Republic of the Philippines

COURT OF APPEALS
Manila

SECOND (2nd) DIVISION

****

ERWIN SALAVERIA1 and PORTIA CA-G.R. CV No. 104374

GONZALES, by themselves and
as Attorneys-in-Fact of the Members:
concerned Filipino employees of
Asian Development Bank, SALAZAR-FERNANDO, R.,
Petitioners-Appellees, Chairperson,
BARZA, R.F., and
REYES-CARPIO, A., JJ.
- versus -

Promulgated:
COMMISSIONER OF INTERNAL JULY 2, 2015
REVENUE,
Respondent-Appellant.
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RESOLUTION

REYES-CARPIO, A., J.:

This is an Appeal,2 filed under Rule 41 of the 1997 Rules of Civil

Procedure, seeking the reversal of the Decision, 3 dated September
30, 2014, rendered by the Regional Trial Court of Mandaluyong City,
Branch 213 in Civil Case No. MC14-8775 entitled “Erwin Salavera
and Portia Gonzales, by themselves and as Attorneys-in-Fact of the
concerned Filipino employees of Asian Development Bank vs.
Commissioner of Internal Revenue.”

The undisputed facts, briefly stated, are as follows:

On April 12, 2013, respondent-appellant Commissioner Kim S.

1
Also referred to as Erwin Salavera.
2
See Order, dated February 24, 2015, Rollo, p. 11.
3
Records, pp. 525-556.
CA-G.R. CV No. 104374 Page 2
RESOLUTION

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Jacinto-Henares issued Revenue Memorandum Circular (RMC) No.

31-20134 which contained guidelines on the taxation of compensation
income of Philippine Nationals and Alien Individuals Employed by
Foreign Governments/Embassies/Diplomatic Missions and
International Organizations Situated in the Philippines. The same
provides:

“SECTION 2. TAX TREATMENT OF COMPENSATION INCOME

The tax treatment of Philippine nationals and alien individuals on

compensation income received by them from foreign
government/embassies and missions and international organizations shall
be as follows:

xxx

(d) Those Employed by Organizations Covered by Separate

International Agreements or Specific Provisions of Law –

1. Asian Development Bank (ADB)

Section 45(b), Article XII of the Agreement between the Asian

Development Bank and the Government of the Republic of the
Philippines regarding the Headquarters of the asian Development
Bank provides:

'ARTICLE XII

xxx

Section 45

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:

xxx

(b) 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.' Underscoring
supplied.

From the above, only officers and staff of the ADB who are not
Philippine nationals shall be exempt from Philippine income tax.”5
4
Records, pp. 25-50.
5
Records, pp. 27 and 40.
CA-G.R. CV No. 104374 Page 3
RESOLUTION

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As a result, the Filipino employees of the Asian Development

Bank (ADB), including petitioners-appellees, were ordered to declare
their income for the year 2012 onwards and pay taxes thereon as the
RMC was given retroactive effect. Prior to the issuance of RMC No.
31-2013, the Filipino employees of ADB did not pay income taxes
since its establishment in 1966.

As a result, petitioners-appellees filed a petition questioning the

validity of RMC No. 31-2013 before the Court of Tax Appeals but the
same was dismissed on the ground that the appeal should have been
made with the Secretary of Finance. Pursuant to the same, they
sought redress from the Department of Finance. While the same was
pending, the BIR charged petitioners-appellees with tax evasion.

On November 26, 2013, the BIR issued RMC No. 73-2013, 6

allowing the application for confirmation of tax exemption/tax
treatment with its International Tax Affairs Division (ITAD) of the BIR
which petitioners-appellees availed of.

In view of the criminal charges against petitioners-appellees,

they initiated an action for the nullification of the said portion of RMC
No. 31-2013,7 citing the urgency of the situation. In the Petition, the
following issues were raised: (A) Whether or not Section 2(d)(1) of
RMC 31-2013 is valid absent any legislation or regulation withdrawing
or modifying the express tax exemption provided in the ADB Charter;
and; (B) If the preceding issue is resolved in the negative, whether or
not Section 2(d)(1) of RMC 31-2013 is enforceable insofar as taxing
the salaries of ADB employees earned on the year 2012. 8

Petitioners-appellees argued that the ADB Charter 9

unequivocally provided that its employees were not subject to tax on
salaries and emoluments. It was also contended that the RMC did
not meet the standard of an enabling law or an operative act in order
to validly exercise the right to tax. 10 Thus, they sought the following
reliefs:

“WHEREFORE, PREMISES CONSIDERED, it is most

respectfully prayed that the Honorable Court render judgment:
6
Records, pp. 97-114
7
See Petition (To Nullify Revenue Memorandum Circular 31-2013, Section 2[d][1]), Records,
pp. 2-24.
8
See Petition, Records, p. 9.
9
Records, pp. 115-121.
10
Records, p. 12.
CA-G.R. CV No. 104374 Page 4
RESOLUTION

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a. Declaring 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;

b. Declaring Section 2 (d) (1) of RMC 31-2013 as void in the absence of

legislation and/or regulation to the contrary;

By way of Alternative Relief, and only in the event that the

Honorable Court does not sustain the above, it declares that:

c. Section 2 (d) (1) of RMC 31-2013 as void for being violating (sic)
Section 246 of the NIRC and therefore should be implemented
prospectively.

Other relief just and equitable under the premises are likewise
prayed for.”11

Respondent-appellant Commissioner Henares, in her Answer, 12

alleged that the trial court had no jurisdiction as petitioners-appellees
did not adhere to the doctrine of exhaustion of administrative
remedies. Respondent-appellant also averred that the subject RMC
was not patently illegal as the same was issued in accordance to her
rule-making power, pursuant to the authority to interpret tax laws and
decide tax cases as mandated by the National Internal Revenue
Code (NIRC). The allegations of violation of due process, as well as
unreasonable delay and inaction to the prejudice of petitioners-
appellees were denied.

Respondent-appellant also claimed that the tax exemption

provided under the ADB Charter need not be withdrawn by or through
subsequent law or regulation. It was argued that in signing the ADB
Headquarters Agreement, the government held on to the state's
inherent power to tax thus, it was a clear limitation insofar as its right
to tax its nationals.13 Consequently, respondent-appellant sought the
dismissal of the petition.

After weighing the arguments and supporting documents of the

parties, the trial court rendered the appealed Decision, 14 dated
September 30, 2014, granting the petition, to wit:

“WHEREFORE, premises considered, judgment is hereby rendered

11
Records, p. 22.
12
Records, pp. 148-167.
13
See Answer, Records, p. 159.
14
Records, pp. 525-556.
CA-G.R. CV No. 104374 Page 5
RESOLUTION

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as follows:

a.) declaring Section 2 (d) (1) of Revenue Memorandum Circular 31-2013

as VOID for being issued without legal basis, in execess of authority
and/or without due process of law; and

b.) declaring Section 2 (d) (1) of RMC No. 31-2013 as void in the absence
of legislation and/or regulation to the contrary.

SO ORDERED.”15

Respondent-appellant sought reconsideration 16 of the Decision

but the same was denied in an Order, 17 dated January 9, 2015.

Hence, this appeal.

Petitioners-appellees, meanwhile, filed an Ex-Parte

18
Manifestation (Ad Cautelam) arguing that respondent-appellant
erred in elevating the instant case to this Court as the issues
involved are purely questions of law.

Rule 41 of the 1997 Rules of Civil Procedure, as aptly pointed

out by petitioners-appellees, clearly state the modes of appeal
available to a party, to wit:

“SEC. 2. Modes of Appeal. –

(a) Ordinary appeal. – The appeal to the Court of Appeals in cases

decided by the Regional Trial Court in the exercise of its original
jurisdiction shall be taken by filing a notice of appeal with the court which
rendered the judgment or final order appealed from and serving a copy
thereof upon the adverse party. x x x.

(b) Petition for review. – The appeal to the Court of Appeals in

cases decided by the Regional Trial Court in the exercise of its appellate
jurisdiction shall be by petition for review in accordance with Rule 42.

(c) Appeal by certiorari. – In all cases where only questions of

law are raised or involved, the appeal shall be to the Supreme Court
by petition for review on certiorari in accordance with Rule 45.”
(Emphasis ours).

15
Records, p. 55.
16
Records, pp. 572-583.
17
Records, p. 611.
18
Rollo, pp. 17-21.
CA-G.R. CV No. 104374 Page 6
RESOLUTION

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As a reminder, this Court deems it necessary to define a

question of law.

In Del Socorro vs. Van Wilsem,19 the Supreme Court declared

that there is a question of law when the issue does not call for an
examination of the probative value of the evidence presented or of
the truth or falsehood of the facts being admitted, and the doubt
concerns the correct application of law and jurisprudence on the
matter. In Villamor, Jr. vs. Umale,20 the Supreme Court laid down
the test to determine the existence of a question of law: whether the
appellate court can determine the issue raised without reviewing
or evaluating the evidence.

In this case, neither party assailed the statement of facts made

by its opponent. It is admitted that the ADB was established through
the ADB Charter and the same provided for tax exemptions of its
employees. It is also uncontested that RMC No. 31-2013 was issued
imposing taxes on petitioners-appellees who are employees of ADB.
The main question now lies in the interpretation of the exemption
provided by the ADB Charter and its applicability to petitioners-
appellees. Thus, there is no review of evidence required.
Consequently, the issue of the instant case is one which is a question
of law.

This being the case, respondent-appellant Commissioner of

Internal Revenue improperly elevated the instant case to this Court
by ordinary appeal as the same should have been raised by petition
for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure before the Supreme Court.

WHEREFORE, in view of the foregoing, the Appeal is

DISMISSED.

SO ORDERED.

AGNES REYES-CARPIO
Associate Justice

19
G.R. No. 193707, December 10, 2014.
20
G.R. Nos. 172943 & 172881, September 24, 2014.
CA-G.R. CV No. 104374 Page 7
RESOLUTION

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WE CONCUR:

REMEDIOS SALAZAR-FERNANDO
Associate Justice

ROMEO F. BARZA
Associate Justice