In order that a foreign corporation may be considered engaged in trade or business, its business transactions must be continuous
FACTS:
• Both vessels of petitioner N.V. Reederij “Amsterdam” called on Philippine ports to load cargoes for foreign destinations.
• The freight fees for these transactions were paid in abroad. In these two transactions, petition Royal Interocean Lines acted as husbanding agent for a fee or commission on said vessels. No income tax has been paid by “Amsterdam” on the freight receipts.
• As a result, Commissioner of Internal Revenue filed the corresponding income tax returns for the petitioner. Commissioner assessed petitioner for deficiency of income tax, as a non-resident foreign corporation NOT engaged in trade or business.
• On the assumption that the said petitioner is a foreign corporation engaged in trade or business in the Philippines, petitioner Royal Interocean Lines filed an income tax return of the aforementioned vessels and paid the tax in pursuant to their supposed classification.
• On the same date, petitioner Royal Interocean Lines, as the husbanding agent of “Amsterdam”, filed a written protest against the abovementioned assessment made by the respondent Commissioner. The protest was denied.
• On appeal, CTA modified the assessment by eliminating the 50% fraud compromise penalties imposed upon petitioners. Petitioner still was not satisfied and decided to appeal to the SC.
ISSUE: Whether or not N.V. Reederij “Amsterdam” should be taxed as a foreign corporation not engaged in trade or business in the Philippines?
HELD:
• Petitioner is a foreign corporation not authorized or licensed to do business in the Philippines. It does not have a branch in the Philippines, and it only made two calls in Philippine ports, one in 1963 and the other in 1964.
• In order that a foreign corporation may be considered engaged in trade or business, its business transactions must be continuous. A casual business activity in the Philippines by a foreign corporation does not amount to engaging in trade or business in the Philippines for income tax purposes.
• A foreign corporation doing business in the Philippines is taxable on income solely from sources within the Philippines. It is permitted to claim deductions from gross income but only to the extent connected with income earned in the Philippines. On the other hand, foreign corporations not doing business in the Philippines are taxable on income from all sources within the Philippines . The tax is 30% (now 35% for non-resident foreign corp which is also known as foreign corp not engaged in trade or business) of such gross income. (*take note that in a resident foreign corp, what is being taxed is the taxable income, which is with deductions, as compared to a non-resident foreign corp which the tax base is gross income)
• Petiioner “Amsterdam” is a non-resident foreign corporation, organized and existing under the laws of the Netherlands with principal office in Amsterdam and not licensed to do business in the Philippines.
