Ic of Th! Philippines ‘Court of Tax Appbrals Quezon Crfy United Press International vs. = Celeha Case No, 2178 Ts Commissiqgner of Internal Revenub, Golf

IC OF TH! PHILIPPINES ‘COURT OF TAX APPBRALS QUEZON cRFY UNITED PRESS INTERNATIONAL, Petitioner, - versus = Celeha CASE NO, 2178

TS COMMISSIQGNER OF INTERNAL

REVENUB, golf Respondent.

ZREeaweeeeaenwnema wm m ew EX vDECZTETOR Petitioner has appealed from the decision af respondent Commissioner ef Internal Keveme sustaiie ing a 1959 deficiency income tex assessment of 75,341.00, computed as followss NZT INCOMS PER R&TURM P 2,076.27 Adds Disallewed deductions « .

cost of worldwide news og hy —— te r oe 11539 te 2 dees es att 1999" Aisne Tax og cone ‘ P 6,396.00 Less: Amount already paid ale , 9

Belanee

Adds 1/2% mon in t rota Tatas hast tlbsStaae FPS fhe facts of the case as stipulated and agreed upen by the opposing parties read as fellewss le the petitioner is a foreign corporation doing basiness in in the » duly organized and existe ey es the lawe of tate. of Hew York, U, 5. A office at Suite 701 Trinity Gldge, T. Me Ww Street, Srmita, Manlia, while the respondent is the duly appointed and ified Commissioner of Internal neverme with office at the Finenee Building, Manila.

@e Petitioner ie a foreign news =e offices all over the world. As such, pay the business of Biya. and process “prate coverages of world events from worldewide | sanpees one transmitting and delivering the same to its clients in 153

DECISION @

OTA CaSZ HO. 2478 2 the Philippines and elsewhere.

3. On April 18, 1960, the petitioner filed its Philippines income tax return for the year ended 7328,209 uy 1959, te Ae gress incoue ee claiming deductions rose re as. Lacon tax due (pp. 2=9, BIR records). hk, The petitioner sonmutet ita Philippine allocated KoseoSiens DV Sieazine See Se pure suant to Section 37(b) of the Tax Code and Section 160 of Revenue & ations No. 2 of the Departaent of Pinanse as fo EMAC RET! x world vide non allocable expenses world wide expenses allocable te Philippine ineome.

In teras of actual figures, the petitioner's eomputation wass bey his X $26,533,359 = $146,000 or 326,133.60,

5. The amounts of werld gross income and used in the formla were those reflected by the office books of the petitioner in New York at a time when its U.S, income tex figures vere not A nae available. However, a6 a result of further adjustments, the. oo. tdoner's income tax or as presented in’ its U, & tax return reflect a world gross income of 426, 7704836.3 and expenses of §2656235 553027 (pp. oe gae6s BIR record

6. After an a of the petitioner's 1999 income tax re erat i © sent a demand let dated December 29 an eanenenent notice ag he 36, GIR pons 2 the Was an on assessing the tter an amount of 75,341.00 as reed 7 oa og incone tax and interest pias e orgy 4 ponalty in the total amount of 7600.00 for failure to attach « tren pt Sl taxea A. # Salenee sheet and 17.01-b, penalized Section 352 of the Tax Code (ps. 33, UIh record), whieh Letter and vere were received by petitioner ona Jamary 5, 1965+

7. The yes resulted frem the peqpemans's ot arte pe of 8, 93.83 - of the total sum of tion for a a ms ory B Claimed at be’ 7 (raze donee, as minus 3 P2358 wy 83) - were trictly Manila incurred expenses. :

154

DECISION « |

CLA CaSE NO. 2498 3 & In a letter dated ane caves fh 1965, received by the res: % on the same ds he 2 pelitio itiLoner eee deficiency sasesenen

Co

9. In the course of a woneen of on nan conducted oy the respondent and letters of the respondent dated 9, "965 an -_ a oP one? wnieh Some gem requested the pe bmi & addi wipe 00-50, 8 te wappert “tte “dednetions, 46050, BIii ay B the titioner wrote the 2,cBPe ent iC September 15 5 now its a ocated etions were arrived at ond enclosed therewith copies ofs a) a letter oot Ae 22, 1960 of Gaskins and Sells, the Certified Public — of the petitioner, together # ~ the petitioner's balance sheet for 1959, and e) a of petitioner's taxable income for 19599 fw PP. 3, SIR record).

10. ihe respondent also received from the petie tioner a duly authenticated copy of ite 1959 U. 5. income tax return, (pp. 64=69 SIh record). = suthenticated 0, &. tax return vas enclosed in cetie ticner‘s letter to the respondent dated September 30, ~ $965 ——" indicates the petitioner's world wide gross income and expenses (p. 73, STi de The only issue subgitted to the Taz Court for resolution is whether or not the sum of 9238,9'3.83, the share of petitioner's Manila office in the lNlew Yerk office expenses around the world, is deductible from the petitioner's gross income in the Philippines, The law applicable to the question at issue reads as followss Sec. 376 Income from sources within the Philispines, - xx 3% xXx XxX %xXxxX xXx

DECISION «

CTA CaSE NG, 2178 % shail be deducted the expenses, losses, and other deductions properly rtioned or allocable thereto and a rateable part of any expenses baheety' be er othar deductions be allocated to which oumat some item or — nny re wy J gress income, The renainder if any, Shall be ineciuded in a (ational Internal Reveme Revemme Regulations Ho, 2, otherwise known as the Income Tax Regulations, iaplementing the pro- Visions of Jection 37(b) of the Tax Code, gupra, read as folievss Set, 160. = « From t spec ee S7<a) as tai the Phldp speci riealiy from sourees within Philippines th shali be deducted the expenses, losses "gad other deductions preperly sp ioned or ee thereto rg eaten R ned af expenses 8e8 or e which cannot definitely be allocated %o some item or class re A income, The reviainider shall be ineluded in full as net income from sources vithin the Phili pines, The ratadle pert is based upon ratio of gross ineose from souress within the Philippines to the total grass income, ty 161. ~ ¥ ei in Seetion 37ta) and (e) be allocated or apportioned to sources withla or with out Philippines as provided in fee tion 37(e), xx xx re xx Where items of gross income are separately allocated to sources within the Philippines, there shall be deducted therefrom, in comput. net Parmer the expenses, "losses and ot eductiens properly rtioned or sLiccated thereto and a ra part of other expenses, losses or other deductions whieh cannot definitely be sllecated to some item or class of gross income, 156

DECISION «

CTA CaSB HO. 2778 5 From petitioner*s 1959 gross income in the Philippines, it claimed a total deduction of P}26,133.60 computed in accordance with the general formala of apportionment under the aboveecited law and regulations, to wits ltt adnate x World wide non orla's groas one allocable expenses, or Werld wide expenses pine inesae Gut of the deductible expenses of P326,133.60 Claimed by petitioner's Manila office, reapondent disallowed P238,9%3.83 representing a ratable portion of petitioner's ilead Office expenses around the world, liowever, only the amount of 767,199.77, expenses incurred by petitioner's Manila Office, was allowed as a deduction from petitioner's gross income in the Philippines.

The denial of the deduction of 9238,9%3.83 from petitioner's gross income in the Philippines is predicated principally on the alleged lack ef evidence showing thet petitioner's world wide expenses are allocable te some item or class of petiticner's gross income in this country.

At the outset, it may be stated that petitioner is a foreign cerporation doing business in the Philippanes. it is an international news and presse agency with head office in Hew York and branch offices 157

DAC ISION «

CTA CaSS NO. 2178 6 in Manila and other major cities around the vorld, It is engaged in gathering and processing news and phote coverages of verld-wide events and distributing and selling the sane to its media client: around the world, Petitioner's stories, pictures and news sold and distribated in the Philippines are gathered by its effices around the world, The expenses of gathering the information, teking the pictures, editing end re- editing the news and delivering and transmitting the seme are all incurred by petitioner's branch offices abroad. In fact, petitioner's expenses abroad include Salaries of correspondents, journalists, editors, photographers, office rentals, wire services, and other expenses in the cperations of ite world wide offices, It is evident, therefore, that petitioner's expenses | around the world have a direct bearing in the production of Philippine income.

The world wide expenses of petitioner cannot be allocated to Philippine incame alone. sy the very nature of petitioner's business as an international news and prees agency, ite world wide expenses cannot definitely be allecateé to some item or class of gross income in the Philippines, However, Section 37(b) of the Hationeal Internal Revenue Code, in relation to Sections 160 and 161 ef the Income Tax Regulations, Sata, allews the deduction of a ratable part of the 158

DECISION «

CTA CASE WO. 2178 ?

total expenses of its entire ousiness based upon the ratio of Philippine income to total world gross income tines world wide noneallecable expenses, In justifying the deduction from tho Philippine gross income of the world wide noneallocable expenses of petitioner, Mr, Lino Amipol, business manager of petitioner's Manila Offices, testified, among others, aa follows:

‘ Why is &£t necessary for your company to ” _ the formla in’ allocatt the om penses pertaining to Peliigpine income? A. Because it is not feasible for United Press International to pinpeint te any Single particular area where the news ietures are being received end used, his news distribution which is sent pen re A Te aly Bagg Enon Bn area eensequen ane incurred and therings edit- tng ont distritmtion of these materials could not t be allocated to any single fF area (teSeMe pps 26°27)s Cousidering that petitioner sells and distributes steries, news, photos wii feature articles te most countries around the world, maintains offiees in its major cities, snd gathers, processes, edits and trans- mite yearly thousands of news iteas to and from its offices around the world, it is impossible to definitely allocate world expenses to a particular office on a country to country basis, At any rate, in the case of Ginn and Co, vs. Com missioner ef Internal Keveme, CTA Case No. 674%, May 21, 1962, this Court ruled that the petitioner, a foreign ~ 159

DECISION «

CTa CASE NOs 2178

8 corporation doing Wusiness in the Philippines, pro- perly deducted a ratable part of the total expenses of its entire business based upon the ratio of Philippine income to the total of petitioner's gross income, Thma, it was helds It is, therefor Clear that @x~ pagent 4 sade by a “hereien oo corporation eonducting its euannete are deductible in computing its taxable ineome from gourees within the Philippines only when elleeable ta the production of income Ceupe & tube part Of Generel Capen ea ra =) Ro me expen- ditures is Rad portioned to income wi the hag g See ajardo Sugar Co, of = 20 aa aed axes that the decu 2 cheuste

in P

very nature of things, it is impossible te check and verify said expenses" is without merit. The =. that a. 4s diffi- tifieati al of the dedueti. otherwise the lew would be rendered dean, It is yet essential that there be f portion of such home office yh 4. is retry to income from sources within .

At the hearing of this case on the merits, petitioner hes submitted sufficient evidence of its world wide expenses and income, such as petitioner's 1959 U. &. income tax return duly authenticated by the Philippine Consul in New York, petitioner's audited world wide financial statements prepared by the accounting firm of Haskins and Sells, showing the amount of 7238,9%3.83 as world wide expenses from 160

DSc IsIGR «

GTA CASE BO. 2178 9 Jamary 1, 1959 to Decesier 31, 1959, balance sheet for 1959, sod summery of petitioner's taxable inecone for 1959.

*@ ore satisfied from the evidence adduced by petitioner that ite world wide expenses of P236,9%3.383 as an international news and press ageney lave a direct bearing in the preduction of its Philippine income, Cossemientiy, it should be allowed a prow portionate deduction of its worldwide expenses from its Phillppine gross tneome, purmiant to Section 37(b) of the hational Internal Revenue Code, in relation to Sections 160 and 164 af the Theone Tax Regulations,

Sura &

AnMRGSULS, the decision of responcent Commissioner of Internal heveme appealed from is reversed and the 1959 deficiency income tax assessment of F75,3%1.00 issued by said respondent against petitioner is hereby withdrewn, cancelled, and declared of no foree and effect, #0. costs.

SO ODGHED.

@uezon City, August 12, 197%, fe ie

WS CONCIRs Associate Judge

Fresiding Judge

RAMON be AVANCENA dasoelate Judge fdna 161 ~