THE COLLECTOR OF INTERNAL REVENUE V.

ANTONIO CAMPOS RUEDA

GR No. L-13250, October 29, 1971

FACTS:
Respondent Antonio Campos Rueda is the administrator of the estate of the
deceased Maria Cerdeira. Cerdeira is a Spanish national, by reason of her marriage to a
Spanish citizen and was a resident of Tangier, Morocco up to her death. At the time of
her demise she left, among others, intangible personal properties in the Philippines. The
CIR then issued an assessment for state and inheritance taxes of P369,383.96. Rueda
filed an amended return stating that intangible personal properties worth P396,308.90
should be exempted from taxes. The CIR denied the request on the ground that the law
of Tangier is not reciprocal to Section 122 (now Section 104) of the National Internal
Revenue Code. Hence, petitioner the Collector demanded the payment of the sums of
P239,439.49 representing deficiency estate and inheritance taxes including ad valorem
penalties, surcharges, interests and compromise penalties.

In a letter dated February 8, 1956, and received by CIR on the following day,
Rueda requested for the reconsideration of the decision denying the claim for tax
exemption of the intangible personal properties and the imposition of the 25% and 5%
ad valorem penalties. However, CIR denied the request on the grounds that there was
no reciprocity with Tangier, which was moreover a mere principality, not a foreign
country. Consequently, respondent demanded the payment of the sums of P73,851.21
and P88,023.74 respectively, or a total of P161,874.95 as deficiency estate and
inheritance taxes including surcharges, interests and compromise penalties.

The case was elevated to the CTA which sided with Rueda. The CTA stated that
the foreign country mentioned in Section 122 "refers to a government of that foreign
power which, although not an international person in the sense of international law,
does not impose transfer or death upon intangible person properties of our citizens not
residing therein, or whose law allows a similar exemption from such taxes.” It is,
therefore, not necessary that Tangier should have been recognized by our Government
order to entitle the petitioner to the exemption benefits of the proviso of Section 122 of
our Tax Code.

ISSUE:
Whether or not the requisites of statehood, or at least so much thereof as may
be necessary for the acquisition of an international personality, must be satisfied for a
"foreign country" to fall within the exemption of Section 122 of the National Internal
Revenue Code.

RULING:

NO. The controlling legal provision as noted is a proviso in Section 122 of the
National Internal Revenue Code. It reads thus:
That no tax shall be collected under this Title in respect of intangible personal property
(a) if the decedent at the time of his death was a resident of a foreign country
which at the time of his death did not impose a transfer tax or death tax of any
character in respect of intangible person property of the Philippines not residing
in that foreign country, or
(b) if the laws of the foreign country of which the decedent was a resident at the
time of his death allow a similar exemption from transfer taxes or death taxes of
 every character in respect of intangible personal property owned by citizens of
the Philippines not residing in that foreign country.”

The Court did commit itself to the doctrine that even a tiny principality, hardly an
international personality in the sense, did fall under this exempt category.

The expression “foreign country” was used in the last proviso of Section 122 of
NIRC refers to a government of that foreign power which although not an international
person in the sense of international law does not impose transfer or death upon
intangible person properties of our citizens not residing therein whose law allow a
similar exemption from such taxes. It is therefor necessary that Tangier should have
been recognized by our government in order to entitle the respondent to the exemption
benefits of the proviso of said Section 122 of our Tax Code.

WHEREFORE, the decision of the respondent Court of Tax Appeals of October 30, 1957
is affirmed. Without pronouncement as to costs.

DOCTRINE (BASED ON THE SYLLABUS):

It does not admit of doubt that if a foreign country is to be identified with a
state, it is required in line with Pound's formulation that it be a politically organized
sovereign community independent of outside control bound by penalties of nationhood,
legally supreme within its territory, acting through a government functioning under a
regime of law. A foreign country is thus a sovereign person with the people composing
it viewed as an organized corporate society under a government with the legal
competence to exact obedience to its commands. It has been referred to as a body-
politic organized by common consent for mutual defense and mutual safety and to
promote the general welfare. Correctly has it been described by Esmein as "the juridical
personification of the nation." This is to view it in the light of its historical development.
The stress is on its being a nation, its people occupying a definite territory, politically
organized, exercising by means of its government its sovereign will over the individuals
within it and maintaining its separate international personality. Laski could speak of it
then as a territorial society divided into government and subjects, claiming within its
allotted area a supremacy over all other institutions. McIver similarly would point to the
power entrusted to its government to maintain within its territory the conditions of a
legal order and to enter into international relations. With the latter requisite satisfied,
international law does not exact independence as a condition of statehood.