IRISH FE N. AGUILAR, MAJELLA R. CANZON, ARLENE B. CHAVEZ, HELEN B. CRUDA, MARIA AMPARO M. DATO, MARIAN L. LAGMAY, VERGEL K. LATAY, PRINCESS O. LUBAG, RUTH C. MANGROBANG, SHEILA MARIE F. MARIANO, ARLENE P. PORRAS v. HONORABLE KIM S. JACINTO-HENARES, in her capacity as COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION IRISH FE N. AGUILAR, CTA CASE NO. 9073 MAJELLA R. CANZON, ARLENE B. CHAVEZ, HELEN B. CRUDA Members: MARIAAMPARO M. DATO, MARIAN L. LAGMAY, VERGEL CASTANEDA, JR., Chairperson, K. LATAY, PRINCESS 0. LUBAG, CASANOVA, and RUTH C. MANGROBANG, MANAHAN,Jl. SHEILA MARIE F. MARIANO, AND ARLENE P. PORRAS, Petitioners, -versus- COMMISSIONER OF INTERNAL Promulgated: REVENUE, DEC 01 2017 ~ Respondent. r7 y. 2f ,.,. . X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION CASANOVA,].: This is a Petition for Review1, filed on June 19, 2015, by several Filipino employees of the Asian Development Bank (ADB), with respect to claims for income tax refund for the taxable year 2012, pursuant to Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, and Section 3(a)(2) of the Revised Rules of the Court of Tax Appeals. Petitioners, Irish Fe N. Aguilar, Majella R. Canzon, Arlene B. Chavez, Helen B. Cruda, Maria Amparo M. Dato, Marian L. Lagmay, Vergel K. Latay, Princess 0. Lubag, Ruth C. Mangrobang, Sheila Marie F.e. 1Docket (Vol. 1), pp . 10-29.

DECISION CTA Case No. 9073 Mariano and Arlene P. Porras are all of legal age, Filipinos and employees of ADB, an international organization with principal office at No.6 ADB Ave., Mandaluyong City.2 Respondent Commissioner of Internal Revenue is the government official charged with the administration and enforcement of national internal revenue laws, including the granting of refunds and tax credits of taxes erroneously or illegally collected. He holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City. On April 12, 2013, respondent issued Revenue Memorandum Circular (RMC) No. 31-2013 entitled "Guidelines on the Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Foreign Governments I Embassies I Diplomatic Missions and Internal Organizations Situated in the Philippines".3 Included therein is a provision pertaining to the tax exemptions enjoyed by the employees of ADB. Section 2(d)(1) of said RMC provides the following: "SECTION 2. TAX TREATMENT OF COMPENSATION INCOME xxxxxx (d) Those Employed by Organizations Covered by Separate International Agreements or Specific Provisions of Law- 30. Asian Development Bank (ADB) Section 4S(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: Section 45 Officers and staff of the Bank, including for the purposes of this Article experts and consultants performing missions for & 2Docket (Vol. 1), p. 11. 3Par. 3, Stipulated Facts, Statement of the Facts and Issues, Pre-Trial Order, Docket (Vol. 1), p. 412.

DECISION CTA Case No. 9073 the Bank, shall enjoy the following privileges and immunities: xxxxxx (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; XXX XXX From the above, only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax. xxx'' Pursuant to the above RMC, petitioners paid their income taxes for the taxable year 2012 with the following details4: TAXABLE YEAR 2012 Name of Employee Payment Date Amount of Payment Irish FeN. Aguilar 21June,2013 P395,383.84 Majella R. Canzon 12 July, 2013 289,966.00 Arlene B. Chavez 15 July, 2013 434,002.98 Helen B. Cruda 15 July, 2013 1,565,838.85 Maria Amparo M. Dato 21 June, 2013 544,687.22 Marian L. Lagmay 15 July, 2013 127,359.17 Vergel K. Latay 11 July, 2013 479,113.76 Princess 0. Lubag 27 August, 2013 261,305.76 Ruth C. Mangrobang 12 July, 2013 133,865.28 Sheila Marie F. Mariano 15 July, 2013 20,055.89 Arlene P. Porras 30 July, 2013 491,752.05 TOTAL P4,743,330.80 In the meantime, Erwin Salavera and Portia Gonzales, by themselves and as attorneys-in-fact of concerned Filipino employees of ADB, filed before the Branch 213, Regional Trial Court of Mandaluyong City (RTC Mandaluyong City), a petition to nullify Section 2(d)(1) of RMC 31-2013.~ 4Petition for Review, Docket {Vol. 1), pp. 12-13. 5Par. 7, Petition for Review, Docket {Vol. I), p. 14.

DECISION CTA Case No. 9073 On September 30, 2014, RTC of Mandaluyong City rendered a Decision6 declaring Section 2(d)(1) ofRMC 31-2013 void. On April 15, 2015, petitioners filed their respective claims for refund of the income tax payment7 before the Revenue District No. 41, Mandaluyong City, but the same was not allegedly acted upon by respondent. Thus, this judicial claim for refund filed on June 19, 2015. On July 1, 2015, this Court issued Summons8 requiring BIR and the Office of the Solicitor General (OSG) to file their Answer. On July 16, 2015, the OSG filed, thru registered mail, his Manifestation and Motion9 stating that pursuant to Memorandum of Agreement between BIR and OSG dated March 17, 2010, the parties agreed that the BIR handling lawyer shall prepare all pleadings and motions in connection with cases appealed before this Court, thus, OSG requested to be excused from filing the required Answer. On September 21, 2015, respondent filed his Answerlo after several Motions for Extension of Time granted by the Court. Respondent mainly argues that the Court has no jurisdiction on the grounds that petitioners failed (i) to file the instant claim for refund within the two- year prescriptive period; and, (ii) to prove that the tax was erroneously or illegally collected, hence, not refundable. On October 2, 2015, petitioners filed a Motion for Leave to file and Admit Attached Reply11 which was admitted by the Court in an Order12 dated October 6, 2015. On October 9, 2015, petitioners filed their Pre-Trial Brief13, while respondent filed his Pre-Trial Brief14 on October 12, 2015. The Pre-Trial was set on November 12, 2015 and the parties were given a period of fifteen (15) days to file their Joint Stipulation of Facts and Issues (JSFI). However, per Records Verification Report dated January 26, 2016, the parties failed to file the same, hence, they were.. 6Par. 8, Petition for Review, Docket (Vol. 1), pp. 14-15 7Exhibit P-4. 8 Docket (Vol. 1), p. 110. 9 Docket (Vol. 1), pp. 117-119. 10 Docket (Vol. 1), pp. 130-140. 11Docket (Vol. 1), pp. 143-156. 12Docket (Vol. 1), p. 156-A. 13Docket (Vol. 1), pp. 157-170. 14Docket (Vol. 1), pp. 363-366.

DECISION CTA Case No. 9073 ordered to show cause by the Court in a Resolution1s dated January 29, 2016. Subsequently, on February 2, 2016, petitioners filed their Compliance with Motion to Admit Attached Stipulation of Facts and lssues16. On February 3, 2016, a Pre-Trial Order17 was issued by this Court thereby terminating the Pre-Trial. On April 19, 2016 petitioners filed their Formal Offer of Documentary Exhibits1s, which was partially admitted by the Court in a Resolution19 dated June 23, 2016. On October 11, 201620. All evidence offered by the petitioners were admitted by the Court after a Motion for Partial Reconsideration (of the Resolution dated 23 June 2016) was filed by the petitioners. During the scheduled initial presentation of evidence for the respondent21 on July 4, 2016, his counsel manifested that he has no witness to present. Thus, upon motion of the counsels for both parties, they were granted thirty (30) days to file their respective memorandum. On November 15, 2016, petitioners filed their Manifestation (with Attached Memorandum for the Petitioners' dated 14 November 2016)22, sans respondent's memorandum as per Report of the Records Division23 dated November 29, 2016. In view of the above, on December 2, 2016, the Court issued a Resolution24 submitting the case for Decision. The following are the stipulated issues2s~ 15Docket {Vol. 1), pp. 388 16Docket {Vol. 1), pp. 391-409. 17Docket {Vol. 1), pp. 411-421. 18 Docket {Vol. IV), pp. 1733-1756. 19Docket {Vol. IV), pp. 1888-1889. 20Docket {Vol. IV), pp. 1925-1927 21 Docket {Vol. IV), p. 1891. 22Docket {Vol. IV), pp. 1928-1964 23 Docket {Vol. IV), p. 1998. 24Docket {Vol. IV), pp. 1999. 25 Stipulated Issues, Pre-Trial Order, Docket {Vol. 1), pp. 412-413.

DECISION CTA case No. 9073 1. Whether Article 56 of the ADB Charter specifically exempts its employees from taxes that may be levied on the salaries and emoluments paid by the ADB. 2. Whether RMC No. 31-2013, which declared that the employees of ADB liable for income taxes, is void. 3. Whether petitioners paid their corresponding income tax liabilities for taxable year 2012. 4. Whether in its Decision dated 30 September 2014, Branch 213 of the Regional Trial Court (RTC) of Mandaluyong City declared Section 2(d)(1) of RMC No. 31- 2013 void. 5. Whether the BIR appealed the Decision of the RTC to the Court of Appeals but such appeal was dismissed. 6. Whether petitioners filed their written claims of refund with BIR ROO No. 41 in Mandaluyong City on 15 April2015. 7. Whether BIR RDO No. 41 did not act on petitioners' claim for refund. 8. Whether petitioners filed their judicial claim for refund on 19 June 2015. 9. Whether both the written claim for refund with the BIR and the judicial claim for refund with this Court were filed within the two-year prescriptive period as provided under the NIRC. 10. Whether petitioners are entitled to the refund of income taxes paid for the taxable year 2012. The abovementioned issues can be summarized into three (3) major issues. 1. Whether or not both the administrative and judicial claims were timely filed within the two-year prescriptive period;a.

DECISION CTA Case No. 9073 2. Whether or not the petitioners are entitled to refund pursuant to Article 56 of the ADB Charter which allegedly exempts its employees from taxes on salaries and emoluments paid by the ADB; and 3. Whether petitioners are entitled to the refund of income taxes paid for the taxable year 2012 pursuant to the Decision of RTC Mandaluyong City Branch 213 dated 30 September 2014 declaring Section 2(d)(1) ofRMC No. 31-2013 void. First of all, the Court deems it appropriate to determine the timeliness of the filing of petitioners' administrative and judicial claims for refund in order to ascertain whether the Court of Tax Appeals properly acquired jurisdiction on this case. Section 229 of the 1997 NIRC, as amended, provides the proper procedure in filing a claim for refund of erroneously or illegally collected tax, to wit: "Section 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner, but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid underprotest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefore, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." Based on the foregoing, a claimant for refund must first file an administrative claim for refund before the CIR, prior to filing a judicial claim before the CTA. Both the administrative and judicial claims for refund should be filed within the two (2)-year prescriptive periock

DECISION CTA case No. 9073 indicated therein, and that the claimant is allowed to file the judicial claim even without waiting for the resolution of the administrative claim in order to prevent the forfeiture of the taxpayer's claim through prescription.26 Here, the following dates are relevant to determine the timeliness of the petitioners' claim for refund, thus: Name of 2012lncome Amount of Total 2-Year Date of Date of Employee Tax Payment Payment Payments Prescriptive Filing of Filing of Irish FeN. (Amount Admin. Judicial Aguilar Date Claimed for Period Majella R Refund) Claim Claim Canzon 6/21/201327 Arlene B. P395,383.84 P395,383.84 6/21/2015 6/19/2015 Chavez 7/12/201328 Helen B. 289,966.00 289,966.00 7_112/2015 Cruda 7/15/201329 Maria 434,002.98 434,002.98 7/15/2015 Amparo M. 7/15/201330 Dato 6/21/201331 1,565,838.85 1,565,838.85 7/15/2015 Marian L. 5_1_24_1_201332 272,343.61 544,687.22 6/21/2015 Lag may 272,343.61 Verge) K. 7/15/201333 Latay 127,359.17 127,359.17 7/15/2015 4/15/2015 Princess 0. 7/11/201334 Lubag 362,118.1435 362,118.14 7/11/2015 Ruth C. 8/27/201336 Mangrobang 261,305.76 261,305.76 8j27_L2015 Sheila Marie 7/12/201337 F. Mariano 133,865.28 133,865.28 7/12/2015 Arlene P. 7/15/201338 Porras 7/12/201339 20,055.89 20,055.89 7/15/2015 8/30/201340 209,744.78 491,752.05 8130/2015 282,007.27 We note that Ms. Dato and Ms. Porras paid their income taxes in installment. In such case, "the prescriptive period of two (2) years should be counted from the date of the final payment" following the , ruling in the cases of Collector of Internal Revenue v. Antonio Prieto41, et. 26 Metropolitan Bank & Trust Co. vs. Commissioner of Internal Revenue, G.R. No. 182582, April17, 2017. 27 Exhibit "P-2". 28 Exhibit "P-9". 29 Exhibit "P-13". 30 Exhibit "P-7". 31 Exhibit "P-25". 32 Exhibit "P-24". 33 Exhibit "P-29". 34 Exhibit "P-34". 35For the refund claim of Vergel K. Latay, only P362,118.14 out of P479,113.76 is duly supported by proof of payment. 36 Exhibit "P-40". 37 Exhibit "P-44". 38 Exhibit "P-49". 39 Exhibit "P-53". 40 Exhibits "P-54" to "55". 41 G.R. No. L-11976, August 29, 1961.

DECISION CTA case No. 9073 a/., Commission of Internal Revenue vs. Carlos Palanca42 and Commission ofInternal Revenue vs. TMX Sales, Inc. 43� Thus, the prescriptive period for those employees should be reckoned on their second payment. By such reason, this Court agrees with petitioners' contention that all of them were able to timely file their administrative and judicial claims for refund on April 15, 201544 and June 19, 201545, respectively, or within the two-year prescriptive period. Consequently, this Court acquires jurisdiction over the instant case. We shall now ascertain whether petitioners are entitled to the refund of income taxes paid for the taxable year 2012 pursuant to the Decision of RTC Mandaluyong City, Branch 213, dated September 30, 2014, declaring Section 2(d)(1) ofRMC No. 31-2013 void. We hold that the RTC Mandaluyong City's Decision in Civil Case No. MC14-8775 is irrelevant in the resolution of the present controversy since only decisions of the Supreme Court constitute binding precedents, forming part of the Philippine legal system.46 Further, the validity of the subject RMC is still in question before the Highest Court of the land. Thus, the said case cannot be relied upon in resolving the case at bench. We shall now determine if the compensation received by petitioners for their services rendered to ADB for taxable year 2012 is exempt from income tax. To begin with, under Sections 23(A) and 24(A)(1)(a)1997 NIRC, as amended, resident citizens are generally subject to tax on income derived from all sources within and without the Philippines, to wit: "SEC. 23. General Principles of Income Taxation in the Philippines.- Except when otherwise provided in this Code:,p- 42 G.R. No. L-16626, October 29, 1966. 43 G.R. No. 83736, January 15, 1992. 44 Exhibit "P-4". 45 See Footnote No. 1. 46 Article 8, Civil Code of the Philippines. De Mesa v. Pepsi Cola Products Phils., Inc., 504 Phil. 685 (2005); The Philippine Veterans Affairs Office v. Segundo, 247 Phil. 330 (1988); Ang Ping v. RTC, Manila, Branch 40, 238 Phil. 77 (1987); Floresca v. Phi/ex Mining Corporation, 220 Phil. 533 (1985).

DECISION CfA Case No. 9073 (A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines; XXX XXX SEC. 24. Income Tax Rates. (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. (1) An income tax is hereby imposed: (a) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within and without the Philippines by every individual citizen of the Philippines residing therein;" On the other hand, Section 32 of the 1997 NIRC, as amended, enumerates certain items which are excluded from gross income and thus, exempted from taxation, viz.: "SEC. 32. Gross Income.- (A) General Definition. - Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items: XXX XXX. (B) Exclusions from Gross Income. - The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxxxxxxxx. (5) Income Exempt under Treaty. - Income of any kind to the extent required by a treaty obligation binding upon the Government of the Philippines.o--

DECISION CTA Case No. 9073 XXX XXX XXX." Based thereon, in the absence of any specific grant of income tax exemption, like treaty or international agreements, citizens or nationals of Philippines are generally taxable on all income derived from all sources within and without the Philippines. We shall now determine whether the Philippine government accorded tax exemption privileges to all officers and employees of ADB. A short historical backdrop is necessary for a clearer insight of this issue. To recall, petitioners' claim for refund is anchored on paragraph 2, Article 56 of "The Agreement Establishing the Asian Development Bank"47 (ADB Charter) which provides: "EXEMPTION FROM TAXATION XXX 2. No tax shall be levied on or in respect of salaries and emoluments paid by the Bank to Directors, alternates, officers or employees of the Bank, including experts performing missions for the Bank, except where a member deposits with its instrument of ratification or acceptance a declaration that such member retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to citizens or nationals of such member." The foregoing was ratified and confirmed by then President Ferdinand E. Marcos in this wise: "NOW THEREFORIE, be it known that I, Ferdinand E. Marcos, President of the Republic of the Philippines, having seen and considered the Agreement Establishing the Asian Development Bank done on December 4, 1965 at Manila Philippines, do hereby in pursuance of the aforesaid concurrent of the Senate of the"" 47 Executed on December 4, 1965.

DECISION CTA Case No. 9073 Philippines, ratify and confirm the said Agreement and every article and clause thereof, subject to the reservation that the Philippine declares that it retains for itself and its poli~ical subdivision the right to tax salaries and emolpments paid by the Bank to citizens or nationals of the Philippines." The Senate of the Philippines, through its Senate Resolution dated March 16, 196648, concurred in the ratification of the ADB Charter by then President Ferdinand E. Marcos. In relation thereto, Article XII, Section 45 (b) of the Agreement Between the Asian Development Bank and the Government of the Republic of the Philippines Regarding the Headquarters of the Asian Development Bank49 (ADB Headquarters Agreement) specifically provides that officers and staff of the ADB, subject to the power of the Philippine Government to tax its nationals, is exempt from taxation on salaries and emoluments paid by the ADB, to wit: "ARTICLE XII Privileges and Immunities of Governors and Other Representatives of Members, Directors, President, Vice-President and Others xxxx 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: (a) xxxx (b) Exemption from tctxation on or in respect of the salaries and emoluments paid by the Bank subject to the power of the Ggvernment to tax its nationals; x x x x" (Boldfacing and underscoring supplied) liV 48 See Par. 1 of page 13 of RTC Decision in Civil Case No. MC14-8775, Docket, p. 192. 49 Entered into and signed on December 22, 1966.

DECISION CfA Case No. 9073 It is evident from the foregoing that the tax exemption granted to ADB personnel is not absolute based on the following phrases stated in the afore-quoted Agreements: "except where a member x x x retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to citizens or nationals of such member" and "subject to the power of the Government to tax its nationals". We find the said the phrases to be an express reservation on the part of the Philippine government to tax the salaries and emoluments paid by the ADB to Philippine citizens or nationals. The word "reservation" is defined as follows: "The establishment of a limiting condition or qualification; esp., a nation's formal declaration, upon signing or ratifying a treaty, that its willingness to become a party to the treaty is conditioned on the modification or amendment of one or more provisions of the treaty as applied in its relations with other parties to the treaty."so Had it been the intention of the Philippine Government to exempt from income tax the salaries or emoluments that its citizens or nationals would derive from ADB, then it could have stated it in a language clearly pointing towards that intent, without any declaration as to the retention or reservation of its right to tax the Filipino employees of ADB. Thus, the Court shall now discuss the propriety of the retroactive application of RMC No. 31-2013 to the income of Filipino employees of ADB for taxable year 2012. This particular issue is far from being novel as this Court had the opportunity in the recent case of Cristeta May Galang, Caridad Ortega, Mildred Villareat Roan Marie Yngson Tanglaw Lupe Gutierrez, and Trinidada jacob vs. Commissioner of Internal Revenuesl to explain the necessity for the prospective application of RMC No. 31-2013 on account of justice and equity in this wise: "This court is well aware of the hornbook doctrine in statutory construction that laws operate prospectively only and never retrospectively, unless the legislative intent to the contrary is made manifest either~ 50 Black's Law Dictionary, Eight Edition, p. 1334. 51 CTA Case No. 9081, June 8, 2017.

DECISION CTA case No. 9073 by the express terms of the statute or by necessary implication. Article 4 of the New Civil Code provides that 'Laws shall have no retroactive effect, unless the contrary is provided.' In the instant case, the assailed RMC 31-2013 stated under its Section 7. EFFECTIVITY, that "This Circular shall take effect immediately. xxx." However, in reality, the respondent proceeded to collect from the petitioners income tax payments starting 2012 despite the fact that the RMC took effect only on May 2, 2013. Section 246 of the 1997 Tax Code provides: SEC. 246. Non- Retroactivity of Rulings. -Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue; (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) Where the taxpayer acted in bad faith. (Emphasis supplied) As shown in the preceding recital of facts, petitioners neither committed fraud nor acted in bad faith when they failed to pay their income taxes to the government. To believe that they are exempt from income tax obligation based on their limited layman's understanding of the ADB Charter and its declared tax exempt status, is not to be taken against them. The contradictory official statements of the BIR sowed confusion to the ADB employer as well as to itsa.-

DECISION CfA Case No. 9073 employees with regard to their taxability under the international agreements. True, the inaction on the part of the previous BIR commissioners to enforce the collection of income taxes from petitioners does not estop the respondent from collecting said taxes. This court is mindful of the well- entrenched principle that the government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. However. this rule admits of exceptions in the interest of justice and fair ~ In the instant case, the acts of the respondent to set up kiosks in the lobby of ADB to collect taxes from and eventually the filing of criminal case for tax evasion against some ADB Filipino employees in order to collect past due income taxes for taxable year 2012 had prejudiced the status of the petitioners. In ABS-CBN Broadcasting Corporation v. Court of Tax Appeals and Commissioner of Internal Revenue, the Supreme Court sustained the non-retroactivity provision of the previQus tax law which is now the Section 246 of 1997 Tax Code as to respondent's rulings or circulars, viz: In point is Sec 338-A (now Sec. 327) of the Tax Code. As inserted by Republic Act No. 6110 on August 9, 1969, it provides: Sec. 338-A. Non-retroactivity of rulings. - Any revocation, modification, or reversal of and of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the relocation, modification, or reversal will be prejudicial to the taxpayers, except in the following cases: (a) where the taxpayer deliberately mis-states or omits material facts from his return or any document required of him by the Bureau of Internal Revenue: (b) where the facts subsequently gathered by the Bureau o~

DECISION CTA case No. 9073 Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith. (italics for emphasis) It is clear from the foregoing that rulings or circulars promulga.ed by the Commissioner of Internal Revenue have no retroactive application where to so apply them would be prejudicial to tatxpayers. The prejudice to petitioner of the ljetroactive application of Memorandum Circular No. 4-71 is beyond question. It was issued only in 1971. or three years after 1968. thg last year that petitioner had withheld taxes ljlnder General Circular No. V-334. The assessment and demand on petitioner to pay deficiency withholding income tax was also made thlree years after 1968 for a period of time commencing in 1965. Petitioner was no longer in a position to withhold taxes due from foreign corporations because it had already remitted all film rentals and no longer had any control over them when the new Circular was issued. And in so far as the enumerated exceptions are concerned, admittedly, petitioner does not fall under any of them. (Emphasis and underscoring ours) Also, in Commissioner of Internal Revenue v. Court of Appeals, Court of Tax Appeals, and Alhambra Industries, Inc., it was ruled that: However, well-entrenched is the rule that rulings and circulars, rules and regulations promulgated by the Commissioner of Internal Revenue would have no retroactive application if to so apply them would be prejudicial to the taxpayers. The applicable law is Sec. 246 of the Tax Code which provides- Sec. 246. Non-retroactivity of rulings.- Any revocation, modification, or reversal of any rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the..,

DECISION CTA case No. 9073 Commissioner of Internal Revenue shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or c) where the taxpayer acted in bad faith. Without doubt. private respondent would be prejudiced by the retroactive application of the revocation as it woald be assessed deficiency excise tax. (Emphasis ours)" As pointed out earlier, the instant case involves a claim for refund in the amount of P4,743,330.80. However, upon review of the records, the Court notes that, out of the P479,113.76 refund claim of Vergel K. Latay, only the amount of P362,118.14 was duly supported by proof of payment. Thus, the remaining claim ofVergel K. Latay in the amount of P116,995.62 shall be denied for being unsupported. As for the rest of the claims totaling P4,381,212.66, the Court finds the same meritorious for refund for having complied with the provisions of Sections 204(C) and 229 of the NIRC of 1997, as amended, and for having been properly substantiated with proofs of payment of income taxes for the taxable year 2012. In light of the foregoing, We PARTIALLY GRANT petitioners' Petition for Review in the aggregate sum ofP4,626,335.18: Name of Employee Amount of Tax Refund Irish Fe N. Aguilar Majella R. Canzon p 395,383.84 Arlene B. Chavez 289,966.00 Helen B. Cruda 434,002.98 Maria Amparo M. Dato Marian L. Lagmay 1,565,838.85 Vergel K. Latay 544,687.22 Princess 0. Lubag 127,359.17 362,118.14 261,305.76

DECISION 133,865.28 20,055.89 CTA case No. 9073 491,752.05 Page 18 of 19 P4,626,335.18 Ruth C. Mangrobang Sheila Marie F. Mariano Arlene P. Porras Total Accordingly, respondent is hereby ORDERED TO ISSUE A TAX REFUND/TAX CREDIT CERTIFICATE in favor of petitioners in the reduced amount ofP4,626,335.18 to be individually allocated based on the aforementioned tabular summary, representing the illegally collected income taxes for taxable year 2012. SO ORDERED. CAESAR A. CASANOVA Associate Justice WE CONCUR: ~--~ C.Q$:-.o.~a/.Q. (With Dissenting Opinio'fi)' JUAN ITO C. CASTANEDA, JR. Associate Justice ~'7�/?1~~-----...... CATHERINE T. MANAHAN Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ~a..-~ c.~~"'- Q JlfANITO C. CASTANEDA, JR. tl" - Associate Justice Chairperson, Second Division

DECISION CTA Case No. 9073 19 of 19 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Justice

I REPUBLI OF THE PHILIPPINES COURll OF TAX APPEALS Q~EZON CITY SECOND DIVISION IRISH N. AGUILAR ET AL., CTA CASE NO. 9073 Petitio~ers, Present: -versus- Castaneda, Jr., Chairperson, Casanova, and, Manahan, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, I Respondlent. DEC 0 1 Z017 / I x------------------------------------------------------------- ~-'-f-:1---~--1--.-,.--.----x DISS,NTING OPINION CASTANEDA, JR., J.: With due respect, I reJister my dissent to the grant of refund of P4,626,335.18 representing Iincome taxes paid by the petitioners in 2013. I am of the view that t e refund should be denied under Sections (NIRC), as amended. The discussion below eiterates the position I have taken in my Concurring and Dissenting ppinion in Cristeta May Galang eta/. v. Commissioner ofInternal Revenue. 1 pe~l As in Galang, all the itioners in this case, who are claiming for refund of allegedly erroneoUJsly and/or illegally collected income tax under Section 229, are Filipilno employees of the Asian Development Bank (ADB). jv 1 CTA Case No. 9081, June 8, 2017.

DISSENTING OPINION CTA Case No. 9073 First, a review of the rel�vant treaty and legislative provisions will demonstrate that Congress !really intended to tax the salaries and emoluments received by Filipinqs from ADB. i On December 4, 1965, t~e "Agreement Establishing the Asian Development Bank" (ADB Char$r) was executed. I Thereafter, in a Senate R~solution No. 6 dated March 16, 1966, the ADB Charter was ratifie and confirmed by the Philippine Government with a reservation . fits right to tax the Filipino employees of ADB, thus: "NOW THEREFORE, ~e it known that I, FERDINAND E. MARCOS, President of the Ri'public of the Philippines, having seen and considered the Agreeme t Establishing the Asian Development Bank done on December 4, 1 65 at Manila, Philippines, do hereby in pursuance of the aforesaid concurrent of the Senate of the Philippines, ratify and confim) the said Agreement and every article and clause thereof, sub�ect o the reservation that the Phili ines declares that it retains for its If and its olitical subdivision the ri ht to tax salaries and emolum nts aid b the Bank to citizens or nationals of the Philippines." underscoring supplied) On December 22, 1966~ the "Agreement Between the Asian Development Bank and the ~Government of the Republic of the Philippines Regarding the He dquarters of the Asian Development Bank" (ADB Headquarters Agr. ement) was signed, which provides in pertinent part: "..t-.RTICLE XII Privileges and Immunities o~ Governors and Other Representatives of Members, Directors, Presi~ent, Vice-President and Others ' ~xxxxxx Section 45. Officers and staff of the B~� nk, including for the purposes of this Article experts and consult nts performing missions for the Bank, shall enjoy the following pri ,ileges and immunities: (a) Immunity from legal prqcess with respect to acts performed by them in their official capaqity except when the Bank waives the immunity;~

DISSENTING OPINION CTA Case No. 9073 (b) Exemption from taxation! on or in respect of the salaries and emoluments paid by the *ank subject to the power of the Government to tax its nationa/ls; xxx." (underscoring supplied) The 1997 NIRC, a subseRuent legislation which took effect on January 1, 1998,2 is the law th~t implements the clear intention of the reservation clauses found in th~ Senate Resolution No. 6 and Section 45(b) of the ADB Headquarters fgreement. Specifically, said law leaves no room for doubt that reside~t citizens are subject to tax on income derived from all sources within and without the Philippines under its Sections 23(A) and 24(A)(1)(a)l as amended: "SEC. 23. General Principles tJfIncome Taxation in the Philippines.- Except when otherwise provided in this Coqe: joo( XXX XXX SEC. 24. Income Tax Rates. - (A) Rates ofIncome Tax on individual Citizen and Individual Resident Alien of the Philippines. - ' (1) An income tax is hereby ij'nposed: ' (a) On the taxable income dbfined in Section 31 of this Code, other than income subject to tax under Subse tions (B), (C) and (D) of this Section, derived for each taxable year from all sourc s within and without the Phili ines b eve individual citizen of the Phili ines r sidin therein;" (underscoring supplied) I Second, it is discuss~d in the ponencia that Revenue Memorandum Circular (RMC) ~o. 31-2013, which was issued only on April 12, 2013, should not be given retroactive application pursuant to the prohibition under Section 446.3 {'-- 2 Visayas Geothermal Power Company v. Com~issioner ofInternal Revenue, G.R. No. 197525, June 4, 2014, 725 SCRA 130. 3 "SEC. 246. Non- Retroactivity of ' Any revocation, modification or reversal of any of the rules Rulings.!- and regulations promulgated in accordance wilt:h the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be biven retroactive application if the revocation, modification or reversal will be prejudicial to the taxpayers, exqept in the following cases: (a) Where the taxpayer deliberately misstate~ or omits material facts from his return or any document required of him by the Bureau of Internal Reve~ue; (b) Where the facts subsequently gathered by/the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or �

DISSENTING OPINION CTA Case No. 9073 It bears emphasis, howev~r, that RMC 31-2013 merely reiterates the general principles laid down in Section 23(A) and amplifies Section 24(A)(1)(a), both of which hav~I been in effect since January 1, 1998, before the income tax payment~ in 2012 and 2013. I The preface of RMC 31-2q13 in Section 1 states these objectives when it cites Sections 23 and ~4 of the 1997 NIRC as its foundation and states that the guidelines ~ere intended to address the "confwsion on the correct tax treatment of the compensation income earned by Philippine nationals x~x employed by foreign governments/embassies/diploniatic missions and interna~ional organizations xxx," thus: "SECTION 1. BACKGROUNb.- Foreign governmentsAembassies/diplomatic m1ss1ons and international organizations sltuated in the Philippines acting as employers enjoy immunity f~om collecting taxes on salaries and emoluments of their employ~es, whether they are foreigners or Philippine nationals. This i~munity from being constituted as withholding agents of the Phili~pine Government is accorded to these entities on the basis of intern~tional comity as embodied in several international agreements to w~ich the Philippines is a signatory, such as, the Vienna Convention for !International Relations (for embassies and diplomatic missions), ~onvention on the Privileges and Immunities of the United Nat~1ns, Convention on the Privileges and Immunities of Specialized Ag ncies (for the various agencies of the United Nations), Asian Develo ment Bank Headquarters Agreement (for ADB), Articles of Agre ment of the International Finance Corporation, among others. � In recognition of th~s immunity, the Withholding Tax Regulations (Revenue Regulations No. 2-98, as amended), clearly reiterate the exemption frolthe withholding tax system of the remunerations being paid by reign governments and international organizations to their employ es who are residents or nationals of the Philippines. Section 2.78.1(8)(5) provides thus: XXX XXX XXX (c) Where the taxpayer acted in bad faith."

DISSENTING OPINION CTA Case No. 9073 XXX � XXX XXX As an exemption to tme general rule, it is noted that most international agreements whth grant withholding tax immunity to foreign governments/em assies/diplomatic missions and international organizations al o provide exemption to their officials and employees who are foteign nationals and/or non-Philippine residents from paying income taxes on their salaries and other emoluments. ' The tax consequence i of compensation income received by those employed by foreign! governments/embassies/ diplomatic missions situated in the Phili~pines hinges on the provisions of the duly recognized international1agreements or local laws granting tax privileges to employees of s~id institutions. It bears to emphasize that the exemption should dnly cover those individuals who were expressly and unequivocallly identified in said international agreements or laws. Those not covered shall be subject to the 1 general rule on taxability of Plhilippine nationals and alien individuals. I Thus with resoect to those not exemoted bv the orovisions of aoolicable international aa eements or laws althouah their comoensation income is exe mot from withhold ina tax under the international aareements or he Withholdina Tax Reaulations thev are not relieved of their dutv o reoort their comoensation income to the Bureau and oav the taxes due thereon oursuant to Section 24 of the National Internal Reven Je Code of 1997 as amended ("Tax Code''). (underscoring and emphases supplied) Section 246 on the no~-retroactivity of issuances should be carefully read when viewed inl the light of ABS-CBN v. Court of Tax Appeals,4 an assessment cas cited in the ponencia, wherein the revocatory administrative is uances were not given retroactive application. In said case, the S preme Court held that there will be an injustice and it would be violat ve of fair play if the withholding agent would be made to pay additio al withholding taxes for 1965 to 1968 under the provisions of a circulI~r later issued in 1971./k-- 4 G.R. No. L-52306, October 12, 1981, 108 seRA 148.

DISSENTING OPINION CTA Case No. 9073 The facts of the case at b~nch, a refund of income taxes paid by the taxpayers only in 2012, are1 different from that of ABS-CBN. It is submitted that there has been mo violation of the rules of justice and fair play when petitioners paid t~e income taxes. It is not in question that� when the taxes were pai~, the Reservation Clause in Seltlate Resolution No. 6 and the provisibns of Sections 23(A) and 24(A)(l)(a) have long been in force and eff~ct prior to these payments. I Evidently, when an admini~trative agency renders an opinion by means of a circular or memoran~um, it merely interprets a pre-existing law. 5 RMC 31-2013, therefore~ I. was issued merely to construe the existing provisions of the 1997 ~IRC in relation to the various existing treaty obligations of the PhilipRines. The circular was not issue(j or intended to impose additional tax burdens not otherwise found in the law. Third, construction by an � xecutive branch of government of a particular law although not bind ng upon courts must be given weight as the construction came from the branch of the government c~lled upon to implement the law.6 It swell-settled that the power to fill in the details and manner as to th enforcement and administration of a law may be delegated to variou specialized administrative agencies.? RMC 31-2013 was precisely issuled to fill in the details and manner of the enforcement of Sections 23(~) and 24(A)(1)(a) pursuant to Section 48 of the 1997 NIRC, as amend~d. RMC 31-2013 belongs to~ group of issuances that "disseminate and embody pertinent and appliqable portions, as well as amplifications of the rules, precedents, laws, ~egulations, opinions and other orders and directives issued by or a~ministered by the Commissioner of Internal Revenue, and by office~ and agencies other than the Bureau of Internal Revenue, for the in~ormation, guidance or compliance of revenue personnel.'19 Based o~ this definition, RMC 31-2013 is an ?e- 5 La Suerte Cigar and Cigarette Factory_ eta!. v. ~ourt of Tax Appeals, eta!., G.R. No. L-36130, January 17, 1985, 134 SCRA 39. 6 Senator Heherson T. Alvarez, eta!. v. Hon. Teot}pto T. Guingona, Jr., in his capacity as Executive Secretary_ eta!., G.R. No. 118303, January 31, 1996, 252 sqRA 703. i 7 Commissioner ofInternal Revenue v. Solidbank (:orporation, G.R. No. 148191, November 25, 2003. Int~ 8 "SEC. 4. Power ofthe Commissioner to1 rpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other t x laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by theSe retary of Finance. The power to decide disputed assessments, refundls of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters a~ising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the ex�1usive appellate jurisdiction of the Court of Tax Appeals.'f 9 Section 3(g), Revenue Administrative Order No. ~-2003 provides:

DISSENTING OPINION CTA Case No. 9073 interpretative rule issued by th~ administrative agency headed by the respondent. In Republic of the Philip~ines v. Drugmaker's Laboratories, Inc., eta!.,10 the Supreme Court helld that Administrative Order No. 7, an administrative regulation issu~d by the Department of Health, and BFAD Circulars No. 1 and j8, issued by the Food and Drug Administration (FDA), were ~II valid issuances of administrative I agencies tasked to implement! the law. It discussed the nature and function of interpretative rules In this wise: I "Administrative agendes may exercise quasi-legislative or rule-making powers only if th~re exists a law which delegates these powers to them. According!~, the rules so promulgated must be within the confines of the ~ranting statute and must involve no discretion as to what the law $hall be, but merely the authority to fix the details in the execution qr enforcement of the policy set out in the law itself, so as to confolrm with the doctrine of separation of powers and, as an adjunct~ the doctrine of non-delegability of legislative power. � An administrative regu~ation may be classified as a legislative rule, an interpretative rule, o~' a contingent rule. Legislative rules are in the nature of subo dinate legislation and designed to implement a primary legisla ion by providing the details thereof. They usually implement exilsting law, imposing general, extra- statutory obligations pursua~t to authority properly delegated by Congress and effect a change! in existing law or policy which affects individual rights and obligatiohs. Meanwhile, interpretative rules are intended to interpret, p1arify or explain existing statutory re ulations under which the administrative bod o erates. Their ur ose or ob�ective is m rei to construe the statute bein administered and ur ort to o no more than inter ret the statute. Sim I the t to sa what t e statute means and refer to no sin le erson or a in articular ut concern all those belon in to the same class which ma be covered b the said rules. Finally, contingent rules are those issued by an administrative authority based on the existence of c rtain facts or things upon which the 9t-- enforcement of the law depe~ds. "SECTION 3. Classification of BIR Rulihgs and Issuances. -The following terms shall have the meaning described below: XXX XXX XXX g) Revenue Memorandum Circulars (kMCJ - These issuances shall disseminate and E!mbody pertinent and applicable portions, as well as amp~i1cations of the rules, precedents, laws, regulations, qpinions and other orders and directives issued by or ad inistered by the Commissioner of Internal Revenue, and by offices and agencies other than the Bureau of In rnal Revenue, for the information, guidance or cornpliance of revenue personnel." i 10 G.R. No. 190837, March 5, 2014, 718 SCRA 16p-162.

DISSENTING OPINION CTA Case No. 9073 More importantly, in Thf Philippine American Life and General Insurance Company v. The Sefretary ofFinance, et a/., 11 the Supreme Court upheld the validity of Rrt-'lC 25-2011, issued in 2011, and ruled that the retroactive application bf the circular to the taxable transaction in 2009 did not contravene Seqtion 246, thus: "Lastly, petitioner is mistaken in stating that RMC 25-11, havin been issued after the ale was bein a lied retroactive! in contravention to Sec. 246 of the NIRC. Instead, it merely called for the strict a lication of Sec. 100 which was alread in force the moment the NIRC was enact d." (underscoring supplied) Fourth, even assuming fqr the sake of argument that there was a failure in the past by the re~pondent to take a categorical position on the taxation of Filipino ADB bmployees, such shortcoming does not operate to estop the governm~nt from correcting the same. In fact, prolonged practice of non-coll~ction of certain taxes, if proven to be erroneous, does not ripen into !Validity as the Supreme Court En Bane held in the consolidated cases ~f La Suerte Cigar and Cigarette Factory v. Court ofAppeals. 12 "The cigarette manut!'cturers contend that for a long time prior to the transactions her in involved, the Collector of Internal Revenue had never subjecte their purchases and importations of '/z- stemmed leaf tobacco to e. cise taxes. This prolonged practice 11 G.R. No. 210987, November 24, 2014, 741 SC~ 601. 12 G.R. No. 125346, November 11, 2014, 739 SCRA 561.

DISSENTING OPINION CTA Case No. 9073 I allegedly represents the offticial and authoritative interpretation of the law by the Bureau of Int~rnal Revenue which must be respected. We are not persuade~. I The appellant! argues that the Collector of Internal Revenue, pr�vious to the transactions herein involved, had never j collected the franchise tax on items of the same n*ure as those herein in question and this is strong evi~ence that such transactions are not subject to tax om the principle that a prolonged I practice on the part ~f an executive or administrative officer in charge of ~xecuting a certain statute is an authoritative constr~ction of great weight. This contention may be granted, but the principle is not absolute and may b~ overcome by strong reasons to the contrary. If thro;/7 a misapprehension of law an officer has erroneous. executed it for a long time, the error may be correc(! d when the true construction is ascertained. Such wei deem to be the situation in the present case. Incide~tally, the doctrine of estoppel does not apply here. ~Emphasis supplied) I This court reiterated 'this rule in Abello v. Commissioner of Internal Revenue where it reiected oetitioners' claim that the orolonaed oractice (since 19 ~9 uo to 1988) of the Bureau of Internal Revenue in not subiectina o~blitical contributions to donor's tax was an authoritative interoretatioh_ of the statute, entitled to great weight and the highest respect: This Court hoi{Jfs that the BIR is not precluded from making a new interpretation ofthe law, especially n] when the old interpr~tation was flawed. It is a well- entrenched rule that ...erronepus application and enforcement of the law bjr public officers do not block subsequent cotrect application of the statute, and that the G~vernment is never estopped by mistake or er1or on the part of its agents. (Emphasis supplied, citations omitted)

DISSENTING OPINION CTA Case No. 9073 from collecting legitimate taxes because of the error committed by its agents. xxx xxx xxx" (~nderscoring and emphases supplied; citations omitted) As a final word, tax~s are the lifeblood of the nation. Consequently, it must be rem~mbered that tax refunds are construed q strictly against the taxpayers. Any claim for refund take the nature of tax exemptions that must be construed strictissimi juris again$t the claimants and liberally in favo~ of the taxing authority. This power of taxation being a high prerogative of sovereignty, its relinquishment is never presumed. 14 Therefore, I vote to den~ the petition entirely. (_2_~~ c.~~"OI..,~ . .JiiANITO C. CASTANEifA, JR. Associate Justice 13 Commissioner ofInternal Revenue v. San Roqwe Power Corporation, G.R. No. 187485, February 12, 2013, 690 SCRA 417. 14 Nestle Philippines, Inc. (formerly Rlipro, Inc.) f!. Honorable Court ofAppeals, eta!., G.R. No. 134114, July 6, 2001, 360 SCRA 583.