Nuns win 2nd round vs BIR’s Henares

Aries C. Rufo
They are however required to post a P4-million bond by the court before a preliminary injunction could take effect

MANILA, Philippines – How do you stop Bureau of Internal Revenue Commissioner Kim Henares? Or more accurately, how much would it take to block her juggernaut?

About P4 million in injunction bonds.

Nuns of St Paul College in Makati got the upper-hand in their tax battle against Henares after Makati Regional Trial Court judge Maximo De Leon issued Wednesday, January 22, a preliminary injunction against her order requiring private-run schools to file for a Tax Exemption Ruling (TER).

It’s bittersweet success however, as the court required the school to post a P4-million bond before the preliminary injunction could take effect. A preliminary injunction is a temporary order issued by the court that prevents the BIR from imposing its order.

The school has challenged Revenue Memorandum Order (RMO) 20-2013 issued last year by Henares which required non-stock, non-profit private educational institutions, non-governmental organizations and foundations to secure a TER before they could avail of tax exemption.

The court had earlier issued a temporary restraining order on the RMO, which was set to lapse Thursday, January 23. (Read: Catholic school wins Round 1 vs BIR’s Henares)

The school has filed for preliminary injunction to stay the implementation of the questioned RMO while the case is pending.

It got what it wanted, but not without a tag price.

Clear and unmistakable right

In favoring St Paul College in its petition,  De Leon said that there “exists a right in esse or a clear and unmistakable right to be protected” in the instant case.

The judge said that before the RMO was issued, “non-stock, non-profit educational institutions like the St Paul College of Makati do not need to secure certification or ruling of tax exemption from the CIR as a prerequisite to enjoy the tax exemption under the Constitution.”

But “with the issuance of RMO No. 20-2013, the petitioner and/or other institutions similar institutions who (sic) fail to comply with the requirement of the RMO….even if they filed their annual information return, would be deemed non-compliant…Thus in effect, the RMO appears to divest them of their tax exemption privilege granted to them by the Constitution,” the 3-page resolution said.

The 1987 Constitution grants non-stock, non-profit schools tax immunity provided that all revenues are plowed back to educational purposes. Any other income derived from operations which are not related to their primary purpose are supposed to be taxed.

In issuing the preliminary injunction, the court relied on a previous Supreme Court ruling which must be observed before such action could be issued by the court: 1) the existence of a clear and unmistakable right that must be protected, and 2) an urgent and paramount necessity for the writ to prevent serious damage.

Discretion of the court

During a hearing held for the petition for preliminary injunction, the school presented its sole witness, directress Sister Teresita Bayona, who testified that they have been faithfully submitting financial statements to the Securities and Exchange Commission and annual information returns to the Department of Finance. The school is operated by the St Paul Sisters.

Bayona argued that if the BIR had any suspicion that any income of St Paul College was diverted to non-educational purposes, it could examine the SEC and DOF documents.

Counsel Sabino Padilla IV argued before the court that the school’s failure to comply with the challenged RMO will automatically lift the tax-exempt status of St Paul College-Makati and all other private educational institutions, whether these are run by Catholic congregations, Protestant sects, or Muslims.

Under the RMO, any educational institution which had failed to secure a TER from the BIR by Dec 31, 2013 would lose its tax-exempt status, Padilla argued.

The favorable resolution proved to be a morale-booster for the nuns, but it created a different dilemma.

The Rules of Court require that before a preliminary injunction can be issued, the one seeking the relief must post a bond to cover any possible damages to the party against which the injunction is addressed.

Padilla said the nuns will have to cough up the P4-million injunction bond imposed by the court before the relief can take effect.

He said the amount was based solely on the discretion of the judge who issued the injunction.

He said he would consult with the nuns on how they could come up with the money. One option being studied is to ask the court for a lower amount, he said. –

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