Catholic school wins versus BIR’s Henares

Aries C. Rufo

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Catholic school wins versus BIR’s Henares
A Makati court declares 'unconstitutional' a BIR memorandum that requires schools to justify their tax-exempt status

Manila, Philippines – The Bureau of Internal Revenue (BIR) absorbed a one-two punch from a Makati Regional Trial Court after the judge declared “unconstitutional” the controversial tax memorandum requiring non-stock and non-profit schools to secure certifications of tax exemption.

In a joint resolution dated October 29, Makati RTC judge Maximo de Leon also declared all other issuances by BIR chief Kim Henares that tend to implement Revenue Memorandum Order 20-2013 as “null and void.”

The joint resolution was prompted by a clarification sought by St Paul College-Makati and a motion for reconsideration filed by the BIR assailing the ruling of the court last July that found RMO 20-2013 as violative of the Constitution.

Last year, the BIR issued RMO 20-2013 requiring non-stock, non-profit corporations and associations to secure tax exemption certifications from the BIR regional district offices where these are registered. The RMO covered educational institutions. (READ: Why the BIR is running after schools)

The memorandum was meant to enhance monitoring and plug loopholes in the tax system. Institutions that failed to apply and secure the tax exemption certificate would be stripped of their tax immunity. 

While other schools decided to comply with the BIR order, St. Paul College-Makati refused to take it sitting down.

Challenging the BIR memorandum, the school argued the order was abusive and automatically strips other institutions of their tax-exempt status. De Leon initially issued a temporary restraining order and later a preliminary injunction on the challenged BIR memorandum. (READ: Catholic school wins Round 1 vs BIR’s Henares  

Two days after the TRO was issued, the BIR issued Revenue Memorandum Circular 8-2014 which mandated banks to require corporations and institutions to present “valid, current and subsisting tax exemption certificate or ruling.” Failure on the part of these institutions to submit the tax exemption certificate  would mean they are to be subjected to withholding taxes from interest in their deposits.

In July 2014, the court injunction became permanent after De Leon ruled that the BIR memorandum is contrary to Article XIV Section 4 of the Constitution. Article 14, Sec. 4(3) says, “all revenues, assets on non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties.” The exemption is in recognition of the “complementary roles of public and private institutions in the educational system.”

Diminution of privilege 

De Leon agreed with St Paul College-Makati that RMO 20-2013 is “unconstitutional as it imposes a prerequisite to the enjoyment by non-stock, non-profit educational institutions of the privilege of tax exemption…”

By imposing the prerequisites, and if not complied with by non-stock, non profit educational institutions, it will serve as a diminution of the constitutional privilege, which even the Congress cannot diminish by legislation, and thus more so by the Commissioner of the Internal Revenue who merely exercises quasi-legislative functions,” De Leon said.  

Even as it won the case, St Paul College-Makati sought a clarification whether the ruling applies to other issuances by the BIR that appeared to implement the contested memorandum, particularly Revenue Memorandum Circular 8-2014. 

This was opposed by the BIR, arguing that the school is, in effect, seeking an amendment of its petition. The BIR also filed a motion for reconsideration on the court’s adverse ruling.

But the judge could not be swayed.

In his joint resolution, De Leon clarified that the court order refers to other issuances by the BIR “which tend to implement RMO-20-2103..for otherwise said decision would be useless and would be rendered nugatory.”

He also junked the BIR’s motion for reconsideration for lack of merit.

Sabino Padilla III, lawyer for St Paul College-Makati, said the court’s ruling applies to all non-stock, non profit educational institutions, contrary to the position being held by the BIR that it is only applicable to the territorial juridisction of the Makati RTC.

“The Supreme Court however has long declared and settled that following Section 5, Article VIII of the 1987 Constitution, a regional trial court has jurisdiction to resolve the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question. Accordingly, there is no doubt that the decisions in Civil Case No. 13-1405 apply to the four corners of the country,“ Padilla said. –

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