WILLIAM C. REAGAN, ETC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent; G.R. No. L-26379 , December 27, 1969

TOPIC: Territoriality and Extra-territoriality (Art. 2, RPC)

GIST: Reagan, US citizen and technical assistant to US Air Force based in Clark, imported and sold an imported car to a US marine. The latter sold it to a Filipino in Manila. CIR is imposing sales tax for the said sale but Reagan contested exemption from taxes since the sale was done in Clark, military base, a "foreign land" by virtue of military bases agreement in 1947. The SC affirmed CA's ruling. REAGAN IS STILL SUBJECTED TO TAX SINCE THE SALE HAPPENED IN CLARK; WITHIN OUT TERRITORY TO TAX.

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FACTS:

1.  William C. Reagan, US citizen and a civilian employee of an American corporation providing technical assistance to the United States Air Force in the Philippines, was assigned at Clark Air Base, Philippines, on or about July 7, 1959. 

2. 22 April 1960: 9 months after, before his duty expired, imported on April 22, 1960 a tax-free 1960 Cadillac car with accessories valued at $6,443.83, including freight, insurance and other charges.

3. 11 July 1960: 2 months after the car was imported, Reagan requested the Base Commander, Clark Air Base, for a permit to sell the car, which was granted provided that the sale was made to a member of the United States Armed Forces or a citizen of the United States employed in the U.S. military bases in the Philippines.

4. 11 July 1960: He then sold the cadillac for $6,600.00 to a certain Willie Johnson, Jr. (Private first class), United States Marine Corps, Sangley Point, Cavite, Philippines, as shown by a Bill of Sale executed at Clark Air Base. 

5. 11 July 1960:  Pfc. Willie (William) Johnson, Jr. sold the car to Fred Meneses for P32,000.00 as evidenced by a deed of sale executed in  Manila.

6. Respondent  Commissioner of Internal Revenue (CIR) after deducting the landed cost of the car as well as the personal exemption to which petitioner was entitled, fixed as his net taxable income arising from such transaction the amount of P17,912.34, rendering him liable for income tax in the sum of P2,979.00.

7. After paying the sum, Reagan sought a refund from CIR claiming that he was exempt.

8. While his claim for refund was pending before the CIR, he filed the case before the Court of Tax Appeals (CTA) to recover P2,979.00 plus the legal rate of interest.

9. Petitioner  contended that the Clark Air Base "in legal contemplation, is a base outside the Philippines" the sale therefore having taken place on "foreign soil."

10. CTA  found nothing objectionable in the assessment and thereafter the payment of P2,979.00 as income tax and denied the refund on the same.

ISSUE:

Whether or not the said income tax of P2,979.00 was legally collected by respondent CIR from petitioner Reagan.

RULING:

The Philippine is an independent and sovereign country or state. Its authority may be exercised over its entire domain. Its laws govern therein and everyone to whom it applies must submit to its term. It does not preclude from allowing another power to participate in the exercise of jurisdictional rights over certain portions of its territory. Such areas sustain their status as native soil and still subject to its authority. Its jurisdiction may be diminished but it does not disappear. 

Thus, the bases under lease to the American armed forces areNOT and CANNOT be FOREIGN TERRITORY by virtue of the military bases agreement of 1947.

The Clark Air Base is one of the bases under lease to the American armed forces by virtue of the Military Bases Agreement which states that a “national of the US serving or employed in the Philippines in connection with the construction, maintenance, operation, or defense of the bases and residing in the Philippines only by reason such unemployment is not to be taxed on his income unless derived from Philippine sources or sources other than the United States sources.

Therefore the Supreme Court sustained the decision of the Court of Tax Appeals rendering the petitioner liable of the income tax arising from the sale of his automobile that has taken place in Clark Air Field which is within our territory to tax.

ADDITIONAL INFO:

Act XII of the Military Bases Agreement, par. 2, 

"No national of the United States  serving in or employed in the Philippines in connection with the construction, maintenance, operation or defense of the bases and residing in the Philippines by reason only of such  employment, or his spouse and minor children and dependent parents of either spouse shall be liable to pay income tax in the Philippines except in respect of income derived from  Philippine source or sources other than the United States sources." (1 Philippine Treaty Series, 357, 362 [1968]). 

- US navies are exempted in the Phil from income taxes only if income was derived from US

Art. 2. of the Revised Penal Code

Application of its provisions. – Except as provided in the treaties and laws of preferential application, the provisions of this Code shall be enforced not only within the Philippine Archipelago, including its atmosphere, its interior waters and maritime zone, but also outside of its jurisdiction, against those who:

1. Should commit an offense while on a Philippine ship or airship

2. Should forge or counterfeit any coin or currency note of the Philippine Islands or obligations and securities issued by the Government of the Philippine Islands;

3. Should be liable for acts connected with the introduction into these islands of the obligations and securities mentioned in the presiding number;

4. While being public officers or employees, should commit an offense in the exercise of their functions; or

5. Should commit any of the crimes against national security and the law of nations, defined in Title One of Book Two of this Code.