Garrison et al. vs. Court of Appeals

[G.R. Nos. 44501-05. July 19, 1990.]

Doctrine: An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of income tax.

Facts:

• Petitioners, John Garrison, Frank Robertson, Robert Cathey, James Robertson, Felicitas de Guzman and Edward McGurk (PETITIONERS) are US Citizens who entered the country through the Philippine Immigration Act of 1940 and are employed in the US Naval Base in Olongapo City. They earn no Philippine source income and it is also their intention to return to the US as soon as their employment has ended.

• The BIR sent notices to Petitioners stating that they did not file their Income Tax Returns (ITR) for 1969. The BIR claimed that they were resident aliens and required them to file their returns.

• Under then then Internal Revenue Code resident aliens may be taxed regardless of whether the gross income was derived from Philippine sources.

• Petitioners refused stating that they were not resident aliens but only special temporary visitors. Hence, they were not required to file ITRs. They also claimed exemption by virtue of the RP-US Military Bases Agreement.

• Under Military Bases Agreement, a “national of the United States serving in or employed in the Philippines in connection with construction, maintenance, operation or defense of the bases and reside in the Philippines by reason only of such employment” is only liable for tax on Philippine sources of income.
• The Court of Appeals held that the Bases Agreement “speaks of exemption from the payment of income tax, not from the filing of the income tax returns . . .”

Issue:

1. Whether or not Petitioners can be considered resident aliens.

2. Whether or not Petitioners are exempt from income tax under the RP-US Military Bases Agreement.

3. Whether or not Petitioners must still file ITR notwithstanding the exemption.

Held:

1. Yes.

Revenue Regulations No. 2 Section 5 provides: “An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of income tax.” Whether or not an alian is a transient or not is further determined by his: “intentions with regards to the length and nature of his stay. A mere floating intention indefinite as to time, to return to another country is not sufficient to constitute him as transient. If he lives in the Philippines and has no definite intention as to his stay, he is a resident.” The Section 5 further provides that if the alien is in the Philippines for a definite purpose which by its nature may be promptly accomplished, he is considered a transient. However, if an extended stay is necessary for him to accomplsh his purpose, he is considered a resident, “though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned.”

2. Yes.

Notwithstanding the fact that the Petitioners are resident aliens who are generally taxable, their class is nonetheless exempt from paying taxes on income derived from their employment in the naval base by virtue of the RP-US Military bases agreement. The Bases Agreement identifies the persons NOT “liable to pay income tax in the Philippines except in regard to income derived from Philippine sources or sources other than the US sources.” They are the persons in whom concur the following requisites, to wit:

1) nationals of the United States serving in or employed in the Philippines;

2) their service or employment is "in connection with construction,maintenance, operation or defense of the bases;

3) they reside in the Philippines by reason only of such employment; and

4) their income is derived exclusively from “U.S. Sources.”

3. Yes

Even though the petitioners are exempt from paying taxes from their employment in the Naval Base, they must nevertheless file an ITR. The Supreme Court held that the filing of an ITR and the payment of taxes are two distinct obligations. While income derived from employment connected with the Naval Base is exempt, income from Philippine Sources is not. The requirement of filing an ITR is so that the BIR can determine whether or not the US National should be taxed. “The duty rests on the U.S. nationals concerned to invoke and prima facie establish their tax-exempt status. It cannot simply be presumed that they earned no income from any other sources than their employment in the American bases and are therefore totally exempt from income tax.”