Koppel Philippines, Inc.

vs Alfredo Yatco, Collector of Internal Revenue

GR No. L-47673
October 10, 1946

Facts:
Plaintiff (Koppel Phil., Inc.) is a corporation duly organized and existing under the Philippine laws with
principal office in Manila with capital stock of which is divided into 1,000 shares of P100 each. The
Koppel Industrial Car and Equipment Company (Koppel US), a corporation existing under the State of
Pennsylvania’s laws and not licensed to do business in the Philippines owned 995 shares out of the
total capital stock.

Plaintiff is licensed to engage in business as a merchant and commercial broker in the Philippines. As a
merchant and commercial broker, plaintiff had been having transactions with clients wherein the local
buyer will purchase railway materials, machinery and supplies from them then the plaintiff will ask for
quotation from Koppel US.

The materials were then shipped to Koppel PH from Koppel US with the bills of lading indorsed in
blank with notation that the buyer be notified of the shipment of the goods. Commercial invoices were
issued by Koppel US in the names of the purchasers while the purchasers secured the shipping papers by
arrangement with the foreign banks.

After the transaction, Koppel PH receives by way of compensation a percentage of the profits realized
on the above transactions.

That in another situation, Miguel Ossorio placed an option with Koppel US to purchase within 3 months
a pair of Atlas-Diesel Marine Engines which was purchased by Koppel US in Stockholm, Sweden. Ossorio
called the deal off because Koppel US could not ship the materials on time hence a new local buyer, Mr.
Cesar Barrios, bought the same equipment. After Barrios’ payment, Koppel US reimbursed Koppel PH
with its incurred expenses from the transaction.

After the transaction, defendant Collector of Internal Revenue (CIR) demanded from plaintiff
merchant’s sales tax of 1% on the total gross value of the sales which the plaintiff paid under protest.

Defendant overruled plaintiff’s protest and said that plaintiff corporation acted as the representative of
Koppel US and not as the agent.

Based from the foregoing instances, it is shown that Koppel PH is a broker which performs functions of a
broker and shall not take possession of any of the materials or equipment applying to said orders
therefore Koppel PH should be subject to merchant’s sales tax.

RTC found that Koppel PH is a mere dummy of Koppel US with distinct legal personality yet the public
interest and convenience would be defeated and would amount to tax evasion if tax would not be
collected.
Issue:
WON Koppel PH should be liable to pay the merchant’s sales tax for being a dummy of Koppel US?

Decision:
Yes, plaintiff was and is in fact a branch or subsidiary of Koppel US not licensed to do business in the
Philippines but actually doing business through the plaintiff. The plaintiff was organized as a Philippine
corporation for the purpose of evading the payment by its parent foreign corporation of merchant’s
sales tax on the transactions involved in this case and others of similar nature.

The legal fiction of distinct corporate existence will be disregarded in a case where a corporation is so
organized and controlled and its affairs are so conducted, as to make it merely an instrumentality or
adjunct of another corporation.

Insofar as the sales involved in this case , Koppel PH and Koppel US are to all intents and purposes one
and the same, the former corporation is a mere branch of the latter. That the amount of the so-called
share in the profit of Koppel PH was ultimately left to the sole, unbridled control of Koppel US.

Evidently, Koppel US owned overwhelmingly 99.5% of the capital stock of the local corporation to
control its operations. Neither can it be conceived that Koppel PH could avoid following the instructions
of Koppel US given the shares in capital stock.

In the circumstances of this case, it cannot be denied that Koppel US controls Koppel PH by having the
final decision in the quotation of the prices of the materials being sold to the local buyers.

Hence, judgment appealed from is AFFIRMED. Transactions made by Koppel PH as dummy should be
subject to merchant’s sales tax.