COMMISSIONER OF INTERNAL REVENUE vs. MARUBENI CORP.

FACTS:
The contract price was Y12, 790 389,000 and Y44,327,940. The price in Japanese currency was
broke down into two portions: the Japanese Yen Portion I and the Japanese Yen Portion II, while the
price in Philippine currency was referred to as the Philippine Peso Portion. The Japanese Yen Portions I
and II were financed in two years: (a) by Yen credit loan provided by the Overseas Economic
Cooperation Fund (OECF); and (b) by suppliers credit in favor of Marubeni from the Export-Import Bank
of Japan. The OECF is a fund under the Ministry of Finance of Japan extended by the Japanese
Government as assistance to foreign government to promote economic development.
The price was broken down into the corresponding materials, equipment and services required
for the project and their individual prices. Under the Philippine Onshore Portion, Marubeni does not
deny its liability for the contractors tax on the income from the two projects. On the Foreign Offshore
Portion, the Commissioner argues that since the agreement was turnkey, it calls for the supply of both
materials and services to the client; it is contract for a piece of work and is indivisible. The situs of the
project is in the Philippines, and the materials provided and services rendered were all done and
completed within the territorial jurisdiction of the Philippines; hence, the entire receipts from the
contracts including the receipts from the Offshore Portion, constitute income from Philippine sources.
On the other hand, Marubeni argues that the works therein were not all performed in the
Philippines. Machines and equipment were manufactured in Japan. They were designed, engineered
and fabricated by Japanese firms in Japan sub-contracted to Marubeni.
ISSUE:
Whether or not respondent is liable to pay the income and contractors taxes assessed by
petitioner?
HELD:
The court ruled that while the construction and installation work were completed within the
Philippines, the evidence is clear that some pieces of equipment and supplies were completely
designed and engineered in Japan. The two sets of ship unloader and loader, the boats and the mobile
equipment for the NDC project and the ammonia storage tanks and refrigeration units were made and
completed in Japan. They were already finished products when shipped to the Philippines. The other
construction supplies listed under the Offshore portion such as the still sheets, pipes and structures,
electrical and instrument apparatus, were not finished products when shipped to the Philippines. They,
however, were likewise fabricated and manufactured by the sub-contractors in Japan.