSpanishnational,byreasonofhermarriagetoaSpanishcitizenandwas
aresidentofTangier,Moroccofrom1931uptoherdeathonJanuary2,1955.Atthetimeofherdemisesheleft,
amongothers,intangiblepersonalpropertiesinthePhilippines."3 Then came this portion: "On September 29, 1955,
petitioner filed a provisional estate and inheritance tax return on all the properties of the late Maria Cerdeira. On the same
date,respondent,pendinginvestigation,issuedanassessmentforstateandinheritancetaxesintherespectiveamountsof
P111,592.48 and P157,791.48, or a total of P369,383.96 which tax liabilities were paid by petitioner ... . On November 17,
1955,anamendedreturnwasfiled...whereinintangiblepersonalpropertieswiththevalueofP396,308.90wereclaimedas
exemptedfromtaxes.OnNovember23,1955,respondent,pendinginvestigation,issuedanotherassessmentforestateand
inheritance taxes in the amounts of P202,262.40 and P267,402.84, respectively, or a total of P469,665.24 ... . In a letter
datedJanuary11,1956,respondentdeniedtherequestforexemptiononthegroundthatthelawofTangierisnotreciprocal
to Section 122 of the National Internal Revenue Code. Hence, respondent demanded the payment of the sums of
P239,439.49representingdeficiencyestateandinheritancetaxesincludingadvalorempenalties,surcharges,interestsand
compromise penalties ... . In a letter dated February 8, 1956, and received by respondent on the following day, petitioner
requested for the reconsideration of the decision denying the claim for tax exemption of the intangible personal properties
and the imposition of the 25% and 5% ad valorem penalties ... . However, respondent denied request, in his letter dated
May5,1956...andreceivedbypetitioneronMay21,1956.Respondentpremisedthedenialonthegroundsthattherewas
no reciprocity [with Tangier, which was moreover] a mere principality, not a foreign country. Consequently, respondent
demanded the payment of the sums of P73,851.21 and P88,023.74 respectively, or a total of P161,874.95 as deficiency
estateandinheritancetaxesincludingsurcharges,interestsandcompromisepenalties."4
ThematterwasthenelevatedtotheCourtofTaxAppeals.Astherewasnodisputebetweenthepartiesregarding
the values of the properties and the mathematical correctness of the deficiency assessments, the principal
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question as noted dealt with the reciprocity aspect as well as the insisting by the Collector of Internal Revenue
thatTangierwasnotaforeigncountrywithinthemeaningofSection122.Inrulingagainstthecontentionofthe
CollectorofInternalRevenue,theappealeddecisionstates:"Infine,webelieve,andsohold,thattheexpression
"foreign country", used in the last proviso of Section 122 of the National Internal Revenue Code, refers to a
government of that foreign power which, although not an international person in the sense of international law,
doesnotimposetransferordeathuponintangiblepersonpropertiesofourcitizensnotresidingtherein,orwhose
law allows a similar exemption from such taxes. It is, therefore, not necessary that Tangier should have been
recognizedbyourGovernmentordertoentitlethepetitionertotheexemptionbenefitsoftheprovisoofSection
122ofourTax.Code."5
Hence appeal to this court by petitioner. The respective briefs of the parties duly submitted, but as above
indicated,insteadofrulingdefinitelyonthequestion,thisCourt,onMay30,1962,resolvetoinquirefurtherinto
thequestionofreciprocityandsentbackthecasetotheCourtofTaxAppealsforthemotionofevidencethereon.
The dispositive portion of such resolution reads as follows: "While section 122 of the Philippine Tax Code
aforequotedspeaksof'intangiblepersonalproperty'inbothsubdivisions(a)and(b)theallegedlawsofTangier
refer to 'bienes muebles situados en Tanger', 'bienes muebles radicantes en Tanger', 'movables' and 'movable
property'. In order that this Court may be able to determine whether the alleged laws of Tangier grant the
reciprocaltaxexemptionsrequiredbySection122oftheTaxCode,andwithout,forthetimebeing,goingintothe
meritsoftheissuesraisedbythepetitionerappellant,thecaseis[remanded]totheCourtofTaxAppealsforthe
receptionofevidenceorproofonwhetherornotthewords`bienesmuebles','movables'and'movableproperties
asusedintheTangierlaws,includeorembrace'intangiblepersonproperty',asusedintheTaxCode."6 In line
with the above resolution, the Court of Tax Appeals admitted evidence submitted by the administrator petitioner Antonio
Campos Rueda, consisting of exhibits of laws of Tangier to the effect that "the transfers by reason of death of movable
properties,corporealorincorporeal,includingfurnitureandpersonaleffectsaswellasofsecurities,bonds,shares,...,were
notsubject,onthatdateandinsaidzone,tothepaymentofanydeathtax,whatevermighthavebeenthenationalityofthe
deceasedorhisheirsandlegatees."ItwasfurthernotedinanorderofsuchCourtreferringthematterbacktousthatsuch
weredulyadmittedinevidenceduringthehearingofthecaseonSeptember9,1963.Respondentpresentednoevidence."7
The controlling legal provision as noted is a proviso in Section 122 of the National Internal Revenue Code. It
reads thus: "That no tax shall be collected under this Title in respect of intangible personal property (a) if the
decedentatthetimeofhisdeathwasaresidentofaforeigncountrywhichatthetimeofhisdeathdidnotimpose
atransfertaxordeathtaxofanycharacterinrespectofintangiblepersonpropertyofthePhilippinesnotresiding
inthatforeigncountry,or(b)ifthelawsoftheforeigncountryofwhichthedecedentwasaresidentatthetimeof
hisdeathallowasimilarexemptionfromtransfertaxesordeathtaxesofeverycharacterinrespectofintangible
personal property owned by citizens of the Philippines not residing in that foreign country." 8 The only obstacle
therefore to a definitive ruling is whether or not as vigorously insisted upon by petitioner the acquisition of internal
personalityisaconditionsinequanontoTangierbeingconsidereda"foreigncountry".DeferencetotheDeLararuling,as
wasmadeclearintheopeningparagraphofthisopinion,callsforanaffirmanceofthedecisionoftheCourtofTaxAppeals.
Itdoesnotadmitofdoubtthatifaforeigncountryistobeidentifiedwithastate,itisrequiredinlinewithPound's
formulation that it be a politically organized sovereign community independent of outside control bound by
penalties of nationhood, legally supreme within its territory, acting through a government functioning under a
regimeof
law. 9 It is thus a sovereign person with the people composing it viewed as an organized corporate society under a
government with the legal competence to exact obedience to its commands. 10 It has been referred to as a bodypolitic
organizedbycommonconsentformutualdefenseandmutualsafetyandtopromotethegeneralwelfare.11Correctlyhasit
been described by Esmein as "the juridical personification of the nation." 12 This is to view it in the light of its historical
development.Thestressisonitsbeinganation,itspeopleoccupyingadefiniteterritory,politicallyorganized,exercisingby
meansofitsgovernmentitssovereignwillovertheindividualswithinitandmaintainingitsseparateinternationalpersonality.
Laskicouldspeakofitthenasaterritorialsocietydividedintogovernmentandsubjects,claimingwithinitsallottedareaa
supremacy over all other institutions.13 McIver similarly would point to the power entrusted to its government to maintain
withinitsterritorytheconditionsofalegalorderandtoenterintointernationalrelations. 14Withthelatterrequisitesatisfied,
internationallawdonotexactindependenceasaconditionofstatehood.SoHydedidopine.15
Even on the assumption then that Tangier is bereft of international personality, petitioner has not successfully
madeoutacase.ItbearsrepeatingthatfourdaysafterthefilingofthispetitiononJanuary6,1958inCollectorof
InternalRevenuev.DeLara,16itwasspecificallyheldbyus:"ConsideringtheStateofCaliforniaasaforeigncountryin
relationtosection122ofourTaxCodewebelieveandhold,asdidtheTaxCourt,thattheAncilliaryAdministratorisentitled
the exemption from the inheritance tax on the intangible personal property found in the Philippines." 17 There can be no
doubtthatCaliforniaasastateintheAmericanUnionwasintheallegedrequisiteofinternationalpersonality.Nonetheless,
itwasheldtobeaforeigncountrywithinthemeaningofSection122oftheNationalInternalRevenueCode.18
WhatisundeniableisthatevenpriortotheDeLararuling,thisCourtdidcommititselftothedoctrinethatevena
tiny principality, that of Liechtenstein, hardly an international personality in the sense, did fall under this exempt
category. So it appears in an opinion of the Court by the then Acting Chief Justicem Bengson who thereafter
assumedthatpositioninapermanentcapacity,inKienev.CollectorofInternalRevenue.19 As was therein noted:
'The Board found from the documents submitted to it proof of the laws of Liechtenstein that said country does not
impose estate, inheritance and gift taxes on intangible property of Filipino citizens not residing in that country. Wherefore,
theBoarddeclaredthatpursuanttotheexemptionaboveestablished,noestateorinheritancetaxeswerecollectible,Ludwig
Kiene being a resident of Liechtestein when he passed away." 20 Then came this definitive ruling: "The Collector
hereafter named the respondent cites decisions of the United States Supreme Court and of this Court, holding that
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intangible personal property in the Philippines belonging to a nonresident foreigner, who died outside of this country is
subject to the estate tax, in disregard of the principle 'mobilia sequuntur personam'. Such property is admittedly taxable
here.Withouttheprovisoabovequoted,thesharesofstockownedherebytheLudwigKienewouldbeconcededlysubject
to estate and inheritance taxes. Nevertheless our Congress chose to make an exemption where conditions are such that
demandreciprocityasinthiscase.Andtheexemptionmustbehonored."21
WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957 is affirmed. Without
pronouncementastocosts.
Concepcion,C.J.,Makalintal,Zaldivar,Castro,VillamorandMakasiar,JJ.,concur.
Reyes,J.B.L.,J.,concursintheresult.
TeehankeeandBarredo,JJ.,tooknopart.
Footnotes
1CommonwealthActNo.466asamended(1939).
2CollectorofInternalRevenuev.DeLara,102Phil.813(1958).
3AnnexC,Petition,DecisionofCourtofTaxAppeals,p.1.
4Ibid,pp.23.
5Ibid,p.9.
6Resolution,pp.45.
7OrderofNovember19,1963p.2.
8Section122oftheNationalInternalRevenueCode(1939)readsinsofarasrelevant:"Forthe
purposesofthisTitletheterms'grossestate'and'gift'includerealestateandtangiblepersonal
property,ormixed,physicallylocatedinthePhilippinesfranchisewhichmustbeexercisedinthe
Philippinesshares,obligations,orbondsissuedbyanycorporationorsociedadanonimaorganized
orconstitutedinthePhilippinesinaccordancewithitslawsshares,obligations,orbondsissuedby
anyforeigncorporationeightyfivepercentumofthebusinessofwhichislocatedinthePhilippines
shares,obligations,orbondsissuedbyanyforeigncorporationifsuchshares,obligations,orbonds
haveacquiredabusinesssitusinthePhilippinessharesorrightsinanypartnership,businessor
industryestablishedinthePhilippinesoranypersonalproperty,whethertangibleorintangible,
locatedinthePhilippinesProvided,however,Thatinthecaseofaresident,thetransmissionor
transferofanyintangiblepersonalproperty,regardlessofitslocation,subjecttothetaxesprescribed
inthisTitleAndprovided,further,thatnotaxshallbecollectedunderthisTitleinrespectof
intangiblepersonalproperty(a)ifthedecedentatthetimeofhisdeathwasaresidentofaforeign
countrywhichatthetimeofhisdeathdidnotimposeatransfertaxordeathtaxofanycharacterin
respectofintangiblepersonalpropertyofcitizensofthePhilippinesnotresidinginthatforeign
country,or(b)ifthelawsoftheforeigncountryofwhichthedecedentwasaresidentatthetimeof
hisdeathallowasimilarexemptionfromtransfertaxesordeathtaxesofeverycharacterinrespect
ofintangiblepersonalpropertyownedbycitizensofthePhilippinesnotresidinginthatforeign
country."
9Cf.Pound:"Thepoliticalorganizationofasocietylegallysupremewithinandindependentoflegal
controlfromwithout."IIJurisprudence,p.346(1959).
10Cf.Willoughby,FundamentalConceptsofPublicLaw,p.3(1925).
11Cf.1Cooley,ConstitutionalLimitations,p.3(1927).
12Cf.Cohen,RecentTheoriesofSovereignty,p.15(1937).Pitamicspeaksofitasajuridical
organizationofhumanbeings.TreatiseontheState,p.17(1933).
13Laski,GrammarofPolities,p.25(1934).
14Cf.McIver,TheState,p.22(1926).
15Hyde,InternationalLaw,2nded.,p.22(1945).
16102Phil.813(1958).
17Ibid,p.820.
18InthesubsequentcaseofCollectorofInternalRevenuev.Fisher,L11622,January28,1961,1
SCRA93,thisCourtdidfindthatthereciprocityfoundintheCaliforniastatuteswaspartialnottotal,
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thusholdingthatSection122wouldnotapply,withouthoweverreversingthedoctrinethatan
internationalpersonalityisnotarequisite."
1997Phil.352(1955).
20Ibid,p.354.
TheLawphilProjectArellanoLawFoundation
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