Professional Documents
Culture Documents
18. What is a Treaty? Discuss. “x x x the right of the Executive to enter into binding 2. The purpose of a most favored nation clause is to grant to
agreements without the necessity of subsequent Congressional the contracting party treatment not less favorable than that which has
Held: A treaty, as defined by the Vienna Convention on the Law approval has been confirmed by long usage. From the earliest been or may be granted to the "most favored" among other countries.
of Treaties, is “an international instrument concluded between States in days of our history we have entered into executive agreements The most favored nation clause is intended to establish the principle of
written form and governed by international law, whether embodied in a covering such subjects as commercial and consular relations, equality of international treatment by providing that the citizens or
single instrument or in two or more related instruments, and whatever most-favored-nation rights, patent rights, trademark and subjects of the contracting nations may enjoy the privileges accorded by
its particular designation.” There are many other terms used for a treaty copyright protection, postal and navigation arrangements and either party to those of the most favored nation (Commissioner of
or international agreement, some of which are: act, protocol, the settlement of claims. The validity of these has never been Internal Revenue v. S.C. Johnson and Son, Inc., 309 SCRA 87, 107-108,
agreement, compromis d' arbitrage, concordat, convention, declaration, seriously questioned by our courts. " June 25, 1999, 3rd Div. [Gonzaga-Reyes])
exchange of notes, pact, statute, charter and modus vivendi. All writers, (BAYAN [Bagong Alyansang Makabayan] v. Executive Secretary
from Hugo Grotius onward, have pointed out that the names or titles of Ronaldo Zamora, G.R. No. 138570, Oct. 10, 2000, En Banc [Buena]) 23. What is the essence of the principle behind the "most-favored-
international agreements included under the general term treaty have nation" clause as applied to tax treaties?
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favored nation treatment precisely to underscore the need for The doctrine of rebus sic stantibus does not operate
Held: The essence of the principle is to allow the taxpayer in equality of treatment. automatically to render the treaty inoperative. There is a necessity for a
one state to avail of more liberal provisions granted in another tax treaty formal act of rejection, usually made by the head of state, with a
to which the country of residence of such taxpayer is also a party 24. What is ratification? Discuss its function in the treaty-making statement of the reasons why compliance with the treaty is no longer
provided that the subject matter of taxation x x x is the same as that in process. required. (Santos III v. Northwest Orient Airlines, 210 SCRA 256, June
the tax treaty under which the taxpayer is liable. 23, 1992)
Held: Ratification is generally held to be an executive act,
In Commissioner of Internal Revenue v. S.C. Johnson and Son, undertaken by the head of state or of the government, as the case may 27. What is the “doctrine of effective nationality” (genuine link
Inc., 309 SCRA 87, June 25, 1999, the SC did not grant the claim filed by be, through which the formal acceptance of the treaty is proclaimed. A doctrine)?
S.C. Johnson and Son, Inc., a non-resident foreign corporation based in State may provide in its domestic legislation the process of ratification of
the USA, with the BIR for refund of overpaid withholding tax on royalties a treaty. The consent of the State to be bound by a treaty is expressed Held: This principle is expressed in Article 5 of the Hague
pursuant to the most-favored-nation clause of the RP-US Tax Treaty in by ratification when: (a) the treaty provides for such ratification, (b) it is Convention of 1930 on the Conflict of Nationality Laws as follows:
relation to the RP-West Germany Tax Treaty. It held: otherwise established that the negotiating States agreed that ratification
should be required, (c) the representative of the State has signed the Art. 5. Within a third State a person having more than
Given the purpose underlying tax treaties and the treaty subject to ratification, or (d) the intention of the State to sign the one nationality shall be treated as if he had only one. Without
rationale for the most favored nation clause, the concessional treaty subject to ratification appears from the full powers of its prejudice to the application of its law in matters of personal
tax rate of 10 percent provided for in the RP-Germany Tax representative, or was expressed during the negotiation. (BAYAN status and of any convention in force, a third State shall, of the
Treaty should apply only if the taxes imposed upon royalties in [Bagong Alyansang Makabayan] v. Executive Secretary Ronaldo nationalities which any such person possesses, recognize
the RP-US Tax Treaty and in the RP-Germany Tax Treaty are paid Zamora, G.R. No. 138570, Oct. 10, 2000, En Banc [Buena]) exclusively in its territory either the nationality of the country in
under similar circumstances. This would mean that private which he is habitually and principally resident or the nationality
respondent (S.C. Johnson and Son, Inc.) must prove that the RP- 25. Explain the “pacta sunt servanda” rule. of the country with which in the circumstances he appears to be
US Tax Treaty grants similar tax reliefs to residents of the United in fact most closely connected. (Frivaldo v. COMELEC, 174
States in respect of the taxes imposable upon royalties earned Held: One of the oldest and most fundamental rules in SCRA 245, June 23, 1989)
from sources within the Philippines as those allowed to their international law is pacta sunt servanda – international agreements must
German counterparts under the RP-Germany Tax Treaty. be performed in good faith. “A treaty engagement is not a mere moral
obligation but creates a legally binding obligation on the parties x x x. A
The RP-US and the RP-West Germany Tax Treaties do state which has contracted valid international obligations is bound to
not contain similar provisions on tax crediting. Article 24 of the make in its legislations such modifications as may be necessary to ensure
RP-Germany Tax Treaty x x x expressly allows crediting against the fulfillment of the obligations undertaken.” (Tanada v. Angara, 272
German income and corporation tax of 20% of the gross SCRA 18, May 2, 1997 [Panganiban])
amount of royalties paid under the law of the Philippines. On
the other hand, Article 23 of the RP-US Tax Treaty, which is the 26. Explain the "rebus sic stantibus" rule (i.e., things remaining as they
counterpart provision with respect to relief for double taxation, are). Does it operate automatically to render a treaty inoperative?
does not provide for similar crediting of 20% of the gross
amount of royalties paid. X x x Held: According to Jessup, the doctrine constitutes an attempt
to formulate a legal principle which would justify non-performance of a
X x x The entitlement of the 10% rate by U.S. firms treaty obligation if the conditions with relation to which the parties
despite the absence of matching credit (20% for royalties) contracted have changed so materially and so unexpectedly as to create
would derogate from the design behind the most favored a situation in which the exaction of performance would be unreasonable.
nation clause to grant equality of international treatment since The key element of this doctrine is the vital change in the condition of
the tax burden laid upon the income of the investor is not the the contracting parties that they could not have foreseen at the time the
same in the two countries. The similarity in the circumstances treaty was concluded.
of payment of taxes is a condition for the enjoyment of most
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