TOPIC: Tax Exemption of ADB Filipino Employees

Names of Members:

Dizon, Tiffany
Hernandez, Chad
Leoncio, Angela
Obejas, Kiefer

Perez, Mark Josep

Senique, Alyssa
Vitug, Loisse

 Facts of the Case:

Bureau of Internal Revenue issued Revenue Memorandum Circular
(RMC) No. 31-2013
The circular clarifies the taxability of the compensation income
received by Philippine nationals and alien individuals employed by
foreign
governments/embassies/diplomatic
missions
and
international organizations situated in the Philippines, including
ADB.
Section 2 of the RMC provides that only officers and staff of the ADB
who are not Philippine nationals shall be exempt from Philippine
income tax
With regard to the issued circular, BIR filed complaints against two
employees of the Asian Development Bank (ADB) Erwin Salaveria
and Portia Gonzales for failure to file their income tax returns (ITR)
and pay corresponding taxes since their registration with the former.
BIR also invoked the stating that only ADB officers and staff who are
not Philippine nationals shall be exempt from payment of Philippine
income tax.
BIR further argued that there was no excuse for Salaveria and
Gonzales to evade payment of taxes since a BIR kiosk was set up at
the lobby of the ADB General Headquarters for registration, transfer
of registration, updating of records, filing of ITRs, and payment of
taxes.
Arguments:
1.
2.
3.

Issuance of the circular has no legal basis.

Issuance of the circular deprives due process of law.
Non-declaration of the state for tax exemption.
Asian Development Bank Charter provides:

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.


With the governments ratification of the ADB charter, the
subject to reservation from tax exemption must be declared for the
government to retain its claim over Filipino employees income taxes. But
since there was no declaration through an enabling law, the
Philippine government was therefore unable to retain such
claim.
4. Contrary to international law.
Foreign governments and international organizations enjoy
immunity from Philippine taxes, including withholding taxes on
salaries and emoluments of their employees. This immunity is
accorded on the basis of the following international comities to which
the Philippines is a signatory:
1. Vienna Convention for International Relations (for embassies and
diplomatic missions)
2. Convention on the Privileges and Immunities of the United
Nations
3. Convention on the Privileges and Immunities of Specialized
Agencies (for the various agencies of the United Nations, Asian
Development Bank Headquarters Agreement (for ADB)
4. Articles of Agreement of the International Finance Corporation,
among others, to which the Philippines is a signatory