Court upholds Filipino ADB employees’ tax exemption

MANILA, Philippines—A Mandaluyong court has upheld its earlier ruling exempting Filipino employees of multilateral lender Asian Development Bank (ADB) from having to pay income tax.

In an order dated Jan. 9, Judge Carlos A. Valenzuela of Mandaluyong City Regional Trial Court Branch 213 denied the motion for reconsideration filed by Revenue Commissioner Kim Henares of the court’s Sept. 30 decision voiding a section of Revenue Memorandum Circular (RMC) No. 31-2013 “for being issued with no legal basis, in excess of authority and without due process of law.”

Section 2 of the RMC provides that “only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax,” citing the agreement between the ADB and the Philippine government on the establishment of the lender’s headquarters in the country.

But Article XII, Section 45 of the government agreement with the ADB states that “Officers and staff of the bank, including for the purposes of this article experts and consultants performing missions for the bank, shall enjoy the following privileges and immunities: Exemption from taxation on or in respect of the salaries and emoluments paid by the bank subject to the power of the government to tax its nationals.”

Valenzuela had ruled that Section 2(d)1 of the RMC was “void in absence of legislation and/or regulation to the contrary.”

Following the ruling, the Bureau of Internal Revenue on Nov. 11 filed a motion for reconsideration, which was heard on Nov. 14.

In denying the BIR’s motion for reconsideration, Valenzuela said: “Assessing anew the basis of this court’s questioned decision, which granted the instant petition, and in the light of the arguments raised and discussed in the motion for reconsideration so with its comment/opposition, this court finds no cogent reason to reconsider the assailed decision rendered of Sept. 30. 2014.”

“Further, the present motion for reconsideration has not raised any new or substantial ground or reason that would call for the upturning of this court’s decision,” Valenzuela said.

The BIR had filed tax evasion cases against Filipino ADB employees in the Department of Justice using the RMC as the basis for the charges.

Liwayway Vinzons-Chato, ADB legal counsel and a former BIR commissioner herself, had explained that with the government’s ratification of the ADB charter, the subject to reservation from tax exemption must be declared for the government to retain its claim over Filipino employees’ income taxes.

But since there was no declaration through an enabling law, the Philippine government was therefore unable to retain such claim, she said in an earlier interview.