Enforceability and applicability of the writ of preliminary injunction on the implementation of Revenue Memorandum Order No. 20-2013

In a resolution dated Jan. 22, 2014, the Regional Trial Court of Makati City issued a writ of preliminary injunction against the implementation of Revenue Memorandum Order (“RMO”) No. 20-2013 in the case entitled St. Paul College of Makati vs. Commissioner of Internal Revenue. The Court explained in this wise:

“In the instant case, there exists a right in esse or a clear and unmistakable right to be protected. Prior to the issuance of RMO No. 20-2013, 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. It may not be amiss to state that the petitioner has been diligent in complying with the requirement of DOF 137-87, that is, filing of annual information return with the BIR. With the issuance of RMO No. 20-2013, the petitioner and/or other institutions similarly situated who fail to comply with the requirement of the RMO, particularly, the Tax Exemption Ruling, even if they have filed the annual information return, would be deemed non-compliant and will be subjected to penalties under Sec. 250 of NIRC. Thus in effect, the RMO appears to divest them of their tax exemption privilege granted to them by the Constitution.”

The writ of injunction was applied for by St. Paul College of Makati as a provisional remedy in the “Civil Action to Declare Unconstitutional BIR Revenue Memorandum No. 20-2013,” which is basically an action for declaratory relief under the Rules of Court. In the said case, St. Paul College of Makati alleged that it is a non-stock, non-profit educational institution organized and existing under the Philippine laws. As such, St. Paul College of Makati enjoys the privilege of exemption from taxes sanctioned by no other than the Constitution, particularly Article XIV Section 4 (3).

On the other hand, RMO No. 20-2013 requires non-stock and non-profit educational institutions, among others, to file their Tax Exemption/Revalidation with the Revenue District Office (“RDO”) where they are registered. The RDO shall, in turn, issue a Tax Exemption Ruling (“TER”) which shall be valid for a period of three (3) years from the date of effectivity specified in the TER, unless sooner revoked or cancelled. The TER shall be renewable upon the filing of a subsequent Application for Tax Exemption/Revalidation, which shall be valid for another three (3) years.

The primordial question with the issuance of the writ of preliminary injunction is its enforceability and application in suspending the effectivity of RMO No. 20-2013. Essentially, whether the writ of preliminary injunction will benefit all other institutions similarly situated as St. Paul College of Makati. Will the writ of preliminary injunction against the implementation of the RMO apply only to St. Paul College of Makati as the party which applied for the injunction? Or will the writ of preliminary injunction benefit all other institutions which are similarly situated as St. Paul College of Makati and are within the territorial jurisdiction of Regional Trial Court of Makati?

The Regional Trial Courts have the exclusive original jurisdiction over actions for declaratory relief (Section 1 of Rule 63 of the Rules of Court). As a provisional remedy, a preliminary injunction may be granted by the court where the action or proceeding is pending. Moreover, Section 21 of Batas Pambansa Blg. 129 provides that Regional Trial Courts exercise original jurisdiction in the issuance of writ of injunction which may be enforced in any part of their respective regions. Considering that Regional Trial Court of Makati is in the National Capital Judicial Region, it is arguable that the enforceability of the injunction is limited to the National Capital Judicial Region.

While other non-stock, non-profit educational institutions await the progress in the St. Paul case, the issuance of Revenue Memorandum Circular (“RMC”) No. 8-2014 dated Feb. 6, 2014 raised more concerns. The writ of injunction may have been rendered ineffective since withholding agents are mandated to require all individuals and entities claiming exemption to provide a copy of a valid, current and subsisting tax exemption certificate or ruling. RMC No. 8-2014 further clarified that the withholding agent’s failure to withhold notwithstanding lack of tax exemption certificate or ruling shall give rise to the imposition of a penalty equal to the total amount of the tax not withheld.

Phillip M. Torres is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email ph-kpmgmla@kpmg.com or rgmanabat@kpmg.com.

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