A local court has declared void a provision of a Revenue Memorandum Circular (RMC) issued by the Bureau of Internal Revenue (BIR) ordering Filipino employees of the Asian Development Bank (ADB) to declare their income and pay income taxes retroactive to 2012.
In a 32-page decision promulgated on September 30, 2014 but released to the media just recently, Judge Carlos Valenzuela of Regional Trial Court (RTC) of Mandaluyong City, Branch 213, “[declared]Section 2(d) (1) of [RMC 31-2013] as void for being issued without legal basis, in excess of authority and/or without due process of law[.]”
Valenzuela also declared the provision “void in the absence of legislation and/or regulation to the contrary.”
The case stemmed from a petition filed by ADB employees Erwin Salavera and Portia Gonzales seeking to declare Section 2(d) (1) of RMC No. 31-2013 issued by BIR Commissioner Kim Jacinto-Henares on April 12, 2013, as invalid.
They said the BIR installed an on-site kiosk in the ADB premises to process the payments, which were extended to July 15, 2013.
The petitioners claimed that prior to pronouncement by Henares, thru the RMC, concerning the taxability of salaries of Filipinos working at ADB, they and their Filipino co-employees did not pay income taxes.
Since the establishment of the ADB in the Philippines in 1966, or for almost half a century of existence, the BIR has not taxed the employees of the ADB on their income.
In fact, the petitioners said, the BIR thru its regional director, who had jurisdiction over the ADB, even issued an opinion letter dated January 29, 2001, which stated that salaries and emoluments received by ADB officers and staff are exempt from taxation.
For this reason, they added, they were not required to secure tax identification numbers.
In its decision, the Mandaluyong RTC held that the actions of the BIR “are definitely in conflict with the present legal view of the respondent.”
“Indeed, this could have been remedied, and now becomes an imperative, had there been clear and fixed standard provided by law, which is the operative act that would remove the tax exemption given to the Filipino employees in ADB.”
In another question, the court asked: “Are the 1997 National Internal Revenue Code and the prevailing Tax Code considered as an amendment to the tax exemption given to the Filipino employees in ADB?”
“The answer is again in the negative,” it stated.
Obviously, the court said, “the Tax Code is not passed by Congress to specifically amend Article 56 of the ADB Charter.”