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Collector of Internal Revenue vs Antonio Campos Rueda

2 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:

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.

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.

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THE COLLECTOR OF INTERNAL REVENUE v. ANTONIO CAMPOS RUEDA. G.R. No. L-
13250. October 29, 1971

FACTS:

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.

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 the exemption is valid.

RULING:

YES.

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."

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.

Even on the assumption then that Tangier is bereft of international personality, the CIR has not
successfully made out a case. The Court did commit itself to the doctrine that even a tiny principality,
like Liechtenstein, hardly an international personality in the sense, did fall under this exempt category.

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