Title: Marubeni Corporation vs. CIR (G.R. No.

76573 September 14, 1989)

Ponente: J. Fernan

Doctrine to Remember
The general rule that a foreign corporation is the same juridical entity as its branch office in the
Philippines cannot apply here. This rule is based on the premise that the business of the foreign
corporation is conducted through its branch office, following the principal agent relationship theory. It is
understood that the branch become its agent here. So that when the foreign corporation transacts
business in the Philippines independently of its branch, the principal-agent relationship is set aside. The
transaction becomes one of a foreign corporation, not of the branch. Consequently, the taxpayer is the
foreign corporation, not the branch or the resident foreign corporation. Corollarily, if the business
transaction is conducted through the branch office, the latter becomes the taxpayer, and not the foreign
corporation.

The phrased engaged in trade or business is not defined under the NIRC. It is often correlated with the
term “doing business under the foreign investment act. RA 7042 (Foreign Investment Act of 1991),
Section 3 (d) the praise "doing business" shall include soliciting orders, service contracts, opening offices,
whether called "liaison" offices or branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of acts or works,
or the exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization: Provided, however, That the
phrase "doing business: shall not be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do business, and/or the exercise of
rights as such investor; nor having a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the Philippines which
transacts business in its own name and for its own account;

Facts
 Marubeni Corporation is a Japanese Foreign Corporation licensed to engage in business in the
Philippines. When the profits on Marubeni’s investments in Atlantic Gulf and Pacific Co. of Manila
were declared, a 10% final dividend tax was withheld from it, and another 15% profit remittance tax
based on the remittable amount after the final 10% withholding tax were paid to the Bureau of Internal
Revenue. Marubeni Corp.
 Petitioner through SGV Co. sought a bir ruling as to the treatment of dividend received from AG&P.
Commissioner Ancheta ruled that only profits remitted abroad by a branch office to its head office
which are effectively connected with its trade or business in the Philippines are subject to the 15%
profit remittance tax. The dividends thus earned are not considered “effectively connected” with its
trade or business in this country.
 Consequently, the petitioner claims for a refund or tax credit for the amount which it has allegedly
overpaid the BIR. It was denied by the Commissioner contending that the recipient of the dividends,
being a non-resident stockholder, nevertheless, said dividend income is generally subject to tax on at
the rate of 35% of its gross income. However, it is subject only to the 25% tax pursuant to Article
10(2)(b) of the Tax Treaty dated February 13, 1980 between the Philippines and Japan. Hence, no
refund can be made to the petitioner because the taxes withheld (15% profit remittance tax and 10%
intercorporate dividend tax) is the same with the 25% tax supposed to be withheld pursuant to the
treaty.

Issues Articles/Law Involved

Whether or not the Marubeni Japan is a non-  Sec. 24(b)(1) [now Sec. 27(A) of the NIRC]
resident foreign corporation under Philippine with  Article 10(2)(b) of the Phil-Japan Tax Treaty
respect to the dividend income received from
AG&P Co.
Rulings
Yes, it is a non-resident foreign corporation.

The SC is convinced with the arguments presented by the SOLGEN, to wit:

“The general rule that a foreign corporation is the same juridical entity as its branch office in
the Philippines cannot apply here. This rule is based on the premise that the business of the
foreign corporation is conducted through its branch office, following the principal agent
relationship theory. It is understood that the branch become its agent here. So that when the
foreign corporation transacts business in the Philippines independently of its branch, the
principal-agent relationship is set aside. The transaction becomes one of a foreign corporation,
 not of the branch. Consequently, the taxpayer is the foreign corporation, not the branch or the
resident foreign corporation. Corollarily, if the business transaction is conducted through the
branch office, the latter becomes the taxpayer, and not the foreign corporation.

In other words, the alleged overpaid taxes were incurred for the remittance of dividend income to the
head office in Japan which is a separate and distinct income taxpayer from the branch in the Philippines.
It is thus clear that petitioner, having made this independent investment attributable only to the head
office, cannot now claim the increments as ordinary consequences of its trade or business in the
Philippines and cannot avail itself of the lower tax rate of 10%.

Marubeni Japan is thus, a non-resident foreign corporation, generally subject to 35% (now 30%) of its
gross income from all sources within the Philippines. However, a discounted rate of 15% is given to
Marubeni Japan on dividends received from AG&P on the condition that its domicile state (Japan).