PRINCESS O. LUBAG v. HONORABLE KIM S. JACINTO-HENARES, in her capacity as COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC PRINCESS 0. LUBAG, CTA EB NO. 2124 Petitioner, (CTA CASE NO. 9306) Present: -versus- DEL ROSARIO, P.J, CASTANEDA, JR., UY, RINGPIS-LIBAN, MANAHAN, BACORRO-VILLENA, and MODESTO-SAN PEDRO, JJ HONORABLE KIM S. JACINTO-HENARES, in her capacity as COMMISSIONER Promulgated: DEC Q1~ 202Q OF INTERNAL REVENUE, Respondent. x-------------------------------------------------------------------~.'"~~~ DECISION CASTANEDA, JR., J.: Before the Court En Bane is a Petition for Review filed by the taxpayer under Section 4, Rule 8 of the Revised Rules of the Court of Tax Appeals (RRCTA) in relation to Rule 43 of the Rules of Court which seek to reverse and set aside the following: 1. March 4, 2019 Decision1 of the CTA Special First Division,2 the dispositive portion of which reads: " In view of the foregoing, considering that the instant case pertains to compensation income earned by petitioner in the calendar year 2013 - r the year that RMC No. 31-2013 has already taken effect, this Court finds that there is no erroneous payment of taxes made in the instant case. 1 Annex F, Petition for Review, Rollo, pp. 93-118. 2 Penned by Associate Justice Cielito N. Mindaro-Grulla with the concurrence of Associate Justice Erlinda P. Uy, and a Separate Concurring Opinion by Presiding Justice Roman G. Del Rosario.

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 2 of27 WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit. SO ORDERED." 2. July 18, 2019 Resolution3 denying the Motion for Reconsideration (of the Decision dated 4 March 2019) of the petitioner for lack of merit. THE FACTS The facts are taken from the Decision and condensed from the records, as follows: "Petitioner Princess 0. Lubag is an employee of the Asian Development Bank (ADB), an international organization at the time the income tax payments were made. On the other hand, respondent was then the duly appointed Commissioner of the Bureau of Internal Revenue (BIR), who is vested by law with authority to decide, approve and grant claims for refund or tax credit of erroneously or excessively paid taxes. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Respondent is being sued in her official capacity as the former Commissioner oflnternal Revenue (CIR). On April 12, 2013, respondent issued Revenue Memorandum Circular (RMC) No. 31-2013 prescribing the Guidelines on the Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Foreign Governments I Embassies I Diplomatic Missions and International Organizations Situated in the Philippines. The pertinent provisions of which states: 'SECTION2.TAX TREATMENT OF COMPENSATION INCOME.- The tax treatment of Philippine nationals and alien individuals on compensation income received by them from foreign governments/embassies and missions and international organizations shall be as follows: XXX XXX XXX (d) Those Employed by Organizations Covered by Separate International Agreements or Specific Provisions of Law- 1. Asian Development Bank (ADB) jt-- 3 Annex G, Petition for Review, Rollo, pp. 125-133.

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 3 of27 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 XXX 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 XXX 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. XXX XXX XXX SECTION 3. FILING OF INCOME TAX RETURNS AND DECLARATION OF COMPENSATION INCOME.- Philippine nationals and alien individuals who were not granted tax exemption or immunities under duly recognized international agreements or local laws shall file their annual income tax returns on or before the 15th day of April each year using BIR Form No. 1700 or 170 I, as may be applicable, 4 declaring therein the amount of their respective compensation income for the preceding taxable year for services rendered or performed for such foreign government embassy/diplomatic mission, agency or international organization. The annual income tax return shall be filed with the Revenue District Office, Authorized Agent bank, or other proper office which has jurisdiction over the employee's legal residence or principal place of business. It may also be filed with the Revenue District Office or Authorized Agent Bank where the principal office of his/her employer is situated." Pursuant thereto, petitioner filed her income tax return and paid her income tax liabilities for taxable year 2013 on March 21, 2014. jv

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 4 of27 Meanwhile, on September 30, 2014, the Regional Trial Court (RTC) Branch 213 of Mandaluyong City promulgated a Decision in the case entitled, Erwin Salaveria and Portia Gonzales vs. Commissioner ofInternal Revenue, Civil Case No. MC/4-8775, September 30, 20I4, declaring Section 2 (d) (I) ofRMC No. 31-2013 as 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. Respondent therein appealed the decision to the Court of Appeals, which was docketed as CA- G.R. CV No. 104374, but was eventually dismissed due to technicality in the Resolution dated July 3, 2015. In view of the ruling of the RTC of Mandaluyong City, petitioner filed an administrative claim for refund, via a Letter Re: Claim for Refund for Taxable Year 2013, with BIR Revenue District Office (RDO) No. 41 on March 17,2016. Claiming inaction, petitioner elevated her claim with the Court of Tax Appeals (CTA), via the instant Petition for Review, on March 21, 2016. On May 30, 2016, respondent filed his Answer, raising the following denials and defenses, viz.: '7. She specifically denies the material allegations contained in paragraph 8 of the Petition for Review. The truth being, Regional Trial Court, Branch 213, Mandaluyong City (RTC Branch 213), has no jurisdiction in taking cognizance of the case filed by the employees of the Asian Development Bank pertaining to the validity of Revenue Memorandum No. 31-2013 (RMC 31-2013). In the case of the Philippine American Life and General Insurance Company v. The Secretary of Finance and the Commissioner of Internal Revenue, the Supreme Court held that: Evidently, City of Manila can be considered as a departure from Ursa! in that in spite of there being no express grant in law, the CTA is deemed granted with powers of certiorari by implication. Moreover, City of Manila diametrically opposes British American Tobacco to the effect that it is now within the power of the CTA, through its power of certiorari, to rule on the validity of a particular administrative rule or regulation so long as it is within its appellate jurisdiction. Hence, it can now rule not only on the propriety of an assessment or tax treatment of a certain transaction, but also on the validity of the revenue regulation or revenue memorandum circular on which the said assessment is based. 11'--

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 5 of27 Granting without admitting that RTC Branch 213 has jurisdiction over the validity of RMC 31-2013, its decision has yet to become final as it was appealed to the Supreme Court; XXX XXX XXX As discussed in paragraph 7 hereof, RTC Branch 213 has no jurisdiction in taking cognizance of the case filed by the employees of the Asian Development Bank pertaining to the validity ofRMC 31-2013; Further, Respondent contends that the Petitioner[sic} being a Filipino citizen[sic] and resident[sicj of the Republic of the Philippines is[sic} subject to the Philippine Income Tax; Sections 23 and 22 (E) of the 1997 National Internal Revenue Code, as amended, specifically states: 'Sec. 23. General Principles ofIncome Taxation in the Philippines. - Except when otherwise provided in this Code: (A) A citizen of the Philippines residing therein is taxable on all income derivedfrom sources within and without the Philippines; x x x' 'Section 22. Definitions. - When used in this Title: XXX XXX XXX (E) The term 'nonresident citizen means: (1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. (2) A citizen ofthe Philippines who leave the Philippines during the taxable year to reside abroad, either as immigrant or for employment on a permanent basis. (3) A citizen ofthe Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. (4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippine shall likewise Je-

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 6 of27 be treated as nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date ofhis arrival in the Philippines. (5) The taxpayer shall submit proofofthe Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purposes ofthis Section. ' Taxation of income in the Philippines is based on Citizenship, Residency, and the Source Principle. Under the Citizenship principle, the basis of the imposition of income tax is the taxpayer's citizenship. All citizens of the Philippines, whether resident or non-resident, are subject to our income tax law. In the case of resident citizens, they are subject to income tax derived from within and without the Philippines, while non-resident citizens are only subject to the income tax on the income derived from within the Philippines. Under the Residence principle, the basis of the imposition of all income tax in this case is the residence of the taxpayer. All income derived by persons residing in the Philippines, whether citizens or aliens, whether domestic corporations or foreign corporations, shall be subject to income tax on the income derived from sources within the Philippines. Under the Source principle, the basis of the imposition of income tax is the source of the income. All income derived from sources within the Philippines shall be subject to income tax. Thus, even nonresident citizens or aliens and foreign corporation who derive income from within the country are subject to income tax. This also follows the territoriality principle. Petitioner is a Filipino citizen and is an employee [sic1 of the Asian Development Bank, with business address at ADB Avenue, Ortigas Center, Pasig City. There is no doubt that Petitioner[sic1 is liable for income tax on the compensation income she[sic1 earned, on account of such employment. When the ADB Charter was created in 1965, it was expressly stated in Article 54 on Exemption from Taxation that: '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, except where a member deposits with its p..-

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 7 of27 instruments 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.' In signing the ADB Headquarters Agreements in 1956, the Philippine government accorded tax exemption privileges to the ADB and its staff but held on to the State's inherent power to tax, and thus made a clear limitation in so far as its right to tax its nationals. Hence, Section 45(b), Article XII of the ADB Headquarters Agreement provides that: 'Article XII PRIVILEGES AND IMMUNITIES OF GOVERNORS AND OTHER REPRESENTATIVES OF MEMBERS, DIRECTORS, PRESIDENT, VICE- PRESIDENT AND OTHERS Section 45 Officers and staff of the Bank, including for the purposes of this Article experts and consultants performing missions for Bank, shall enjoy the following privileges and immunities: XXX XXX XXX (b) Exemptions from taxation on or in respect of the salaries and emoluments paid by the Bank subject to the power ofthe Government to tax its nationals; xxx' In the same year, the Philippine Congress issued Resolution No. 06 to the effect that 'the Senate of the Philippines concurs, as it hereby concurs, in the ratification by the President of the Philippines of the aforesaid Agreement Establishing the Asian Development Bank, subject to the reservation that the Philippines declares that it retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to its citizens or nationals ofthe Philippines pursuant to Article 56, paragraph 2, of the Agreement' (emphasis supplied) Explicit from the foregoing is that the Philippines, by making a 'reservation,' the Republic of the Philippines simply intimated that in entering upon an Agreement with ADB the only effect is that the income of ADB is exempt from tax by virtue of the Agreement but not the income derived by the Filipinos from ADB. Petitioner may claim that the coverage of Article XII of 'Headquarters Agreement' only concerns the privileges and immunities of the higher officials of the ADB. Such 1?

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 8 of27 contention is utterly misplaced since the title of the Article itself did not restrict the application of the said article of ADB's higher officials only, to wit: PRIVILEGES AND IMMUNITIES OF GOVERNOR'S AND OTHER REPRESENTATIVES OF MEMBERS, DIRECTORS, PRESIDENT, VICE-PRESIDENT AND OTHERS. Moreover, the above-quoted Section 45 of the said Article referred to Officers and Staff of the bank as well. BIR ITAD Ruling further states that there is no need for an executing law to implement the 'Reservation' because Philippine tax law already provides that Filipinos are liable for tax for income derived from within and without the Philippines. The construction of the word 'Reservation' can only be accorded its plain meaning if, before the Philippines entered into the Agreement with ADB, Filipinos earning income from without the Philippines have no obligation to pay taxes in the Philippines. Since 1939, Filipinos earning income derived from outside the Philippines are liable for tax from such income. This is true when one considers Section 37 in relation to Section 45 of the Internal Revenue Code of 1939, Section 21 in relation to Section 27 of the National Internal Revenue Code of 1997, and Section 24 in relation to Section 51 of the National Internal Revenue Code of 1997. To accord the word 'reservation' with an ordinary meaning will undermine the force ofexisting tax laws. Thus, a contrary interpretation would mean subverting Philippine sovereignty by virtue of a mere Agreement just for the purpose of exempting some Filipinos from income tax. While international comity is laudable and a Constitutional requirement, the power to tax is an inherent power of the State that cannot be bargained away so easily. Same BIR ITAD Ruling added that the ADB Charter is not a law, but an agreement among Contracting States. That being the case, it is a derogatory interpretation that exempting from tax includes exemption from tax of Filipino citizens without express mention of Filipino exemption. Pacta sunt servanda and international comity dictates that the Philippines should honor its international agreements in good faith. The Philippines has arguably complied with these principles of international law by according the proper concessions and tax breaks to ADB activities. This duty ends where the concern is a domestic matter involving the taxability of the income of its citizens. The ADB Charter was never amended by subsequent Philippine tax laws because Philippine tax laws before and after the creation of ADB imposed taxes on income of Filipinos from within and without the Philippines.~

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 9 of27 Petitioner[sic} may contend that subsequent practice, as regards the ADB charter, is non-taxability of the income of its employees, arguing that ADB employees have never been subjected by the taxing authority ever since the Philippines' ratification of the ADB Charter. It insists that an operative act is required to change the norm followed after the ratification of the ADB Charter. It is as if Petitioner[sic]would like this Honorable Court to treat such subsequent practice into a custom which is recognized source law. It is a standard rule that customs which are contrary to law shall not be countenanced. In the case of Malang vs. Mason, the Supreme Court significantly held that: 'The Court is duty-bound to resolve that the instant case applying such laws and rights as are in existence at the time the pertinent civil acts took place, and is unable to supplant governing law with customs, albeit how widely observed. ' RMC 31-2013 is only a clarification of existing policies etched in Philippine law. Thus, this alleged subsequent practice, which is contrary to existing law, cannot in any way displace what the law had provided from the start. RMC !3-20!3{sic} is valid because it is only a mere clarification of existing policies etched in Philippine law. As stated in BIR ITAD Ruling No. 018-14, the 'Reservation' made by the Philippines regarding its right to tax its citizen who earn income as employees of ADB is not a mere reservation but an affirmation of the inherent power of the State to tax its own citizens. Petitioner[sic] anchor her[sic] claim that she[sic] is exempted from income tax on the provisions of Revenue Memorandum Circular[sic] No. 31-2013 which provides: XXX XXX XXX (d) Those Employed by Organizations Covered by Separate International Agreements or Specific Provision ofLaw - 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 g...--

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 10 of27 XXX XXX XXX Section 45 Officers and staff of the Bank. including tor the purposes of this Article experts and consultants perfOrming missions tor the Bank. shall enjoy the following privileges and immunities: XXX XXX 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: From the above, only officers and staffofthe ADB who are not Philippine nationals shall be exempt from Philippine income tax. The claim of the Petitioner that she is[sic1 exempt from the payment of income tax has no legal basis. Under the above-cited revenue issuance, it is clear that the exemption is still subject to the power of the Government to tax its nationals, including the herein Petitioner. Thus, reverting to the earlier discussion, Section 23, in relation to Section 24 of the National Internal Revenue Code of 1997, as amended, are the laws on the matter. As previously submitted, Petitioner, being a Filipino citizen and national is taxable from his income within and outside the Philippines; Petitioner[sic1 must prove that she[sic1 was able to comply with the following documentary and legal requirements as provided under Section 229 of the 1997 National Internal Revenue Code, as amended, to wit: 1. That the taxpayer should file a written claim for refund or tax credit with the BIR Commissioner within two (2) years from the date of payment of the tax or penalty, non-compliance with which the latter is precluded from exercising his authority thereon; 2. That, if denied or not acted upon within said period, the petition for refund be filed with the CTA within 30 days from the receipt of the denial AND within said two (2) year period from the date of payment ofthe tax or penalty regardless ofany supervening cause, otherwise, the claim for refund shall have prescribed. 3. The claim for refund must be a categorical demand for reimbursement; 4. There must be a proof or payment of the erroneously or illegally collected taxes; and ~

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 11 of27 5. No refund shall be given resulting from availment of incentives granted pursuant to special laws for which no actual payment was made. Petitioner must provide that her[sic]income is not taxable or exempt from income tax; Petitioner must provide the basis for the alleged tax exemptions; Tax exemptions are never presumed and are strictly construed against the taxpayer and liberally in favor of the taxing authority. They can only be given force when the grant is clear and categorical. The surrender of the power to tax, when claimed must be clearly shown by a language that will admit of no reasonable construction consistent with the reservation of the power. If the intention of the legislature is open to doubt, then the intention of the legislature must be resolved in favor of the State. (Smart Communications, Inc. vs. The City ofDavao, eta/., G.R. No. 155491) A tax refund is in the nature of a tax exemption which must be construed strictissimi juris against the taxpayer. The taxpayer must present convincing evidence to substantiate a claim for refund. (FEBTC vs. C1R, G.R. No. 149589, September 16, 2006) In the case of CIR vs. Rosemarie Acosta, G.R. No. 154068 dated August 3, 2007, the Honorable Supreme Court ruled, to wit: 'As tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision oflaw from which her right arises, it cannot be allowed to exist upon a mere vague implication or iriference nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund. To repeat, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied in this jurisdiction. ' XXX XXX xxx." Thereafter, on June 8, 2016, a Notice of Pre-Trial Conference was issued by this Court, setting the case for pre-trial conference on September I, 2016 at 9:00a.m. The parties were ordered, among others, to be present and file their respective Pre-Trial Briefs at least three (3) days before the date of pre-trial. ~

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 12 of27 Complying thereon, petitioner filed her Pre-Trial Brief for the Petitioner on August 26,2016. While, respondent, on the other hand, filed, via private licensed courier, his Respondent's Pre-Trial Brief on November 22, 2016. On December 9, 2016, the parties filed their Joint Stipulation of Facts and Issues, which was then approved in the Resolution dated December 21, 2016. A Pre-Trial Order was subsequently issued by this Court on January 10, 2017, which deemed the Pre-Trial terminated and set the initial presentation of evidence for the petitioner was set on March 14, 2017 at 9:00 a.m. During trial, petitioner primarily testified, by way of Judicial Affidavit, as to the material allegations contained in her Petition for Review and, also, to identify the documents attached in her judicial affidavit. Thereafter, considering that petitioner has no other witness to present, this Court deemed her testimony completed and terminated. On August 18,2017, petitioner filed her Formal Offer of Exhibits, offering the following exhibits as her documentary evidence, viz.: XXX XXX XXX In the Resolution dated October 30, 2017, this Court admitted all exhibits formally offered by petitioner, and thereafter deemed her to have rested her case. Thus, the initial presentation of evidence for the respondent was set on January 30,2018 at 9:00a.m. During his initial presentation of evidence, counsel for respondent, manifested that he has no evidence to present there being no report of investigation forwarded to him by the revenue officer assigned to the case. Therefore, the parties were given a period of thirty (30) days within which to submit their respective memoranda. On March I, 2018, petitioner filed her Memorandum for Petitioner, while, respondent, on the other hand, failed to file his memorandum as per Records Verification dated March 8, 2018. Accordingly, in the Resolution dated March 19, 2018, this Court deemed the instant case submitted for decision." (Emphases, underscoring, italicization and other remarks in the original; citations omitted) On March 4, 2019, the Court a quo promulgated its decision which denied the claim for income tax refund.4 On July 19, 2019, the Court a quo denied the petitioner's Motion for Reconsideration (of the Decision dated 4 March 2019) for lack ofmerit.5 jk- 4 Annex F, Petition for Review, Rollo, pp. 93-118. 'Annex G, Petition for Review, Rollo, pp. 125-133.

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page l3 of27 CTA En Bane Proceedings On September 5, 2019, after an extension, petitioner filed a Petition for Review assailing the decision of the Court a quo.6 In a September 16, 2019 Resolution, the Court En Bane ordered the respondent to file a comment within ten (10) days from notice.7 For failure of respondent to file a comment despite notice, the Court En Bane submitted the petition for decision without the same.8 THE ISSUES In assailing the March 4, 2019 Decision and July 18, 2019 Resolution, petitioner raised the following grounds: The Court in Division erred: � In holding that the 1997 National Internal Revenue Code (1997 NIRC) is the operative act which imposed taxability on the income of Philippine nationals working in the Asian Development Bank (ADB) considering that: I. The 1997 NIRC is merely a general law which deals only with the general taxability of Filipino citizens without particular mention of the taxability of Filipino citizens employed in ADB; and, 2. The tax exemption provision in the ADB Charter must stand, in the absence of a special law specifically granting the government the authority to exercise its power to tax and addressing the taxation ofFi1ipino citizens employed in ADB. � Deciding the case not in accord with law and settled Supreme Court that state that sovereignty is limited by international law and treaties, hence under pacta sunt servanda, the Philippines is bound to comply with its obligations under the ADB Charter; � When it ruled that it cannot take judicial notice ofthe decision of the RTC Branch 213 ofMandaluyong City; and, � In declaring that the ADB employees are taxable under Revenue Memorandum Circular No. (RMC) 31-2013 insofar as it has no jurisdiction to rule on the validity of said revenue issuance. ~ 6 Rollo, pp. 10-36. 7 !d., pp. 136-137. 8 Rollo, pp. 140-141.

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 14 of27 THIS COURT'S RULING We resolve to deny the taxpayer's petition. The issues raised by the petitioner are not novel as they have been adjudicated in the previous cases filed by other Filipino ADB employees. First, contrary to the points raised by petitioner, a review ofthe relevant treaty and legislative provisions will demonstrate that Congress unquestionably intended to tax the salaries and emoluments received by the Filipinos from ADB. On December 4, 1965, the "Agreement Establishing the Asian Development Bank" (ADB Charter) was executed. Thereafter, in a Senate Resolution No. 6 dated March 16, 1966, the ADB Charter was ratified and confirmed by the Philippine Government with a reservation of its right to tax the Filipino employees of ADB, thus: "NOW THEREFORE, 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 Philippines, ratifY and confirm the said Agreement and every article and clause thereof, subject to the reservation that the Philippines declares that it retains for itself and its political subdivision the right to tax salaries and emoluments paid by the Bank to citizens or nationals ofthe 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 Headquarters of the Asian Development Bank" (ADB Headquarters Agreement) was signed, which provides in pertinent part: "ARTICLE XII Privileges and Immunities of Governors and Other Representatives of Members, Directors, President, Vice-President and Others XXX XXX XXX ~

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page IS of27 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) Immunity from legal process with respect to acts performed by them in their official capacity except when the Bank waives the immunity; (b) Exemption from taxation on or in respect of the salaries and emoluments paid by the Bank subject to the power ofthe Government to tax its nationals; xxx." (Underscoring supplied) The 1997 NIRC, a subsequent legislation which took effect on January 1, 19989 and specifically outlines the power of the state to impose national internal revenue taxes, is the law that fleshes out the clear intention of the reservation clauses found in the Senate Resolution No.6 and Section 45(b) of the ADB Headquarters Agreement. Accordingly, the petitioner is incorrect in framing the issue as an exercise of statutory construction between a specific law against a general law. As will be read in the provisions cited below, the 1997 NIRC precisely reveals the legislative intent originally articulated in the reservation clauses. The 1997 NIRC leaves no room for doubt that resident citizens are subject to tax on income derived from all sources within and outside the Philippines under Sections 23(A), 24(A)(1)(a), 31 and 32, as amended: "SEC. 23. General Principles of Income Taxation in the Philippines. -Except when otherwise provided in this Code: (A) A Citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines; XXX XXX XXX SEC. 24. Income Tax Rates.- (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien ofthe Philippines.- (I) 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;" 1v 9 Visayas Geothermal Power Company v. Commissioner ofInternal Revenue, G.R. No. 197525, June 4, 2014.

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 16 of27 XXX XXX XXX TITLE II TAX ON INCOME CHAPTERV COMPUTATION OF TAXABLE INCOME SEC. 31. Taxable Income Defined. - The term taxable income means the pertinent items of gross income specified in this Code, less the deductions and/or personal and additional exemptions, if any, authorized for such types of income by this Code or other special laws. CHAPTER VI COMPUTATION OF GROSS INCOME 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: (I) Compensation for services in whatever form paid, including. but not limited to fees, salaries, wages. commissions, and similar items; (2) Gross income derived from the conduct of trade or business or the exercise of a profession; (3) Gains derived from dealings in property; (4) Interests; (5) Rents; (6) Royalties; (7) Dividends; (8) Annuities; (9) Prizes and winnings; (I 0) Pensions; and (II) Partner's distributive share from the net income of the general professional partnership." (Underscoring supplied) Second, it bears emphasis that RMC 31-2013 merely reiterates the general principles laid down in Section 23(A) and merely implements Sections 24(A)(1)(a), 31 and 32 of the 1997 NIRC, all of which have been in effect since January 1, 1998. ~

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page I7 of27 The preface ofRMC 31-2013 in Section 1 states these objectives when it cites Sections 23 and 24 of the 1997 NIRC as the foundation and states that the guidelines were intended to address the "confusion on the correct tax treatment of the compensation income earned by Philippine nationals xxx employed by foreign governments/embassies/diplomatic missions and international organizations xxx," thus: "SECTION 1. BACKGROUND.- Foreign governments/embassies/diplomatic missions and international organizations situated in the Philippines acting as employers enjoy immunity from collecting taxes on salaries and emoluments of their employees, whether they are foreigners or Philippine nationals. This immunity from being constituted as withholding agents of the Philippine Government is accorded to these entities on the basis ofinternational comity as embodied in several international agreements to which the Philippines is a signatory, such as, the Vienna Convention for International Relations (for embassies and diplomatic missions), Convention on the Privileges and Immunities of the United Nations, Convention on the Privileges and Immunities of Specialized Agencies (for the various agencies of the United Nations), Asian Development Bank Headquarters Agreement (for ADB), Articles of Agreement of the International Finance Corporation, among others. In recognition of this immunity, the Withholding Tax Regulations (Revenue Regulations No. 2-98, as amended), clearly reiterate the exemption from the withholding tax system ofthe remunerations being paid by foreign governments and international organizations to their employees who are residents or nationals of the Philippines. Section 2.78.l(B)(5) provides thus: XXX XXX XXX However, it has been observed that the foregoing provisions have been a source of confusion on the correct tax treatment of the compensation income earned by Philippine nationals and alien individuals employed by foreign governments/embassies/diplomatic missions and international organizations. To clarify, the exemption from withholding taxes on the compensation of officials and employees applies to foreign governments/embassies/ diplomatic missions and international organizations. Since the withholding of tax is merely a method of tax collection, the exemption from withholding taxes does not equate to the exemption from paying the income tax itself. Section 23 of the National Internal Revenue Code CTax Code) lays down the general principles in the taxations of citizens and alien individuals, to wit: XXX XXX XXX As an exemption to the general rule, it is noted that most international agreements which grant withholding tax immunity to foreign governments/embassies/diplomatic missions and international organizations also provide exemption to their officials and employees who 1�-

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 18 of27 are foreign nationals and/or non-Philippine residents from paying income taxes on their salaries and other emoluments. The tax consequence of compensation income received by those employed by foreign governments/embassies/ diplomatic missions situated in the Philippines hinges on the provisions of the duly recognized international agreements or local laws granting tax privileges to employees of said institutions. It bears to emphasize that the exemption should only cover those individuals who were expressly and unequivocally identified in said international agreements or laws. Those not covered shall be subject to the general rule on taxability of Philippine nationals and alien individuals. Thus with respect to those not exempted by the provisions of applicable international agreements or laws, although their compensation income is exempt from withholding tax under the international agreements or the Withholding Tax Regulations, they are not relieved of their duty to report their compensation income to the Bureau and pay the taxes due thereon pursuant to Section 24 of the National Internal Revenue Code of 1997, as amended ("Tax Code"). (Underscoring and emphases supplied) The Court is of the view that there has been no violation of the rules of justice and fair play when the petitioner paid the income taxes. It is not in question that when the income taxes were paid in 2013, the Reservation Clause in Senate Resolution No. 6 and the provisions of Sections 23(A) and 24(A)(l)(a) have long been in force and effect prior to these payments. Evidently, when an administrative agency renders an opinion by means of a circular or memorandum, it merely interprets a pre-existing law. 10 RMC 31-2013, therefore, was issued merely to construe the existing provisions of the 1997 NIRC in relation to the various existing treaty obligations of the Philippines. The circular was not issued or intended to impose additional tax burdens not otherwise found in the law. The Separate Concurring Opinion of Presiding Justice Roman G. Del Rosario is in point when it clarified that the application ofRMC 31-2013 is in keeping with justice and equity, where equity "which has been described as 'justice outside legality' is applied only in the absence of, and never against, statutory law." 11 Third, construction by an executive branch of government of a particular law although not binding upon courts must be given weight as the construction came from the branch of the government called upon to implement the law. 12 It is well-settled that the power to fill in the details and manner as to the enforcement and administration of a law may be delegated to various specialized administrative agencies. 13 RMC 31-2013 was precisely fc.-- 10 La Suerte Cigar and Cigarette Factory eta/. v. Court of Tax Appeals, eta/., G.R. No. L-36130, January 17, 1985. 11 Rollo, p. 120; citing Erlinda B. Causapin eta/. v. Court ofAppeals eta/., G.R. No. 107432, July 4, 1994. "Senator Heherson T. Alvarez, eta/. v. Hon. Teofisto T. Guingona, Jr., in his capacity as Executive Secretary, eta/., G.R. No. 118303, January 31, 1996. 13 Commissioner ofInternal Revenue v. So/idbank Corporation, G.R. No. 148191, November 25, 2003.

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page I9 of27 issued to fill in the details and manner of the enforcement of Sections 23(A) and 24(A)(1)(a) pursuant to Section 414 of the 1997 NIRC, as amended. RMC 31-2013 belongs to a group of issuances that "disseminate and embody pertinent and applicable portions, as well as amplifications of the rules, precedents, laws, regulations, opinions and other orders and directives issued by or administered by the Commissioner of Internal Revenue, and by offices and agencies other than the Bureau of Internal Revenue, for the information, guidance or compliance of revenue personnel." 15 Based on this definition, RMC 31-2013 is an interpretative rule issued by the administrative agency headed by the respondent. In Republic of the Philippines v. Drugmaker's Laboratories, Inc. et al., 16 the Supreme Court held that Administrative Order No. 67, an administrative regulation issued by the Department of Health, and BFAD Circulars No. 1 and 8, issued by the Food and Drug Administration (FDA), were all valid issuances of administrative agencies tasked to implement the law. It discussed the nature and function of interpretative rules in this wise: "Administrative agencies may exercise quasi-legislative or rule- making powers only if there exists a law which delegates these powers to them. Accordingly, the rules so promulgated must be within the confines of the granting statute and must involve no discretion as to what the law shall be, but merely the authority to fix the details in the execution or enforcement of the policy set out in the law itself, so as to conform with the doctrine of separation of powers and, as an adjunct, the doctrine of non-delegability of legislative power. An administrative regulation may be classified as a legislative rule, an interpretative rule, or a contingent rule. Legislative rules are in the nature of subordinate legislation and designed to implement a primaryft.- 14 "SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. � The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals." 1' Section 3(g), Revenue Administrative Order No. 1�2003 provides: "SECTION 3. Classification of BIR Rulings and Issuances.- The following terms shall have the meaning described below: XXX XXX XXX g) Revenue Memorandum Circulars (RMC) - These issuances shall disseminate and embody pertinent and applicable portions, as well as amplifications of the rules, precedents, laws, regulations, opinions and other orders and directives issued by or administered by the Commissioner oflnternal Revenue, and by offices and agencies other than the Bureau of Internal Revenue, for the information, guidance or compliance of revenue personnel." 16 G.R. No. 190837, March 5, 2014.

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 20 of27 legislation by providing the details thereof. They usually implement existing law, imposing general, extra-statutory obligations pursuant to authority properly delegated by Congress and effect a change in existing law or policy which affects individual rights and obligations. Meanwhile, interpretative rules are intended to interoret, clarify or explain existing statutory regulations under which the administrative body operates. Their puroose or objective is merely to construe the statute being administered and puroort to do no more than interoret the statute. Simply, they try to say what the statute means and refer to no single person or party in particular but concern all those belonging to the same class which may be covered by the said rules. Finally, contingent rules are those issued by an administrative authority based on the existence of certain facts or things upon which the enforcement of the law depends. In general, an administrative regulation needs to comply with the requirements laid down by Executive Order No. 292, s. 1987, otherwise known as the 'Administrative Code of 1987,' on prior notice, hearing, and publication in order to be valid and binding, except when the same is merely an interpretative rule. This is because '!w!hen an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance, for it gives no real consequence more than what the law itself has already prescribed. When, on the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden ofthose governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law."' (Underscoring and emphases supplied; citations omitted) Fourth, RMC 31-2013 enjoys the presumption of validity until the Supreme Court declares otherwise. To be clear, the Court En Bane's reliance on the revenue issuance is based on the principle that administrative issuances, such as the RMC, have the force and effect of law. In Chevron Philippines, Inc. (Formerly Caltex Philippines, Inc.) v. Bases Conversion Development Authority and Clark Development Corporation, 17 the Supreme Court has declared: "Administrative issuances have the force and effect of law. They benefit from the same presumption of validity and constitutionality enjoyed by statutes. These two precepts place a heavy burden upon any party assailing governmental regulations. Petitioner's plain allegations are simply not enough to overcome the presumption of validity and reasonableness of the subject imposition." Thus, any provision in any administrative issuance must be accorded with the same weight as any statute, so long as they are not contrary to the '{c- 17 G.R. No. 173863, September 15,2010.

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 21 of27 laws or the Constitution. Insofar as petitioner has failed to show that the RMC is contrary to law or the Constitution, the same must be given effect. Fifth, even assuming there was actually a failure in the past by the CIR to take a categorical position on the taxation ofFilipino ADB employees, such dearth does not operate to estop the government from correcting the same. In fact, prolonged practice of non-collection of certain taxes, if proven to be erroneous, does not ripen into validity as the Supreme Court En Bane held in the consolidated cases of La Suerte Cigar and Cigarette Factory v. Court of Appeals et al. :18 "The cigarette manufacturers contend that for a long time prior to the transactions herein involved, the Collector of Internal Revenue had never subjected their purchases and importations of stemmed leaf tobacco to excise taxes. This prolonged practice allegedly represents the official and authoritative interpretation of the law by the Bureau of Internal Revenue which must be respected. We are not persuaded. In Philippine Long Distance Telephone Co. v. Collector oflnternal Revenue. this court has held that this principle is not absolute, and an erroneous implementation by an officer based on a misapprehension of law may be corrected when the true construction is ascertained. Thus: The appellant argues that the Collector of Internal Revenue, previous to the transactions herein involved, had never collected the franchise tax on items of the same nature as those herein in question and this is strong evidence that such transactions are not subject to tax on the principle that a prolonged practice on the part of an executive or administrative officer in charge ofexecuting a certain statute is an authoritative construction of great weight. This contention may be granted, but the principle is not absolute and may be overcome by strong reasons to the contrary. If through a misapprehension oflaw an officer has erroneously executed it for a long time, the error may be corrected when the true construction is ascertained. Such we deem to be the situation in the present case. Incidentally, the doctrine of estoppel does not apply here. (Emphasis supplied) This court reiterated this rule in Abello v. Commissioner oflnternal Revenue where it rejected petitioners' claim that the prolonged practice (since 1939 up to 1988) of the Bureau oflnternal Revenue in not subjecting political contributions to donor's tax was an authoritative intemretation of the statute, entitled to great weight and the highest respect: This Court holds that the BIR is not precluded from making a new interpretation ofthe law, especially when the old interpretation was flawed. It is a well-entrenched rule that [:] 'it-- 18 G.R. No. 125346, November II, 2014.

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 22 of27 ...erroneous application and enforcement of the law by public officers do not block subsequent correct application of the statute, and that the Government is never estopped by mistake or error on the part of its agents. (Emphasis supplied, citations omitted) Prolonged practice of the Bureau of Internal Revenue in not collecting the specific tax on stemmed leaf tobacco cannot validate what is otherwise an erroneous application and enforcement of the law. The government is never estopped from collecting legitimate taxes because of the error committed by its agents. In La Suerte Cigar and Cigarette Factory v. Court o(Tax Appeals, this court upheld the validitv of a revenue memorandum circular issued by the Commissioner of Internal Revenue to correct an error in a previous circular that resulted in the non-collection of tobacco inspection fees for a long time and declared that estoppel cannot work against the government: xxx xxx xxx" (Underscoring and emphases supplied; citations omitted) Sixth, the doctrine laid down in Deutsche Bank AG Manila Branch v. Commissioner ofInternal Revenue19 on pacta sunt servanda, which is cited by petitioner,Z0 is not on all fours with the instant case. There are substantial differences in parties, taxes, taxable periods, treaties and, more fundamentally, the nature of the issues involved. In Deutsche Bank, the Supreme Court granted the refund claim of the taxpayer for overpayment ofBranch Profit Remittance Tax for 2002 and prior taxable years based on the RP-Germany Tax Treaty and stated that the "obligation to comply with a tax treaty must take precedence over the objective ofRMO No. 1-2000." As discussed at length, the fundamental issue in this case is not between the treaty obligation under the ADB Charter and the imposition of income tax under RMC 31-2013. Subsequent to the ADB Charter, there was the ADB Headquarters Agreement which expressed the Philippine reservation to tax its citizens. This point was also discussed in the Court a quo's assailed decision: Accordingly, while it is true that the ADB Headquarters Agreement provides tax exemption to the salaries and emoluments of its officers and employees, the Agreement nonetheless, recognizes, the right of the Philippines to tax the salaries and emoluments paid by the ADB to its citizens or nationals. By making such recognition, it is evident that the Philippine Government reserves its right to impose tax on its nationals. Stated differently, if it was really the intention of the Philippine Government to exempt from taxation the salaries or emoluments that its citizens or 7-- 19 G.R. No. 188550, August 19, 2013. 20 Petition for Review, Rollo, pp. 23-24.

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 23 of27 nationals would derive from the ADB, a full ratification ofthe ADB Charter could have been made, without retaining its right to tax its citizens or nationals. Relative thereto, the NIRC of 1997, as amended, a subsequent legislation which took effect on January I, 1998, is the law that enables the enforcement of the reservation clauses found in Senate Resolution No. 6 and Section 45 (b) of the ADB Headquarters Agreement. Sections 23 (A) and 24 (A) (1) (a) of the NIRC of 1997, as amended, leave no room for doubt that resident citizens are subject to tax on income derived from all sources within and without the Philippines, to wit: XXX XXX XXX Apparently, under the above-cited provisions of the tax code, income of individual resident citizens from all sources within and without the Philippines are subject to tax. Being such, in the absence of a specific grant of tax-exemption, the salaries and emoluments received by Filipino employees of the ADB are generally taxable. XXX XXX XXX As to petitioner's claim that this Court should take judicial notice of the Decision of the RTC and the Resolution of the Court of Appeals, it must be noted however that the RTC decision is not a binding precedent that forms part of the Philippine legal system. In the case of COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION; TAGANITO MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE; and PHILEX MINING CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, the Supreme Court explained what constitutes a binding precedent, to wit: 'x x x Let it be admonished that decisions of the Supreme Court 'applying or interpreting the laws or the Constitution . . . form part of the legal system of the Philippines,' and, as it were, 'laws' by their own right because they interpret what the laws say or mean. Unlike rulings of the lower courts, which bind the parties to specific cases alone, our judgments are universal in their scope and application, and equally mandatory in character. Let it be warned that to defy our decisions is to court contempt."'21 (Underscoring supplied) Finally, in a claim for tax refund, an "erroneous or illegal tax" is defined as one levied without statutory authority, or upon property not subject to taxation or by some officer having no authority to levy the tax, or one which is some other similar respect is illegal.22 In the case at bench, the payment and collection of taxes is neither erroneous nor illegal. Since the income of the Jt.- 21 Annex F, Petition for Review, Rollo, pp. 113-114. 22 Commissioner ofInternal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497, April 25, 2012.

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 24 of27 ADB employees was subject to tax based on the 1997 NIRC provisions, the collection of the same was, therefore, grounded on statutory authority. Even prior to 1965 ADB Charter and the 1966 ADB Headquarters Agreement, the Philippine government has been exercising its sovereign right to tax its citizens or nationals. Specifically, income tax was levied, assessed, collected, and paid annually upon the entire net income of citizen and resident of the Philippines, pursuant to Sections 21, 28 and 29 of the 1939 NIRC.23 Moreover, it is the Court En Bane's view that the Philippine government, in entering upon the 1966 Agreement and giving the privilege of tax exemption on salaries emolument paid by ADB to its employees, did not relinquish but retained its power of taxation over its own citizens and nationals. Consequently, under Sections 21, 28 and 29 of the 1977 NlRC,24 income tax was imposed upon the taxable net income received during each taxable year from all sources by every individual, whether a citizen of the Philippines residing therein or alien residing in the Philippines. ~ 23 "SEC. 21. Rates of tax on citizens or Residents. - A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every individual, whether a citizen of the Philippines residing therein or alien residing in the Philippines determined in accordance with the following schedule: XXX XXX XXX XXX SEC. 28. Meaning of net income.- 'Net income' means the gross income computed under section twenty- nine, less the deductions allowed by section thirty. SEC. 29. Gross Income. -(a) General Definition. - 'Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use ofor interest in such property; also from interests, rents, dividends, securities, or the tnmsactions of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever." 24 "SEC. 21. Rates of tax on citizens or Residents. - A tax is hereby imposed upon the taxable net income received during each taxable year from all sources by every individual, whether a citizen of the Philippines residing therein or alien residing in the Philippines determined in accordance with the following schedule: XXX XXX XXX XXX SEC. 28. Meaning of net income. -'Net income' means the gross income computed under section twenty- nine, less the deductions allowed by section thirty. SEC. 29. Gross Income. - (a) General Definition. - 'Gross income' includes gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, trades, businesses, commerce, sales, or dealings in property, whether real or personal, growing out ofthe ownership or use ofor interest in such property; also from interests, rents, dividends, securities, or the tnansactions of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever."

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 25 of27 Thereafter, in the same vein, Sections 23(A), 24(A), 31 and 32 of the 1997 NIRC clearly provide that the income of a resident citizen derived from all sources within and without the Philippines is subject to tax. The Court En Bane in the recent case of Commissioner of Internal Revenue v. Rowena Vicente, et a/.25 affirmed the position that notwithstanding the alleged reliance on various confirmations and affirmations of various revenue officials that the income of Filipino citizens from ADB was subject to lower income tax rates or to zero income tax until the issuance/publication of RMC No. 31-2013, the fact remains that the Philippine government in giving the privilege of tax exemption on salaries and emolument paid by ADB to its employees, did not relinquish its power oftaxation over its own citizens. Thus, the income tax paid in 2013 is not in excess of what is due and the payment and collection of said tax was neither erroneous nor illegal insofar as it is anchored on a statutory authority. Thus: "Thus, despite the alleged reliance on various confirmations and affirmations of various revenue officials that the income was subject to lower income tax rates or to zero income tax until the issuance/publication ofRMC No. 31-2013, the fact remains that Philippine government in giving the privilege of tax exemption on salaries and emolument paid by ADB to its employees, did not relinquish its power of taxation over its own citizens and nationals, that amount of tax paid in taxable year 2012 is not in excess on what is due; that the payment and collection of taxes for taxable year 2012 was subject to statutory authoritv and is neither erroneous nor illegal. 'Render to Caesar what is Caesar's'. In sum. claim for refund must perforce fail. Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power." (Underscoring supplied; citations omitted) Taxes are the lifeblood of the nation. Consequently, it must be remembered that tax refunds are construed strictly against the taxpayers.26 Any claim for refund take the nature of tax exemptions that must be construed strictissimi juris against the claimants and liberally in favor of the 7e- 25 CTA EB Case No. 1717 & 1718 (CTA Case No. 9096), August 8, 2019. 26 Commissioner ofInternal Revenuev. San Roque Power Corporation, G.R. No. 187485, February 12,2013.

DECISION CTA EB No. 2124 (CTA Case No. 9306) Page 26 of27 taxing authority. This power of taxation being a high prerogative of sovereignty, its relinquishment is never presumedY WHEREFORE, premises considered, the petition is DENIED for lack of merit. Accordingly, the March 4, 2019 Decision and the July 18, 2019 Resolution are AFFIRMED. SO ORDERED. Q.,........d; C. C~ot...1 9-,. CJUANITO C. CASTANEDS\, JR. Associate Justice WE CONCUR: Presiding Justice ERZt:J. P. UY Associate Justice ON.. -fi...�.- _A<.....__ MA. BELEN M. RINGPIS-LIBAN Associate Justice c~i1t~ Associate Justice 27 Nestle Philippines, Inc. (formerly Filipro, Inc.) v. Honorable Court of Appeals, et a/., G.R. No. 134114, July 6, 2001.

DECISION CTA EB No. 2I24 (CTA Case No. 9306) Page 27 of27 ' VILLENA CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, 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