1. Under § 10 of the Philippine Income Tax Law (Act 2833, March
7, 1919, as amended by Act 2926, March 20, 1920) imposing a tax
upon income received from sources within the Philippine Islands by
foreign corporations doing business there, income derived from the
sale of goods exported from the Islands and sold in the United
States is "from sources within the Philippine Islands," and
properly taxed as such, where the sales are made subject to
confirmation and absolute control as to price and other terms and
conditions by the Philippine office, and the confirmation is given
by that office direct to the buyer or is otherwise the final act
consummating the sales. P.
279 U. S. 308.
2. In a suit to recover income taxes alleged to have been
illegally exacted under § 10 of the Philippine Income Tax Law,
imposing a tax upon income derived from sources within the
Philippine Islands by foreign corporations doing business there,
this Court will not construe a stipulation reciting that the income
in question was from goods "sold" in the United States to mean that
the income was not from sources within the Philippines and not
subject to tax where the phraseology of the stipulation is
ambiguous, and fails to disclose precisely how the business was
done. P.
279 U. S.
309.
3. The burden is on him who seeks the recovery of a tax already
paid to establish those facts which show its invalidity. P.
279 U. S. 310.
4. The judgment of a territorial court on questions of fact or
of local law will be reversed only upon a clear showing of error.
P.
279 U. S. 310.
Affirmed.
Certiorari, 278 U.S. 591, to the Supreme Court of the Philippine
Islands to review a decision which reversed a judgment for
petitioner allowing recovery of income taxes alleged to have been
illegally exacted.
Page 279 U. S. 307
MR. JUSTICE STONE delivered the opinion of the Court.
Petitioner, a Spanish corporation, brought suit in the Court of
First Instance of the City of Manila to recover income taxes
alleged to have been illegally exacted. Judgment for petitioner was
reversed by the Supreme Court of the Philippine Islands. Vol. XXVI,
Philippine Official Gazette, No. 65, May 31, 1928, p. 1712. This
Court granted certiorari October 22, 1928, 278 U.S. 591, under § 7
of the Act of February 13, 1925, c. 229, 43 Stat. 936, 940.
The tax was assessed under § 10 of the Philippine Income Tax Law
of March 7, 1919, Act 2833, 14 Pub.Laws P.I. 221, as amended by § 7
of Act 2926, March 26, 1920, 15 Pub.Laws P.I. 260, which imposed a
tax of 3 percent annually
". . . upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by
every corporation . . . organized . . . under the laws of any
foreign country . . ."
The case was tried on an agreed statement of facts, and the
question presented is whether the profit or income upon which the
tax now in question was assessed was received from "sources within
the Philippine Islands" within the meaning of the statute.
The stipulated facts are that petitioner, a foreign corporation,
was licensed to do business in the Philippine Islands, and there
maintained its principal office and did most of its business; that
it owned in the Islands various sugar and oil mills and tobacco
factories, and was there engaged in buying, selling, and exporting
these products; that, acting through its Philippine branch,
petitioner from time to time during 1922 exported from the
Philippine
Page 279 U. S. 308
Islands to the United States tobacco, sugar, copra and cocoanut
oil, produced, manufactured or purchased by it in the Philippine
Islands; that this merchandise
". . . was sold in the United States by the agency therein of
the plaintiff's Philippine branch, the sale being subject to
confirmation and absolute control as to price and other terms and
conditions thereof, by the plaintiff's Philippine branch, and that
from such transactions . . . the plaintiff made a profit, . .
."
which was
". . . accounted for by the plaintiff on its books of account
kept in the Philippine Islands as earnings made by and accruing to
the Philippine branch. . . ."
It was this net profit on which the tax was levied.
Petitioner insists that, as the stipulation recites that the
merchandise was "sold" in the United States, the profit derived
from the sales was not from sources within the Philippine Islands,
and was therefore not subject to the tax. Section 10 of the
Philippine Act is substantially similar to the corresponding
section of the United States Revenue Act of September 8, 1916, c.
463, § 10, 39 Stat. 756, 765, and, in support of its position,
petitioner cites opinions of the Attorney General of the United
States ruling that a profit made by a foreign corporation from the
sale, in other countries, of merchandise produced or purchased in
the United States was not taxable income "from sources within the
United States" under the latter Act, and the similar provisions of
the Revenue Acts of 1917 (Act Oct. 3, 1917, c. 63, § 1206, 40 Stat.
300, 333) and of 1918 (Act Feb. 24, 1919, c. 18, § 233, 40 Stat.
1057, 1077).
See opinions of the Attorney General of
January 21, 1924. (34 Ops. Attys.Gen. 93), and of November 3, 1920
(32 Ops. Attys.Gen. 336). These opinions were accepted and applied
by Treasury Decision 3576, Cum.Bull. III-1-211, and Treasury
Decision 3111, 4 Cum.Bull. 280.
See also Birkin v.
Commissioner, 5 B.T.A. 402; Appeal of Yokohama Ki-Ito Kwaisha,
Ltd., 5 B.T.A. 1248; Billwiller v.
Page 279 U. S. 309
Commissioner, 11 B.T.A. 841; R. J. Dorn & Co. v.
Commissioner, 12 B.T.A. 1102; O.D. 651, 3 Cum.Bull. 265.
While the stipulation states that the merchandise was "sold" in
the United States by petitioner's agency there, this statement
cannot be taken without qualification; it must be read with the
limitation immediately following, that such sales were "subject to
confirmation and absolute control as to price and other terms and
conditions" by petitioner's Philippine branch. It does not appear
whether the confirmation was, in each case, given by the Philippine
branch direct to the buyer or was otherwise the final act
consummating the sales within the Philippine Islands, or whether,
as the trial court and petitioner seem to have assumed, it was a
mere approval or ratification of the negotiations had by
petitioner's American agent, and authority to him to confirm or
otherwise complete the sales in the United States. Certainly, if
the former, the final acts of petitioner making effective the
sales, which were the source of the profit, took place in the
Philippine Islands as an incident to and part of its business
conducted there.
See Holder v. Aultman, 169 U. S.
81,
169 U. S. 89;
Lloyd Thomas Co. v. Grosvenor, 144 Tenn. 349;
Charles
A. Stickney Co. v. Lynch, 163 Wis. 353;
Shuenfeldt. v.
Junkermann, 20 F. 357.
If, in fact, the sales were thus made in the Philippine Islands,
we think it unimportant whether the merchandise sold was exported
before or after its sale; it could not be seriously contended, and
indeed petitioner does not contend, that a profit derived from such
transactions would not be subject to the tax. For, in such a case,
the entire transaction resulting in a profit, with the exception of
the negotiations in the United States preceding the sale, would
have taken place in the Philippines. Instead, petitioner asks us to
construe the stipulation so as to bring it within the ruling of the
Attorney General applied to a state of facts where every act
effecting the sale took place
Page 279 U. S. 310
outside the taxing jurisdiction. The ambiguous phraseology of
the stipulation failing to disclose precisely how the business was
done, we may not speculate as to its actual character.
See
Cochran v. United States, 254 U. S. 387,
254 U. S.
393.
The burden is on him who seeks the recovery of a tax already
paid to establish those facts which show its invalidity.
United
States v. Anderson, 269 U. S. 422, 428
[argument of counsel -- omitted];
Fidelity Title Co. v. United
States, 259 U. S. 304,
259 U. S. 306.
Further, in the absence of a clear showing of error, this Court
should be slow to reverse the judgment of a territorial court on
questions of fact or of local law.
De Villanueva v.
Villanueva, 239 U. S. 293,
239 U. S. 298;
Fox v. Haarstick, 156 U. S. 674,
156 U. S. 679.
For the reason indicated, the stipulation here does not sustain the
burden resting on petitioner.
We need not consider petitioner's contention that the taxing
act, when applied to sales outside the Philippine Islands,
conflicts with the "equal protection" clause of the Philippine
Organic Law. This argument presupposes that the sales were so made,
an assumption which, as already stated, we cannot make.
Affirmed.