Digest for Tax 2
organization with diplomatic status and thus
CIR v. John Gotamco & Sons
exempt from the payment of all fees,
licenses, and taxes, and that therefore their
DOCTRINE/S: In context, direct taxes are bids “must take this into account and should
those that are demanded from the very not include items for such taxes, licenses
person who, it is intended or desired, should and other payments to Government
pay them; while indirect taxes are those that agencies.” The construction contract was
are demanded in the first instance from one awarded to respondent John Gotamco &
person in the expectation and intention that Sons, Inc. on February 10, 1958.
he can shift the burden to someone else. The On June 3, 1958, the Commissioner of
contractor's tax is of course payable by the Internal Revenue stated that “as the 3%
contractor but in the last analysis it is the contractor’s tax is not a direct nor an indirect
owner of the building that shoulders the tax on the WHO, but a tax that is primarily
burden of the tax because the same is shifted due from the contractor, the same is not
by the contractor to the owner as a matter covered by the Host Agreement.”
of self-preservation. Thus, it is an indirect
tax. And it is an indirect tax on the WHO On January 2, 1960, the WHO issued a
because, although it is payable by the certification that the bid of Gotamco should
petitioner, the latter can shift its burden on be exempted from any taxes in connection
the WHO. In the last analysis it is the WHO with the construction of the WHO office
that will pay the tax indirectly through the building because taxes or fees in connection
contractor and it certainly cannot be said with the construction of the building is an
that 'this tax has no bearing upon the World indirect tax to WHO.
Health Organization.
On January 17, 1961, the Commissioner of
FACTS: Internal Revenue sent a letter of demand to
Gotamco demanding payment of P
The World Health Organization (WHO), an 16,970.40, representing the 3% contractor’s
international organization, entered into a tax plus surcharges on the gross receipts it
Host Agreement with the Republic of the received from the WHO in the construction
Philippines on July 22, 1951. In the of the latter’s building.
agreement, WHO’S assets, income and other
properties shall be exempt from all direct Respondent Gotamco appealed the
and indirect taxes. WHO decided to Commissioner’s decision to the Court of
construct a building to house its own offices, Tax Appeals, which after trial rendered a
as well as the other United Nations offices decision, in favor of Gotamco and reversed
stationed in Manila. In inviting bids for the the Commissioner’s decision.
construction of the building, WHO informed
the bidders that the building to be
constructed belonged to an international ISSUE/S:
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Digest for Tax 2
bearing upon the World Health
1. Whether or not the 3% contractor’s Organization.
tax assessed on Gotamco is an
“indirect tax”. The Host Agreement, in specifically
2. Whether respondent John Gotamco exempting the WHO from “indirect taxes,”
& Sons, Inc. should pay the 3% contemplates taxes which, although not
contractor’s tax under Section 191 of imposed upon or paid by the Organization
the National Internal Revenue Code directly, form part of the price paid or to be
on the gross receipts it realized from paid by it. The 3% contractor’s tax would be
the construction of the World Health within this category and should be viewed as
Organization office building in a form of an “indirect tax” On the
Manila. Organization, as the payment thereof or its
inclusion in the bid price would have meant
RULING: an increase in the construction cost of the
building.
YES. The Petitioner’s position is that the
contractor’s tax “is in the nature of an excise APPEALED DECISION AFFIRMED.
tax which is a charge imposed upon the
performance of an act, the enjoyment of a
privilege or the engaging in an
occupation. . . It is a tax due primarily and
directly on the contractor, not on the owner
of the building. Since this tax has no bearing
upon the WHO, it cannot be deemed an
indirect taxation upon it.”
The Court agreed with the Court of Tax
Appeals in rejecting this contention of the
petitioner. The CA stated: The contractor’s
tax is of course payable by the contractor but
in the last analysis it is the owner of the
building that shoulders the burden of the tax
because the same is shifted by the contractor
to the owner as a matter of self-preservation.
Thus, it is an indirect tax. And it is an
indirect tax on the WHO because, although
it is payable by the petitioner, the latter can
shift its burden on the WHO. In the last
analysis it is the WHO that will pay the tax
indirectly through the contractor and it
certainly cannot be said that ‘this tax has no
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