Like us on Facebook

Please wait..10 Seconds Cancel

Tax Case Digest: Lennie De Sagun et al. v. CIR, CTA Case No. 9084, March 11, 2020

Lennie De Sagun et al. v. CIR
CTA Case No. 9084. March 11, 2020.

CTA Third Division
Modesto-San Pedro, J.:

  • February 2014: 2 Filipino ADB employees, on their own, and on behalf of other Filipino ADB employees, questioned its legality of the RMC 31-13 issued on April 12, 2013 which provides that only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax with the RTC of Mandaluyong
  • RTC: Declared section 2 (d) (1) RMC 31-13 void for being issued without legal basis, in excess of authority and/or without due process of law, and in the absence of legislation and/or regulation to the contrary
  • Lennie De Sagun et al. filed their administrative claim for refund using the Decision of the RTC to prove that their payment of income tax for taxable years 2012 and 2013 are erroneous.
  • Lennie De Sagun et al. filed a Petition for Review

1.    W/N RTC Mandaluyong has no jurisdiction.
2.    W/N NIRC and RMC 31-13 intended to impose income tax on resident Filipino citizens who are ADB employees.
3.    W/N RMC 31-13 should be prospectively applied.
4.    W/N evidence presented is sufficient for the entitlement of refund.

HELD: NO. Denied.
1.    NO. RTC Mandaluyong has no jurisdiction to decide on the validity or constitutionality of RMC 31-13.  Consequently, its Decision is a nullity.  Assuming it has jurisdiction and its Decision is valid, the same is still not binding upon this Court.  It must be stressed that only decisions of the Supreme Court establish jurisprudence or doctrines in this jurisdiction and these decisions become judicial precedents to be followed in subsequent cases by all courts of the land. 

2.    YES.
  • Based on Section 23 (A) and related Sections 24, and 32 (A)(1) of the NIRC provides that income of a resident Filipino citizen, whether derived from sources within or outside the Philippines are subject to tax.
  • A perusal of RMC 31-13 would reveal that CIR merely exercised his power to interpret the pertinent provisions of the NIRC in relation to the RP-ADB Agreement.  Section 45 (b) of the RP-ADB Agreement: (B) Exemption from taxation on or in respect of the salaries and emoluments paid by Bank subject to the power of the Government to tax its nationals”
3.    YES.   To retroactively apply RMC 31-13 would be prejudicial to the Filipino ADB officers and employees would be prejudicial to the Filipino ADB officers and employees as they may be issued deficiency income tax assessments for compensation which at the time of payment was declared tax-exempt by CIR.  Consequently, the retroactive application of RMC 31-13 will violate Section 246 of NIRC. 
  • CIR issued contradictory rulings causing confusion among them prior to finally settling the issue in RMC 31-13 on April 12, 2013, to wit:
a.    March 11, 1999: Former CIR issued a ruling that ADB Filipino employees holding managerial and technical position are subject to a preferential rate of 15%
b.    January 29, 2001: BIR, through its Regional Director (RD) which had the jurisdiction over ADB, issued an opinion stating that salaries and emoluments received by ADB officers and staff are exempt from taxation
c.    February 6, 2013: Chief Legal Division of Revenue Region No. 7, Amado Rey B. Pagarigan issued an opinion that the Filipino employees in ADB are subject to the preferential tax rate of 15% on their compensation income.
  • When the Filipino ADB officers and employees received their 2012 salaries and emoluments, CIR’s position then was that their compensation was tax-exempt.  Xxx They cannot be faulted for believing that they were exempt from paying income tax for such belief was brought about by an opinion by CIR himself, who, after all, is in charge of implementing the country’s tax laws.
  • Although it can be argued that RMC 31-13 is a mere interpretation of existing law and should be applied even to compensation for TY 2012, the Court finds that it should only be applied prospectively in the interest of justice and equity. 

4.    NO.  Without adequate proof that a prior administrative claim for refund was lodged before the present Petition was institution, petitioners claim for tax refund CANNOT prosper.
  • Before a refund claim under Section 229 of the NIRC can be granted, a taxpayer/claimant must 1st prove that he or she has filed an administrative claim with CIR prior to filing suit with this Court.
  • Section 3 of Rule 130 of the Rules of Court provides that no documentary evidence is admissible as proof of its content without presenting its original.  
    • Proof of the following facts: 1. Filing an administrative claim for refund and 2. Content of administrative refund claim were mere photocopies
  • As an exception is the best evidence rule under Section 2 of Rule 130 of the Rules of Court.  Consequently, before a copy may be admitted as proof of the contents of a document, its execution or existence, and the cause of its unavailability (which should be without bad faith on the part of the offeror) must be first be established. 
    • In this case, petitioner’s witness did not testify on matters proving 1. The execution or existence of the original administrative claims for refund 2. Cause of the unavailability of these documents which is not due to the bad faith of petitioners.  In fact, she did not adduce any testimony at all identifying these documents.  Worse, these documents have not been marked considering that these were neither included in the Pre-trial Brief nor Pre-trial order.  – inadmissible
  • It may be pointed out that the presentation of the originals of the administrative claims for refund is unnecessary since the truth of its contents is not in issue but only the fact of (prior execution of the administrative claim before the filing of the present Petition) is needed to be proved, hence, parol evidence is allowed. Nonetheless, petitioner’s counsel still failed to offer as evidence the copies of the administrative claims for refund in the Formal Offer of Evidence.