UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW Tax 1
E2024 Professor Cabreros
CIR v. Baier-Nickel
G.R. No. 153793 – August 29, 2006
First division | Ynares-Santiago, J.
Topic: Gross Income: Inclusions and Exclusions
Doctrine:
The situs of the activity that determines whether such income is taxable in the Philippines. With respect to
rendition of labor or personal service, as in this case, it is the place where the labor or service was performed that
determines the source of income.
FACTS OF THE CASE
Baier-Nickel, a non-resident German citizen, is the president of JUBANITEX, Inc., a domestic corporation
engaged in the textile products industry. Through the corporation’s general manager, it appointed and engaged
the services of Baier-Nickel as commission agent; a 10% sales commission on all sales actually concluded was
agreed upon. In 1995, Baier-Nickel received around P1.7M as sales commission income from which
JUBANITEX withheld the corresponding 10% withholding tax amounting to around P170,000 and remitted the
same to the BIR. Baier-Nickel then filed her 1995 income tax return in 1997, reporting the taxable income of
P1.7M and a tax due of P170,000. A year later, Baier-Nickel filed a claim to refund the amount of the tax due that
was alleged to have been mistakenly withheld and remitted by JUBANITEX.
Baier-Nickel contended that her sales income was not taxable in the Philippines because the same was a
compensation for her services rendered in Germany and, therefore, considered as income from sources outside
the Philippines. CIR maintained that any renumeration she received from JUBANITEX should be construed as
payment of her overall managerial services to the company and should not be interpreted as a compensation for
a distinct and separate services as a sales commission agent; Baier-Nickel claimed that the income was for her
marketing services, and that the income of nonresident aliens like her is subject to tax only if the source of the
income is within the Philippines. Source is the situs of the activity which produced the income, and since the
source of her income were here marketing activities in Germany, the income she derived is not subject to
Philippine income taxation.
ISSUE/S
W/N Baier-Nickel’s sales commission income is taxable in the Philippines—YES.
• Sec. 25 (A) and (B) of the NIRC state that non-resident aliens, whether or not engaged in trade or business,
are subject to Philippine income taxation received from all sources within the Philippines. The keyword
in determining the taxability of non-resident aliens is the income’s “source.”
o The important factor which determines the source of income for personal services is not the
resident of the payor, or the place where the contract for service is entered into, or the place of
payment, but the place where the services were actually rendered.
o The technical meaning of source of income is the property, activity or service that produced the
same. Thus, if the activity took place in the Philippines, the income derived therefrom is taxable
in our jurisdiction.
o The correct theory favors Baier-Nickel that it is the situs of the activity that determines whether
such income is taxable in the Philippines. The business activity in the Philippines must be
examined to pinpoint the taxable activity and to justify the conclusion that it is subject to Philippine
income taxation.
o With respect to rendition of labor or personal service, as ITC, it is the place where the labor or
service was performed that determines the source of income.
• However, in this case, Baier-Nickel was not able to present evidence to prove that JUBANITEX does not
sell embroidered products in the Philippines and that her appointment as commission agent is exclusively
for Germany and other European markets. The evidence she presented were not adequate to support the
conclusion that it was in Germany where she performed the income producing service; she failed to
discharge the burden of proving that her income was from sources outside the Philippines and exempt
from the application of our income tax law.
HELD
Petition granted; CA decision reversed and set aside. CTA decision, which denied respondent’s claim for refund
of income tax paid for the year 1995, is reinstated.
