COMMISSIONER OF INTERNAL REVENUE vs. JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS
G.R. No. L31092 February 27, 1987
Facts:
1. The World Health Organization (WHO) is an international organization which enjoys privileges and immunities which are defined more in the Host Agreement entered into between the Republic of the Philippines and the said Organization.
2. In the Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes.
3. When WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila.
4. In inviting bids for the construction of the building, the WHO informed the bidders that the building to be constructed belonged to an international organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies."
5. The construction contract was awarded to respondent John Gotamco & Sons, Inc. on for the stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00.
6. CIR in his opinion and stated that "as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the same is not covered by the Host Agreement."
Issue:
Whether the 3% contractor's is an indirect tax
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Ruling:
Direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else.
The contractor's tax is of course payable by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be said that 'this tax has no bearing upon the World Health Organization.
The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid by the manufacturer or producer; the fact that the manufacturer or producer might have added the amount of the tax to the price of the goods did not make the sales tax "a tax on the purchaser." The Court held that the sales tax must be paid by the manufacturer or producer even if the sale is made to tax exempt entities like the National Power Corporation, an agency of the Philippine Government, and to the Voice of America, an agency of the United States Government.
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it.
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