Collector of Internal Revenue vs Campos Rueda case digest

(42 SCRA 23 Political Law definition of “state”)

In January 1955, Maria Cerdeira died in Tangier, Morocco (an international zone [foreign
country] in North Africa). At the time of her death, she was a Spanish citizen and was a
resident of Tangier. She however left some personal properties (shares of stocks and other
intangibles) in the Philippines. The designated administrator of her estate here is Antonio
Campos Rueda.
In the same year, the Collector of Internal Revenue (CIR) assessed the estate for
deficiency tax amounting to about P161k. Campos Rueda refused to pay the assessed tax
as he claimed that the estate is exempt from the payment of said taxes pursuant to section
122 of the Tax Code which provides:
Campos Rueda was able to prove that there is reciprocity between Tangier and the
Philippines.
However, the CIR still denied any tax exemption in favor of the estate as it averred that
Tangier is not a “state” as contemplated by Section 22 of the Tax Code and that the
Philippines does not recognize Tangier as a foreign country.
ISSUE:
Whether or not Tangier is a state.
HELD:
Yes. For purposes of the Tax Code, Tangier is a foreign country.
A foreign country to be identified as a state must 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. 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.
Further, the Supreme Court noted that there is already an existing jurisprudence
(Collector vs De Lara)which provides that even a tiny principality, that of
Liechtenstein, hardly an international personality in the sense, did fall under the exempt
category provided for in Section 22 of the Tax Code. Thus, recognition is not necessary.
Hence, since it was proven that Tangier provides such exemption to personal properties
of Filipinos found therein so must the Philippines honor the exemption as provided for by
our tax law with respect to the doctrine of reciprocity.