I20blic of the Philly! / Ourt of Tax Appeal. Poe = vs. C.T.4. Cate No, et al.

DECISION

The respondent acseseed against the petitioner the sum of 94,112.05, repreeenting deficiency sales tax and surchorge end commercial broker's fixed and percentage texee end surcharge for the pericd frem 1985 to 1957, itemized and computed ae follews!

Taxable amouht ~....-.

TE tax due thereon «.. Ee Leest Amount peid «--- _ 1,205.62 Defi¢ciency saiee 29% surcharge «<-<---~~ Total gross re- ceipts De 8k aE ED OG DO a EP . tex due thereon «.. ESL) : s Fixed taxes (C-8) 1955-1987 we---2-~-2 — 490. 20 Tetal POS PEE @ SCO DABABRSH CSM Baa w 3,651. 23 Totai landed cost «.<~ * 3,781.52 25% mark-up PE Ot Ee en en en ee Taxable smount ««...-. ? 4, } TY tax due thereon eannencmnnn-owe

TOTAL ABOUNT DUE AND COLLECTIBLE « TNT:

Petitioner does not contest the legality of the asvesement as regerde tha deficiency seles tex end surcharge in the sums of 7129.94 and °320.88. However, it ie alleged that it is not end has never engaged in i 455 tl we a ee ee > tt eo See ew

DECISION «

C.T.Ae CATE NO. 336 a business oc commercial broker, end therefore it can net be held ldable for the fixed and pereentege taxes ac commercinl broker a¢ provided in Sections 199(q)" and 199 of the National Internal Revenue Cede. Pailing to secure « reconsideration of respondent's assessment concerning the broker's fixed and percente age taxes, petitioner instituted the present appeal.

Petitioner is a domestic cezmperation with a branch office at Arcadia, Los Angeles, California.

The primoyvy pumosce for which petitioner wae organe ized, ac stoted in ite Articles of Incorporstion, is *To buy, manufsecture, produce, or otherwise sell, im- port, expert, trade, and desi in general morchandise, goods, wares, food products and commodities of every kind and description.” The Los Angeles branch sexves as petitioner's buying office.

oat. Femect to the trenesctions for which pe~ titioner is being held lisble fer the broker's fixed and percentage taxes, it appeers that petitioner's Menila office secures orders from Philippine customers for the purchase of goods from abroad. Under the contract entered into between petitioner and the buy-— er, the seller is the California branch. A sample of euch contrect is repreduced below!

1 Now Sec. 162(a)(3)(s 456

DECISION «

C.TeAs CATE HO. 536 - 3 ~

CADTALLADER PACIFIC OIPANY

TMPORTEAS «~ BITTRIGSUTORS « FXPOARTERS

MAMILA

Ref, 3939 Order No. 95/667 BUYER? Balanga Hardware and Supply, Palengsa, Bataan (*ENG Lut HARDWARE), here- by orders ond sqrees to purchase the mer- chandise epecified below from RELLARs Cadwallader Pacific ee - P.O. Box 565, Arcadia, California, U.SeAs, subject to the terme and conditions written _— and printed on the reverse side here-~ t (Here follows the description of the articles)

ALL PRICES SUBJECT TO CHANGE

UP TO TIME OF SHIPMENT

Estimeted ‘C.I.F. Manila Total Velve %1,925.00

Times Irrevocable Letter of Credit in

faver of the SELLER for the above total amount.

pert Sequlations.

TWOURANCED Ordinary riske.

MAPKINGSs PBHS/MANTLA.

Signed in the City cf Manile, Philippines. ‘on this 18th day of Cetcker, 1955. ’

CONF TRMEDs ACCEPTED:

CADWALLADER PACIFIC BALANGA HARBSARR

COMPANY & SUPPLY

By: (Sod) MAURICE MAFTALY Bys (Sed) bom

Generel] Manecer JAVIER

The tezmé and wnditions of the contract of sale appearing on the reverse side of the document are os follows!

2}. «8BLLER ehali not be respcnsible leas, damage, or delay due to oe ge 43% — ay es _ a —

EE

a

LOD I LE LLL LS A

DECISION «

GeTsAe CASZ NO. 386 =~ 4.

war, strikes, or 2ny causes beyond their control, Failure te ship or deliver with- in the time specified shall not be deemed a breach of this contrect and sll time apeci« fications, however worded, are only direc- tory. SELLER will not be responsible for nonedelivery due to er te any causes beyond their control. All deliver- des are cubject to reasonable variations from standard in color, form, size and 2,eThe SELLER may ship any portion of the merchandise a¢ soon ce comleted at the peop se are el works, np = made re or shipment, ond peywent for any p on of the goods as shinred chal] become due ia accordance with the terme of payment epecified on the reverse side hereof.

3.-Defsulte, delay or defect in sny one or mote Geliveries and/or portions thereof ehell be cc nsidered as : default and shall not give right for the PUYL!N to rescind the whole order covered by this contract. F 4 «Title to merchandise shaii pags to BLYEh | Of sha te The merchandise Gelled fox in this centract shali be ship- ped, traveled and be insured fer account and risk of the BUYER, and the reeponsi- bility of the °FLLER shall cease once the shipping documents have been signed by the steam company end delivered to the forwerding lcnk.

Se«the Sclich shall not be responsible in any way whatsoever for fines, Tges, UF any other expenses incurred because cf late or non-arriveal of oto documents cover- ing the merehencise celled for in this contract.

6e-Ordere and all other specifications and conditions ac stipulated in this contract cannot be modified or changed witieut written permincion of the SELLER.

T.-Thould the BUYER secure release of the merchandise called for in thie contract by meane of trust receipt, or otherwise, from the Bank holding draft ox drafts, SELLER will in no event guarantee such trust receipt. Sheuld the BUYEK be unable to arrence for the release by trust re- ceipt, or otherwise, on arrival of the ner- chandise called for in thie contract, “ELL- BR shell have the right to take delivery 458 ee

DECISION «

GeleAe CASE NC. 356 o 5 « of gaid merchandise and te sell the sane in the open market privately and showld the price obtained from this forced sale er sales be less then the contract price, the difierence shall be fer the account of the BUYER, whe agrees te pay the same te SELLEA on demand. All expenses ine curred in meking euch forced sale or aesles likewise shell ve fer BUYER'S account.

wise neglect to accept SELLER'S draft or drafts, oc otherwise fail, or neglect te make immediate payment and/or teke delivery of the merchandise celied for in this contrect on arrive] thereof, the BUYEA agrees and gives te the SELLER the right and authority to take delivery and peesession of the said merchandise and te sell or offer for sale the merchandise eeete* without prior netice to the and should the proceeds realized sale or sales thereof be inguf~- ficient to cover up the tetal cost or value of the merchandise as invoiced by the SELLER plus the expenses of handling and eelling such shertage or, deficit shall be made good, covered up and paid by the BUYER te the SELLER {mmediately upen de- mand by the SELLER, 9.-All existing revenue and/or taxes, and/or any increase in such revenue and/or taxes, and/or any new taxes impesed on the mere chandise invelved in this centract which may become effective after the date of } eens ehall be for account of the IO, All bank charges, such ae exchange, intere- est, banking gee og shail pe fer the account of the SVUYER unless othere wise agreed upen in writing.

li.-inm case of litigation arising out of thie transaction, the parties herein BUYER end SELLER te submit themselves te the jurisdiction of the Courts of the Gity of Manila, and the Bu further . oo te pay an addit tonal equivelent te Ae of the total invoice value of the mer- chandise called fer er subject ef this con- tract, as attorney's fees and liquideted damages, plus all court coats.

12.°In case the BUYER refuses te accept SELLEN'S - @eaft oz drafts, or te pay any amount which 459 _— - -

DECISION »

Ge Tere Ll NO. $36 ~ 6 « may beccme due or delinquent, the BUYEA agrees te pay interest on such amount beceming due, delinquent or deficient at _ the rate of 12% per snnum computed from date of shipment of the merchendise te date of completes payment in full, inelud- ine such interest.

13. -A411 orders covered hy thie contract are subject te cancellation the SELLER if the finonelia, responsibility of the BUY. ER proves at any time to be unsatisfac- tery to the SELLER; or if the BUYER fails to pay any note or ebligations due the SELLER; or if the BUYER has feiled to taake satisfactory settlement to the S4ELl- ER on previoue erders or shipments.

14.=I¢ is understced and agreed, thet in the event there is violation of the condi- tiens given hereof, BUYER recegniees the seid CODMALL DUA PACIFIC GOMPANY, Manila ec the SILLIA vrenresentative authere ized and empowered to bring suit in the neve of the SELLER who is the CADBALLAD. 8 PACIFIC COMPANY alene, in which case the personality of the CADVALLADBR PACI. FIC COMD ANY shall not be quetioned in couxt by the PUYER or by its agents and/ or representatives.

13. -Should it be stipuleted that BSUYEA shall epen en irrevoceble confirmed Letter of Credit or in such terms as indicated in this contract in fayor of SELLaR_ upon. confi on of | order and the same Te confirmed, the DOTA hereby agrees and binds hineel# tc epen seid letter of ere- dit for the full value of this order, inelueive of such other expenses or chare yee ane omeee therein, or remit oP na going te egraphic transfer. in event thot HUYSR fells, neglects or za-6 fuses to comply with the foregoing with. in ten (10) days from receipt of such confirmation, TR will be liable fer all ond whatecever kind of expenses and domages incurred in connection with this omer (Page 178, C.T.A. records. } v After the comtzact is signed, the sane is for- warded to the Califoznia branch which proguzes the goods deseribed in the contreet ond ships them direct- ly to the buyer. As title to the goods patses frum 460 DECISION . | G.T.A. CATE NO. 956

Te

the seller (the Californias branch) to the Philip- pine buyer from the tine of shipment in Califernia, the buyer is the imperter of such goods and is the one lieble for all texen and duties due thereon and ine cident to their importetion, | profit derived by petitioner from the trans- action is denominated as the “merk-up” on the price of the goods; zespondent calls it “overprices* it is enter- ed in the books of petitioner as “eoumtesion eared. * | Although this prefit is divided equally between peti« tioner and its California branch, it is entirely report. od by petitioner as income eamed by it subject to Philippine income taxes Section 194(¢) of the Revenue Code defines “com- _mexciel broker” thus « .

*(t) "Commercial broker’ includes other Under the facte described above, and the law, respondent exressed the opinion thet petitioner is a commercial broker. In his decision of 4pril 6, 1958,

Dec ISICH «

C.TeAs CATE NO. BB6 of merchandise between ite local cuse tomers in the Philippines and its alleged fice set Areedia, Celifomia, or through ite intervention brought abeut P buyers end foreign sellers te- the contract.in the « the intervention of — client in the trensaction wae made er our Re pally nn yy: the letter and meaning of Section t) of the

Tex

client and its In the decision quoted sbeve, respondent based his cpinion upon the theory that petitioner end its al- leged California branch are distinct and seperete entities; that being seperate entities, petitioner acted merely a¢ an intermediary between the Philip. pine buyere end the seller (the alleged California branch }s and thet es such intemmediery between buyers end seller, it ic « commercial broker within the meaning of Section 194(t) of the Revenue Code.

In this appeal, however, respondent hae abane doned the theory thet petitioner and its brench of~ fice in Californie are two distinet and seperate enti<- tiess le hae spperently conceded that the Califomis 462

BECISION =

CeTeAe CASE NO. 336 a 9 «a branch ic nerely a buying office of petitioner, but maintains that -etitioner acted as 4 broker or intere mediary between the Philippine buyers end the foreign suppliers, ccllers, manufecturers cr producers whose merehandi se were oFocured in the United “tates by . the Californie branch office cf petitioner. He quotes of.

Tne lew texing a *commercicl broker® requires the exietence cf three parties. In the cace ot bar there are three pertice, nemely: (1) the Customer or buyer - the Palanga Merdware & “upnly Yexh. *A* in the example given shove), (2) the commer. ciol broker ~ the Mendis branch office of petitioner ewcuring the order from ite euctomer or buyer in the Philip-~ pinee and (3) tne feredion cupplier, eceller, moenufecturer or producer whose merchandise is procured in the United ®etes the California branch office af petiticner thet inveiced end «hipped eaid merchendice direct to the iogas customer Or buyer ‘i0w- ever, petitioner still insiste that the seller is the Califomia branch Offices « « (Pre Ge7, Memoratim for ' Reepondent. )

dog find ne factual basis to suppert respond- ent's conclusion that petitioner acted o# breker between the Philippine buyers and the \ %. manu- facturers or suppliers from which the goods were ace @uired by the Celifernia brench of petitioner. Ali that appears Of record is thet petitioner entered dato contxecte of sele with Philippine buyers; thet at the time the contracts were signed, the goods were not on handy that the goods conizracted to be scold 463

DECTRION

GeTere CASE HO. 336 » 16 « were to be procured by ite branch office in Cali- fornia; and that such goods were actually scqui red or purchased by the Californie branch which shipped the goods in ite own name directly te the Philippine buyere. itnmder these circumstances, we de net think thet petitioner or ite branch office in California acted ae broker fox end on behelf of the foreiqn oanu- facturere er suppliers. Petitioner simply seld goods which it undertool te procure threugh ite Californie branch. | It is alco alleged thet since petitioner clains thet it is the seller of the geede, end as it is neither an irporter, manufecturer or preducer ef the goods which it sold, or a bona fide employee of the manufacturer or suppliers, it is a commercial broker, beceuse the definition of *commercial broker" does net include on impcrter, manufecturer er preducer, or @ bona fide employee. Ne quote from the memoren- @um of counsel for respondent: If the petitioner's branch office in Califomia is the swller of the mer. chendice and if we consider ite act as aleo the ect of the branch office of petitioner in the Phi ines, it neces- sarily fellows thet the Philirpinee of- fice of the Petitioner is | sellers We now anal section 194(¢) of the Betionak Intemal Nevenue Code, which reads ae follows: (Guetation omitted. } A "commercial broker," therefore, includes all perechs, whO, ior comen- gation cr profit, celle or brings about sales or purcheses of merchendiee for other persons. The term: “commercial broker” does not include oo tana ai manufacturers, producers or bens emp loyees.

/ I cannot be disputed thet peti- 464 _ ~ —

DECISION «

CeTe Ae CASE NO, 996 lil « tioner ie got on superstar cause the title to the ae involved in thd case On aaa aaesed to the buyer at the time of its Ment in the orts $M AS We Tare aragraph 4, = I”). The Lee Angeles, California brench ee the petiticner did not pay for the merchandise» but the cus- tower or buyer in the Philippines. (teasn., pe 20). It is neither the manufacturer or producer of the said mexrciendise nox the — of another pers:ne The Manila br office cf the petiticnexs, therefore eeted as an intermediary between the Philip. pine buyers end foreign manufecturers and producere whiie the California branch of- fice of petitioner rapresents the “Manila office abroad. Petitioner, there- fore, is net an orter, producer, menu- hac + pd or bens psy ete BDC» the definition under Section JoatsT of th avce:

2 see (ies 9-5. Monecentun for Ree- pencent; emphasis evupplied. } He do not think reependent realizes the im lica- tions te be drawn from the ebeve line of reasoning. If 4% is correct, toen e1l gesoline statione in the rhile ippines are cowmercie] brokers becauee they sell ceeo- line end other ivel ciis which they reither import, produce or manufacture. either are they employees of the importers. The Sureau of Intetmal Mevenue has not, te our knowledge, required any geecline stetion te pay the commercie] brokexy fixed en’ percentege tares.

They sre only required to pay, ond they do pay, the graduated zyixed enavel tax. The fellacy of respendent’s theory mey «leo be ililustreted thus: The definition of “commercial breker™ under Section 194(t) of the fev~ enue Code doeg not inciude e building contractor Pe- titicner is not s building contractor. Therefcre, 465

SIGH «

eTeXe CASE HO. 986 » 12 « petitioner is ° commercial broker.

Jd tab Geemsteny of Pineneny: ender © cidlan ext of fects, hes expressed the opinion that a person who contzacts to sell goods te a Philippine customer, the goods to be procured in the United Stetes through 2 buying agent or attorney-in-~fact, is not 2 commer~ cial broker.) For convenience, we are quoting below in full the stetement of facts and the opinion of the Secretary of Finance with which we ere in complete

DeCISicn

C.T.Ae CASE NO. 336 ~ 13 - of 1947, “ceific Exchange Co ie received | the amount of ba6 +449. 20 Polek, Winters & Co. as its bhare ~ the profits from the above-mentioned transactions end paid the amount of 3,437.97 as commercial broker's centege tax under the sevisiene of fection 195 in cn with section 194(t) of the Mationel Intezmal Rev- enue Code. The request for refund of aoe oh b hee pe em de ars ey ecitic change Corporation ea the case te this Department, The question pre- sented ia whether under the arrengenent mentioned above Pacific axchange Corp - oration wes e commercial broker. if it was eo commercinl broker 1t wes lia- ble te the tax; if otherwise, it was net subject to the tex end refund of the amount involved would be in order, the request for refund having been nade within the statutory peried, Under section 194(¢) of the Tex Code, the term “tommercial broker ine cludes all persons, other than import- ers, manufecturers, producers, ox bom:

employees, who, fox compensation or profit, sell or bring about salee or purcheres of merchandise for other per- eens, or bring proposed buyere and ¢ell- ers together, x x x* A broker is erally defined as ope whe ir engaged for others, on o com yg Negotisting contracts relative > roperty, with the cuetody of which @ no concern; “the negotiator be-~ then other parties, never acting in his own nome but in the name of these whe employed himy he is stxrictly a mid. dleman, end for some purposes agent of beth parties. ‘| breker ie one whose occupation it is to bring parties tee ther to bercein or to bargein for them nh matters of trode, commerce or — + oy Pehn, Meyer © + Con, Ltd. ve Nol ing and Gercia, 35 Phil. 274, )} A wroker as distinguished from the commission merchant, does not sustain ary — a to the object which he sells ox He the seller and an intermediary be- he pesseseion or custody ef the object oan Hie function is te bring

DECIST'* «

GoTehe CASE Oe RH

« 14 egether the parties te the tre srction.

ers closer feow the admitted Senne’ th the Pacific Exghange Comera~ tion, in submitting tides to ~ Divi «ion ef Purchase on?’ Wrnly, seted ia its comm neme end not in rengesentagien of ancthex and Ghat Wivisien ef furehase and Rinply igeued the purchsse coders te the atid comporstion in the smme capacity. It alse apeeors clear f20m the Senerad Power of Attorney executed by i ecific Exchange Comersiicn appointing and conetie tuting Polak, Vinters & Co. its sa inefact in the United "tetes thet all that Polek, Vinters & Co. did da eonne¢g~ tion with the scupelies referred te were within the Linit of the powers granted to {¢t as ottermey-in-fact. Yacifie dx. chenge Comoration, thru ite couneel, hae euladttee to this Department, In addt- tion, a latter of Polok, Mintexs 4 Ge. April *%, 1947, addvesced to the » ftom which "at aepesres thet the saletion ef atterney-in-fect and srinci~ a, had been exiding between the two fi. zee ‘S the execution of the General Power

with Psciile Cotp-

cneuken an onthe exincipel end Polek, “in- terse & Ge. as att act. in view, of the furcements) rule in relationshics ef this neture that the scte of the attor-) / hey-in-fact if within the liwits of the | grent ere fer all legal seo the acta ls of ra principal, this axrtmant =: call : af ke rs & Co. in

Ri

pure ng nt rt ¢alied for in the te istued ¢@ Paclfie dx- oye 4 gd by the Sivieion of and Supply, “delivering Bo By thse ri &- pa eceapting there toe Sen’ eek egete¢y Gere, ‘tea. for #21 Legal, purronan, aets of Pacific orporation. fherefore, in rela- te the selie cf said to the ine “evernment, Pacific ‘xchange Cazrporstion sated ton its own behalf and

DECISICN «

C. TAs CASE NO. $36 » 15 - aviwe Cede, thic artment believe ey estte ak tae setae ot 03,297.97 the second be refunded to it. (>. “ete of Finence, The ferequing opinion of the “ecretary of Finence hee been followed and spplied by the Bureau of Intemel Revenue. “se quote from eo ruling of eaid Purese deted November 16, 1949+ -@f this Office dicclesed that Paci-

¢ Merchandd

* rf, agent on, Manila, euthor- - - oa te ot - 7 q _ F .

sends them the respective

DECTSICN «

C.T.A. CASE NO. 336 is not liable fer the payment ef the commexcial broker's percentage tax on the everprice, interest and premium on exchenge received by the aforesaid corporation under the feo trans — (5.I.R. fuling, Nov. 16, The foregoing rulings have cbwiously overruled the ruling ef the Bureau of Internal Revenve dated Jan- vary 9, 1947, quoted on page 7 of respendent’s memoran- dum.

FOR THe FOREGOING OC N®ILDERATICNS, the essessment against petiticner concerning the fixed and percentage taxes and surcharge as commercial broker in the sum of #3,651.23 must be, os the same ie hereby, set aside. Thexe being no question aq regards the legality of the assesement with respect te the deficiency sales tex and surcharge in the cums of 3129.94 and 9330.88, the seme is hereby affirmed. Petitioner is ordered te pay the sums ef 7129.94 and 9339.99 within thirty (30) days from the date this decision becomes final. No costs.