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Koppel Philippines, Inc.

vs Alfredo Yatco (Collector of Internal Revenue)

GR L47673, 77 Phil 496, October 10, 1946


Koppel Industrial Car and Equipment company (KICE), a foreign company not doing business in the
Philippines, owned 995 shares out of the 1000 shares that comprise the capital stock of KPI, a domestic
corporation licensed as commercial broker in the Philippines. The remaining 5 shares were owned by
each of the officers of KPI. KICE is in the business of selling railway materials, machineries and supplies.
Buyers in the Philippines, when interested, asked for price quotations from KPI, and KPI then cabled for
the quotation desired from KICE. However, KPI quoted to the purchaser a selling price above the figures
quoted by KICE. On the basis of these quotations, orders were placed by the local buyers. Between KICE
and KPI, the arrangement nonetheless was that KICE controls how much share of the profits goes to KPI.
For these transactions, the BIR treated KPI as a subsidiary of KICE and collected from KPI the merchants
sales tax, which was a revenue law in force at the time the sales took place.

KPI paid the taxes under protest, demanded for refund and contended that KPI could not be liable for
merchants sales tax because it was only acting as broker between KICE and the local buyers. The lower
court dismissed the complaint and ruled in favor of the government.

Issue 1: W/N KPI did business with the local buyers as an agent of KICE and not as broker


Yes. The facts that KICE unilaterally controls the amount of so-called share in the profits of KPI and that
KICE owns an overwhelming majority (99.5%) of the capital stock of the KPI are sufficient to conclude that
the latter is a mere dummy, agent or wholly-owned subsidiary of KICE. Such conclusion is based on the
doctrine that courts may pierce the corporate veil to uncover the true intents of these corporations.

Issue 2: W/N the application of piercing the corporate veil doctrine is proper

Yes. With regards only to the transactions involved, KPI and KICE were treated as one and the same so
that taxes could be rightly collected. The court has to disregard this corporate fiction to prevent KICE
/ KPI from evading its taxes by contravening the local internal revenue laws.

The court did not deny legal personality to KPI; in fact, it had no power to hold so. The doctrine was used
only to adjudge the rights and liabilities of each parties in these kind of transactions.