Koppel v Yatco | G.R. No. L-47673 | October 10, 1946 | Hilado, J.

KOPPEL (PHILIPPINES), INC., plaintiff-appellant,

vs.
ALFREDO L. YATCO, Collector of Internal Revenue, defendant-appellee.

Summary:
Koppel PH is organized in the PH. Its 995/1000 of its shares are owned by Koppel USA, a corporation not licensed
to do business in the PH. When Koppel PH transacted business with a buyer, they basically would forward
everything to Koppel USA – the only thing they really did was to pay duties in advance and would be reimbused
by Koppel USA. The CIR assesed them merchant sales tax for the ENTIRE gross sales incurred, and not in the share
of the profits alleging that it was a mere dummy/branch. CFI agreed saying that for the particular transaction
while not denying plaintiff’s legal personality, public interest and convenience would be defeated and would
amount to tax evasion unless resort is had to the doctrine of “disregard of the corporate fiction”. SC affirms

Facts:
1. Plaintiff is a corporation duly organized in the Philippines, its capital is divided into 1000 shares of P100 each
a. Koppel Industrial Car and Equip Co (KICE) is organized in the USA and not licensed to do business in the
PH owns 995 shares out of the total capital stock of the plaintiff.
2. Plaintiff transacted business in the PH in the following manner:
a. A local buyer wanted to purchase materials and asked for price quotations from the plaintiff. Plaintiff
forwards the quotation to KICE
b. KICE sends a cable quoting its cost price.
c. Plaintiff however quoted to the purchaser a selling price above the figures quoted by KICE.
d. Orders were placed.
e. Goods were shipped from KICE to Manila. Plaintiff would usually pay the payment of duties and were
reimbursed by KICE.
3. Total gross sales were 3.5M. Plaintiff shared in the profits 132K and plaid taxes of 4.2K only.
4. The CIR demanded from the plaintiff merchant sales tax which represented 1.5% of the total gross value of their
sales incurred from 1929 – 1932.
5. CFI held that plaintiff is a mere dummy or branch of KICE in this particular transaction. While not denying
plaintiff’s legal personality, public interest and convenience would be defeated and would amount to tax evasion
unless resort is had to the doctrine of “disregard of the corporate fiction”
6. Plaintiff alleges that:
a. It is not a mere branch of KICE and that its corporate existence cannot be collaterally attacked and the
Gov’t is estopped from doing so.

ISSUE:
W/N the domestic corporation is distinct and separate from, and not a mere branch of Koppel Industrial Car and
Equipment Company? No.

The court does not deny the corporate personality of plaintiff, however it is but a mere branch/agency or dummy of
KICE.
- Gen Rule: a corporation will be looked upon as a legal entity until sufficient reason to the contrary appears.
o but when the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, the law will regard the corporation as an association of persons

As to the contention that they are a branch/subsidiary:

- The entity is normally regarded but is disregarded to prevent injustice, or the distortion of hiding the truth,
or to let in a just defense.
 - Another rule, when the corporation is the mere alter ego or business conduit of a person, it may be
disregarded.

This principle is the same w/n the person is natural or artificial.

- While it is recognized that a corporation does not lose its entity by the ownership of the bulk/whole of its
stock by another corporation, it is also settled that the court will look beyond the mere artificial personality
which incorporation confers, and if necessary to work out equitable ends, will ignore corporate forms.

Insofar as the sales involved are concerned KICE and Koppel PH are one and the same or to use another mode of
expression the latter is a mere branch, agency, subsidiary of the former.
- KICE made use of its ownership of 99.5% of the capital stock to control the operations of Koppel PH to the
extent that it had the final say even as to how much should be allotted to the local entity in the so-called
sharing in the profits.
- The court cannot conceive how the PH corp could effectively go against the policies and decisions of KICE.

There would be a difference on w/n the corporation merely established a branch/agency or not and that would be
tax liability.
- To allow the taxpayer to deny this tax liability on the ground that the sales were made through another and
distinct corporation, when the latter corporation was virtually owned by the former or that they are
practically one and the same is a circumvention of our tax laws, and permit a tax evasion and consequent
commission of grave injustice to the Gov’t
- It would also allow the taxpayer to do by indirection what the lax laws prohibited to be done directly.

CFI judgment affirmed.