REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals

QUEZON CITY

En Bane

IRISH FEN. AGUILAR CTA EB NO. 2652

Petitioner, {CTA Case No. 9867)

Present:

DEL ROSARIO, P.J.,

RINGPIS-LIBAN,
-versus- MANAHAN,
BACORRO-VILLENA,
MODESTO-SAN PEDRO,
REYES-FAJARDO,
CUI-DAVID, and
FERRER-FLORES, JJ
COMMISSIONER OF INTERNAL
REVENUE, Promulgated:
Respondent.

X ------------------------------------------------------------------------------------------

DECISION

MODESTO-SAN PEDRO, J.:

The Case

Before the Court is a Petition for Review, 1 filed on 11 July 2022 by

petitioner Irish Fe N. Aguilar seeking the reversal and setting aside of the
Decision, dated 30 September 2021 2 ("Assailed Decision"), and Resolution,
dated 3 June 2022 3 ("Assailed Resolution"), both rendered by the Court in
Division. Petitioner prays for this Court to render judgment reversing the
Assailed Decision and Assailed Resolution and ordering respondent to refund
the income tax payments made by p_etit~er for taxable years 2015 and 2016
in the total amount ofP959,342.00.Y'

1
EB Records, pp. 1-31.
Division Records, pp. 553-570.
!d. , pp. 598-603.
4
EB Records, pp. 1-31.
DECISIOI>
CTA EB NO. 2652 (CT A Ca5e No. 9867)
Page 2 of 12

The Parties

Petitioner Irish FeN. Aguilar is an employee of the Asian Development

Bank ("ADB") at the time the income tax payments were made. 5

Meanwhile, respondent is the duly appointed Commissioner of the

Bureau oflnternal Revenue ("BIR"), with principal office at the 51h Floor, BIR
National Office Building, Agham Road, Diliman, Quezon City. 6

The Facts

The relevant factual antecedents found by the Court in Division and

culled from the records of the case follow.

On 12 April 2013, the former Commissioner of Internal Revenue,

Honorable Kim S. Jacinto-Henares issued Revenue Memorandum Circular
("RMC'') No. 31-2013 prescribing the Guidelines on the Taxation of
Compensation Income of the Philippine Nationals and Alien Individuals
Employed by the Foreign Governments/Embassies/Diplomatic Missions and
International Organizations situated in the Philippines. 7 Section 2(d)(l) of the
same provides that only officers and staff of the ADB who are not Philippine
nationals shall be exempt from Philippine income tax. 8

Some of the petitioner's colleagues, namely, Erwin Salavera and Portia

Gonzales, by themselves and as attorneys-in-fact of concerned Filipino
employees of ADB filed before Branch 213 of the Regional Trial Court
("RTC") of Mandaluyong City a petition to nullity Section 2(d)(1) of RMC
No. 31-2013. 9

On 30 September 2013, the RTC of Mandaluyong City issued a

Decision declaring Section 2(d)(1) ofRMC No. 31-2013 void for being issued
without legal basis, in excess of authority and/or without due process of law
and likewise void in the absence of legislation and/or regulation to the
contrary. 10

The BIR appealed the RTC Mandaluyong City's Decision to the Court
of Appeals, but said appeal was dismissed on 3 July 2015, 11 with the Court of
Appeals ruling that the proper course of action would have been to file ~

5
Pre-Trial Order dated 19 November 2019. Division Records, pp. 419-426.
6
Ibid.
7
!hid.
8
Ibid.
9
Ibid.
10
Ibid.
II Ibid.
DECISION
CTA EB NO. 2652 (CTA Case No. 9867)
Page 3 of 12

petition with the Supreme Court through Rule 45 of the Rules of Court.
Respondent filed a Motion for Reconsideration which was also denied by the
Court of Appeals. The BIR then elevated the case before the Supreme Court
by filing a Petition for Review on Certiorari.

Despite said Decision of the RTC Mandaluyong City, petitioner still

filed her Income Tax Returns and paid her income taxes for taxable years 2015
and 2016 in the amount ofP464,824.00 and P494,518.00, respectively.'2

On 12 April 2018, petitioner filed her written claims for refund for
taxable years 2015 and 2016 before BIR Revenue District Office ("RDO")
No. 41 in Mandaluyong CityY

Petitioner's claims for refund were not acted upon by the BIR. 14 On the
basis of said inaction, petitioner filed her judicial claim for refund with the
Court of Tax Appeals ("CT A") on 2 July 2018. The case was docketed as
CTA Case No. 9867.

On 30 September 2021, the Court in Division rendered the Assailed

Decision denying the Petition for Review.

On 12 November 2021, petitioner filed her Motion for Reconsideration

(of the Decision dated 30 September 2021 )15 which the Court in Division
denied in the Assailed Resolution. 16 Petitioner received the Assailed
Resolution on 24 June 2022. 17

On II July 2022, petitioner filed the instant Petition for Review before
the Court En Banc 18 without Comment from respondent. 19

On 13 September 2022, the Court issued a Resolution submitting the

instant case for decision. 20

Hence, this Decision/

12
Ibid.
13
Ibid.
14
Ibid
15
Division Records, pp. 571-588.
16
/d., pp. 598-603.
17
!d.. pp. 596-597.
18
Supra note 1.
19
!d., p. 159.
20
!d., pp. 161-162.
DECISIO'I
CTA EB NO. 2652 (CTA Case No. 9867)
Page4of12

Issues21

The issues submitted for the Court En Bane's resolution are:

( 1) Whether the Court in Division erred when it ruled that the

tax-exempt privileges of ADB employees under the ADB
Charter 2 must yield to municipal laws or to the prerogative
of the Philippine Government to tax its nationals;

(2) Whether the Court in Division decided in a manner not in

accord with the law and applicable jurisprudence in holding
that the National Internal Revenue Code of 1997 ("Tax
Code'') is the operative act which imposed taxability on the
income of Philippine nationals working in the ADB
considering that: (a) The Tax Code is insufficient to modify,
amend, or repeal the ADB Charter as it is merely a general
law which deals only with the general taxability of Filipino
citizens, without particular mention of the taxability of
Filipino citizens in ADB; and (b) 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 right to tax, as well as, specifically addressing the
taxability of Philippine nationals working in the ADB; and

(3) The Court in Division erred in exercising appellate

jurisdiction over the decision of the RTC Mandaluyong City
and holding that Section 2(d)(l) of RMC No. 31-2013 is in
accord with the ADB Charter and the provisions of the Tax
Code, as amended.

Arguments of Petitioner 3

Petitioner presents the following arguments in assailing the Court in

Division's Decision and Resolution:

First, Article 56 of the ADB Charter expressly grants a tax-exempt

privilege to its employees. Petitioner recognizes the reservation of former
President Ferdinand E. Marcos to the ADB Charter but claims that such
reservation connotes an element of futurity the exercise of which requires a
positive act from the legislative body to be operative. Petitioner maintains tha~

21
Supra note I.
22
Agreement Establishing the Asian Development Bank; came into force 22 August 1966.
" !hid.
 DECISIOI>
CT A EB NO. 2652 (CT A Case No. 9867)
Page 5 of 12

the ADB Charter is a valid treaty and must be accorded respect and complied
with in good faith.

Second, petitioner maintains that, as an international agreement, the

ADB Charter forms part of the law of the land in accordance with Section 2,
Article II of the 1987 Constitution. She explains that the Tax Code, which
took effect in 1997, is to be construed as a general law because of its universal
application to the taxability of all citizens of the Philippines residing therein
while the ADB Charter, which was ratified in 1966, is a special law which
specifically pertains to ADB employees. She argues that the special law
should prevail in the absence of express or implied repeal since it evinces the
legislative intent more clearly than a general statute. Petitioner thus concludes
that tax exemption granted to her as an employee of ADB was not withdrawn
with the enactment of the Tax Code.

Third, petitioner maintains that the CTA had no jurisdiction to rule on

the validity and constitutionality of RMC No. 31-2013. Petitioner asserts that
the determination of whether RMC No. 31-2013 contravenes the Constitution
is within the jurisdiction of the regular courts, and that the RTC's decision is
subject to the exclusive appellate jurisdiction of the Court of Appeals, not the
CTA. Petitioner adds that she is not even a party to the case before the RTC
Mandaluyong City and did not raise the validity or invalidity of the RTC
Decision for the CTA in Division to decide and reverse.

The Ruling of the Court En Bane

The Petition for Review is unmeritorious.

After a review of petitioner's arguments and pertinent records of the

instant case, the Court En Bane finds no reason to reverse the Assailed
Decision and Assailed Resolution of the Court in Division. The arguments
raised by petitioner in the present Petition for Review are mere reiterations of
the arguments raised in the Petition for Review24 before the Court in Division
and Motion for Reconsideration (of the Decision dated 30 September 2021 )25
which were exhaustively discussed by the Court in Division,............-

24
Division Records pp. I 0-25.
" Division Records, pp. 571-588.
 DECISION
CTA EB NO. 2652 (CTA Case No. 9867)
Page 6 of 12

The Court in Division correctly ruled

that the tax-exempt privileges of
ADB Employees under the ADB
Charter must yield to municipal laws
or to the prerogative of the
Philippine Government to tax its
nationals.

Petitioner anchors its tax-exempt privilege on its salaries and

emoluments received from ADB from Article 56 of the ADB Charter which
purportedly states that no tax shall be levied on salaries and emoluments paid
to officers and employees of ADB.

Petitioner's interpretation is erroneous.

Article 56 of the ADB Charter provides that no tax shall be levied on

the salaries and emoluments of its officers and employees except where the
member State retains its right to tax salaries and emoluments of its citizens. It
pertinently provides:

"ARTICLE 56
EXEMPTION FROM TAXATION

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."
(Emphasis and underscoring supplied.)

The Philippines expressly reserved its right to tax the salaries and
emoluments paid by ADB to its citizens, as follows: 26

"The Government of the Philippines declares that it retains for itself

and its political subdivisions the right to tax salaries and~uments paid by
the Bank to citizens or nationals of the Philippines,........-

26
See also Status of the Agreement Establishing the Asian Development Bank, as reported in the
Multilateral Treaties Deposited with the Secretary-General of the United Nations, Chapter X(4),
https:/ /treaties. un .org/doc/Pub! ication/MTDSGIV ol ume%20 J/Chapter%20 XIX -4.en.pdf, last accessed
21 September 2023. Note that the Philippines signed said Agreement on 4 December 1965 and ratified
the same on 5 July 1966.
DECISIO'I
CTA EB NO_ 2652 (CTA Case No. 9867)
Page 7 of 12

Consistent with the Philippines' reservation, 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'') 27 also expressly 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 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 of the
Government to tax its nationals;
(c) .. .''
(Emphasis, Ours)

From the foregoing, it is clear that the Philippines has reserved its right
to tax the salaries and emoluments of its citizens who are ADB employees,
such as petitioner.

Petitioner then claims that the reservation clause connotes an element

of futurity, the exercise of which requires a positive act from the legislative
body to be operative.

The Court En Bane reiterates with approval the finding of the Court in
Division on this point as follows:

"The necessity of an enabling law as propounded by petitioner

is negated by the existence of a national law on taxation as embodied in
the 1997 NIRC, as amended, and which shall govern the taxability of
the compensation earned by the Filipino employees of ADB such as
herein petitioner.

Secti..623 of the 1997 NlRC, as amended, specifically provides as

follows:/ .. -·

" 22 December 1966.

DECISION
CT A EB NO. 2652 (CT A Case No. 9867)
Page 8 of 12

''Section 23. General Principles oflncome 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."

Section 24 (A) (I) of the 1997 NIRC, as amended, provides as

follows:

"Section 24. Income Tax Rates.-

(A) Rates of Income Tax on Individual Citizen and

Individual Resident Alien of the 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:"
(Emphasis supplied)
XXX XXX XXX

In relation to the aforequoted provisions, Sections 30 and 31 of the

1997 NIRC, as amended, provide as follows:

"Section 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."

"Section 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) Competition for services in whatever form paid,

including, but not limited to fees, salaries, wages,
commissions, and similar items:" (Emphasis supplied)

The above provisions leave no doubt that under Philippine law, the
compensation income of a citizen or a resident of the Philippines
derived within and without the country, is subject to income tax.~
(Emphasis and underscoring supplied.)

28
Decision, dated 30 September 2021, pp. 12-13, Division Records, pp. 565-566.
 DECISIO"'
CTA EB NO. 2652 (CTA Case No. 9867)
Page 9 of 12

The Court in Division correctly ruled

that the Tax Code is the operative act
which imposed tax on the income of
Philippine nationals working in
ADB.

The Court En Bane also does not find merit in petitioner's contention that
the ADB Charter is a special law that is not, in any way, superseded by the Tax
Code.

Section 23(A) and Section 24 (A) (1) of the Tax Code, as amended,
clearly provides that all citizens of the Philippines residing therein are subject
to income tax on all income sourced within and outside the Philippines. The
provisions of the Tax Code unmistakably identifY all resident citizens of the
Philippines, regardless of the identity of their employer, to be subject to income
tax on their income within and without the Philippines. The provision of the
Tax Code is clear and unequivocal, and needs no statutory construction.

Even assuming that the law is ambiguous, thus requiring statutory

construction, had legislature intended for the Tax Code to be the general law
and the ADB Charter as the special law, they could have easily created a
provision or a clause in the Tax Code stating that the taxability of resident
citizens is subject to the exemptions under treaty obligations. For example, in
Section 32(B)(5) of the Tax Code, it specifically identified as an 'Exclusion
from Gross Income' those 'Income Exempt under Treaty'. The absence in the
Tax Code, as amended, of any equivalent clause or provision confirms that
legislature intended to tax all resident citizens on their income within and
outside the Philippines.

The Court En Bane thus echoes with affirmation the ruling of the Court in
Division that it is clear from the Tax Code, as amended, that ADB employees
who are resident citizens of the Philippines are liable to pay income tax on the
compensation received by them.

The Court in Division did not act

outside its jurisdiction when it ruled
on the clarifications laid down in
RMC No. 31-2013.

Petitioner maintains that the Court in Division had no juri~ction to

rule on the validity and constitutionality of RMC No. 31-2013y-
 DECISIO~
CTA EB NO_ 2652 (CTA Case No. 9867)
Page 10ofl2

Contrary to petitioner's claims, the Court in Division did not rule on the
validity of RMC No. 31-2013 but, instead, merely affirmed the interpretation
of Section 23 (A) and Sections 24 (A) (1) (a), 31 and 32 of the Tax Code, as
amended, read together with the ADB Charter. The relevant portion in the
Assailed Decision of the Court in Division merely states:

"We tind the clarifications provided by RMC 31-2013 as to the

taxability of the compensation received by the petitioners, in accord with
the ADB Charter and the provisions of the 1997 NIRC. as amended." 29
(Underscoring supplied.)

Thus, the Court in Division further explained in the Assailed Resolution

that it merely interpreted the applicable law as follows:

"The ADB Charter and the corresponding 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), were ratified in 1966 while the NIRC was
enacted in 1997 which is the positive act of the Philippine Congress to tax
its own citizens including ADB employees who may be resident citizens. In
ruling thus, petitioner seems to have missed the point when it questioned
the jurisdiction of the Court to rule on the validity ofRMC 31-
2013 because the tax obligation of ADB employees who are Philippine
nationals does not emanate from said RMC but on the afore-cited
provisions of the 1997 NIRC. Thus, when the Court ruled that the
clarifications provided by RMC 31-2013 as to the taxability of the
compensation received by ADB employees is in accord with the ADB
Charter and the provisions of the 1997 NIRC, as amended, it did not
rule on its validity but merely affirmed its correct interpretation of the
applicable law. Nonetheless, it is hornbook doctrine that the Court of
Tax Appeals has exclusive appellate jurisdiction to determine the
validity or constitutionality of administrative issuances of respondent
and the RTC has no jurisdiction to decide on the validity or
constitutionality of the RMC. Consequently, such RTC decision is a
nullity and does not have any legal and binding effect." 30
(Citations omitted; emphasis and underscoring supplied.)

To emphasize, RMC No. 31-2013 merely reiterates the general

principles laid down in Section 23 (A) of the Tax Code, as amended, and
merely implements Sections 24 (A) (1) (a), 31 and 32 of the Tax Code, as
amended, all of which have been in effect since 1 January 1998. Stated
otherwise, the taxability of petitioner's income is not dependent on the validity
or invalidity of RMC No. 31-2013. Instead, her income as a resident citizen
from all sources, including her income from ADB, is subject to Philippine
income Tax pursuant to Section 23 (A) and Sections 24 (A) (1) (a), 31 and 32
of the Tax Code, as amended,./

"30 Decision, dated 30 September 2021, p. 13, id., p. 566.

Resolution, dated 3 June 2022, p. 5, id., p. 602.
DECISION
CTA EB NO. 2652 (CTA Case No. 9867)
Page II ofl2

WHEREFORE, in light of the foregoing considerations, the Petition

for Review filed by Irish FeN. Aguilar is hereby DENIED for lack of merit.

SO ORDERED.

0-SANPEDRO

WE CONCUR:

Presiding Justice

~.~ .A- \..____

MA. BELEN M. RINGPIS-LIBAN

Associate Justice

~\ (!'. fi~·,_,..._~.
1 _ __

CATHERINE T. MANAHAN
Associate Justice

'
JEANMARI

~~ /:~"'~
MARIAN IV~F. REYES-FAJARDO
Associate Justice

~~
LANEE S. CUI-DAVID
Associate Justice

C~N~~R~ES
Associate Justice
DECISIO~
CTA EB NO. 2652 (CTA Case No. 9867)
Page 12ofl2

CERTIFICATION

Pursuant to Article V/11, 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