Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist and Supervisors Union

A voluntary arbitrator has no jurisdiction over tax matters, including the taxability of a gasoline allowance and the propriety of withholding tax; the employee’s remedy for refund or non-withholding lies against the taxing authority, not the employer.

Honda Cars Philippines, Inc. and the Honda Cars Technical Specialists and Supervisory Union were parties to a collective bargaining agreement covering the company’s supervisors and technical specialists, with the union serving as their exclusive collective bargaining representative. The CBA contained provisions on fringe benefits, and the parties had earlier agreed to convert the union members’ transportation allowance into a monthly gasoline allowance. The dispute concerned the tax treatment of the unused portion of that allowance when converted to cash, against the backdrop of the NIRC’s withholding tax and fringe benefit tax provisions.

Honda Cars Philippines, Inc. and the Honda Cars Technical Specialists and Supervisory Union, the exclusive collective bargaining representative of the company’s supervisors and technical specialists, entered into a collective bargaining agreement on December 8, 2006, effective April 1, 2006 to March 31, 2011. Prior to April 1, 2005, the union members were receiving a transportation allowance of ₱3,300.00 a month. On September 3, 2005, the company and the union entered into a Memorandum of Agreement converting the transportation allowance into a monthly gasoline allowance starting at 125 liters effective April 1, 2005. The allowance answered for the gasoline consumed by the union members for official business purposes and for home-to-office travel and vice-versa.

The company claimed that the grant of the gasoline allowance was tied to a similar company policy for managers and assistant vice-presidents, which provided that if the amount of gasoline was not fully consumed, the unused gasoline could be converted into cash, subject to whatever tax may be applicable. Since the cash conversion was paid in the monthly payroll as an excess gas allowance, the company considered the amount part of the managers’ and assistant vice-presidents’ compensation subject to income tax on compensation. Accordingly, the company deducted from the union members’ salaries the withholding tax corresponding to the conversion to cash of their unused gasoline allowance.

The union, on the other hand, argued that the gasoline allowance for its members was a “negotiated item” under Article XV, Section 15 of the new CBA on fringe benefits. It opposed the company’s practice of treating the gasoline allowance, when converted into cash, as compensation income subject to withholding tax. The disagreement between the company and the union resulted in a grievance, which they referred to the CBA grievance procedure for resolution. When it remained unsettled, they submitted the issue to a panel of voluntary arbitrators as required by the CBA.

• Tax Classification: Petitioner maintained that the cash conversion of the union members’ gasoline allowance is compensation income subject to income tax, not a fringe benefit subject to fringe benefit tax.
• Primacy of Law over CBA Nomenclature: Petitioner argued that the tax treatment of a benefit extended by the employer to employees is governed by law and applicable tax regulations, not by the nomenclature or definition provided by the parties; the CBA’s erroneous classification is immaterial because Section 33 of the NIRC provides the legal classification.
• Beneficiary of Cash Conversion: Petitioner contended that there is no basis for the CA conclusion that the cash conversion redounds to the benefit of management; common sense dictates that the individual union members solely benefit because the amount goes into their compensation income.
• No Cause of Action and Refund Remedy: Petitioner submitted that even assuming the cash conversion is a tax-exempt fringe benefit and that it erred in withholding income taxes due, the union members would have no cause of action against it for refund; under Section 204 of the NIRC, an action for refund of erroneous withholding and payment should be a tax refund claim with the BIR, and it acted merely as an agent of the government for collection and payment of taxes due from the members.

• Fringe Benefit Classification: Respondent argued that its members’ gasoline allowance and its unused gas equivalent are fringe benefits under the CBA and Section 33(A) of the NIRC, and are therefore not subject to withholding tax on compensation income.
• Exemption from Fringe Benefit Tax: Respondent posited that under that law and BIR Revenue Regulations 2-98, the same benefit is not subject to fringe benefit tax because it is required by the nature of, or necessary to, the trade or business of the company.
• BIR Ruling and Pre-computed Allowance: Respondent submitted that in 2007 the BIR ruled that fixed and/or pre-computed transportation allowance given to supervisory employees in pursuit of the company’s business shall not be taxable as compensation or fringe benefits; the gasoline allowance was already pre-computed by the company as sufficient to cover the gasoline consumption of supervisors whenever they perform work for the company, and the fact that the company allowed its members to convert it to cash when not fully consumed is no longer their problem because the benefit was already given.

• Jurisdiction of Voluntary Arbitrator: Whether the Panel of Voluntary Arbitrators had jurisdiction to rule on the taxability of the gasoline allowance and the propriety of the company’s withholding of tax.
• Cause of Action Against Employer: Whether the union has a cause of action against the company for the refund or non-withholding of taxes on the cash conversion of the unused gasoline allowance.
• Tax Classification: Whether the cash conversion of the unused gasoline allowance is a fringe benefit subject to fringe benefit tax or compensation income subject to withholding tax.

• Jurisdiction of Voluntary Arbitrator: No. The Voluntary Arbitrator’s jurisdiction is limited to labor disputes; taxability and withholding are tax matters within the CIR’s exclusive jurisdiction under Section 4 of the NIRC.
• Cause of Action Against Employer: No. The employer acts as both the government’s and the employee’s withholding agent; any claim for refund or non-withholding must be pursued against the taxing authority, not the employer.
• Tax Classification: Not reached. Because the Voluntary Arbitrator lacked jurisdiction and the union’s remedy lies with the tax authorities, the Court did not resolve whether the cash conversion is a fringe benefit or compensation income.

• Jurisdiction of Voluntary Arbitrator: The Labor Code vests the Voluntary Arbitrator with original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the CBA and those arising from the interpretation or enforcement of company personnel policies. Upon agreement of the parties, the Voluntary Arbitrator shall also hear and decide all other labor disputes, including unfair labor practices and bargaining deadlocks. The jurisdiction is limited to labor disputes, which means any controversy or matter concerning terms and conditions of employment or the association or representation of persons in negotiating, fixing, maintaining, changing, or arranging the terms and conditions of employment, regardless of whether the disputants stand in the proximate relation of employer and employee. The issues raised before the Panel were whether the cash conversion of the gasoline allowance shall be subject to fringe benefit tax or the graduated income tax rate on compensation, and whether the company wrongfully withheld income tax on the converted gas allowance. These are clearly tax matters and do not involve labor disputes; they involve tax issues within a labor relations setting as they pertain to questions of law on the application of Section 33(A) of the NIRC. They do not require the application of the Labor Code or the interpretation of the MOA and/or company personnel policies. The company and the union cannot agree or compromise on the taxability of the gas allowance because taxation is the State’s inherent power and its imposition cannot be subject to the will of the parties. Under paragraph 1, Section 4 of the NIRC, the CIR shall have the exclusive and original jurisdiction to interpret the provisions of the NIRC and other tax laws, subject to review by the Secretary of Finance. If the company and/or the union desired clarification, they should have requested a tax ruling from the BIR. Any revocation, modification, or reversal of the CIR’s ruling shall not be given retroactive application if prejudicial to the taxpayers, except where the taxpayer deliberately misstates or omits material facts, where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based, or where the taxpayer acted in bad faith. If the union disputed the withholding of tax and desired a refund, it should have filed an administrative claim for refund with the CIR, because paragraph 2, Section 4 of the NIRC expressly vests the CIR with original jurisdiction over refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other tax matters.
• Cause of Action Against Employer: Under the withholding tax system, the employer as the withholding agent acts as both the government’s and the taxpayer’s agent. Except in the case of a minimum wage earner, every employer has the duty to deduct and withhold upon the employee’s wages a tax determined in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon the CIR’s recommendation. As the Government’s agent, the employer collects tax and serves as the payee by fiction of law. As the employee’s agent, the employer files the necessary income tax return and remits the tax to the Government. Based on these considerations, the union has no cause of action against the company. The company merely performed its statutory duty to withhold tax based on its interpretation of the NIRC, albeit that interpretation may later be found to be erroneous. The employer did not violate the employee’s right by the mere act of withholding the tax that may be due the government. Moreover, the NIRC only holds the withholding agent personally liable for the tax arising from the breach of his legal duty to withhold, as distinguished from his duty to pay tax. Under Section 79(B) of the NIRC, if the tax required to be deducted and withheld is not collected from the employer, the employer shall not be relieved from liability for any penalty or addition to the unwithheld tax. Thus, if the BIR illegally or erroneously collected tax, the recourse of the taxpayer, and in proper cases the withholding agent, is against the BIR, and not against the withholding agent. The union’s cause of action for the refund or non-withholding of tax is against the taxing authority, and not against the employer. Section 229 of the NIRC provides that no suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained whether or not such tax, penalty, or sum has been paid under protest or duress.
• Tax Classification: The Court did not reach the merits of whether the cash conversion of the unused gasoline allowance is a fringe benefit subject to fringe benefit tax or compensation income subject to withholding tax. Because the Voluntary Arbitrator lacked jurisdiction over the tax issues and the union had no cause of action against the company for refund or non-withholding, the classification issue was not resolved.

• Voluntary Arbitrator’s Jurisdiction Limited to Labor Disputes — A voluntary arbitrator has original and exclusive jurisdiction over unresolved grievances arising from the interpretation or implementation of a CBA and company personnel policies, and, upon agreement, over other labor disputes. The jurisdiction does not extend to tax matters. In this case, the issues of whether the cash conversion of the gasoline allowance is subject to fringe benefit tax or income tax, and whether the company wrongfully withheld tax, were tax issues within a labor relations setting but not labor disputes; they required application of the NIRC, not the Labor Code or the CBA.
• Exclusive Jurisdiction of the Commissioner of Internal Revenue over Tax Interpretation and Refunds — Under Section 4 of the NIRC, the CIR has exclusive and original jurisdiction to interpret the NIRC and other tax laws, subject to review by the Secretary of Finance, and original jurisdiction over refunds of internal revenue taxes. A taxpayer seeking clarification should request a tax ruling from the BIR, and one seeking a refund should file an administrative claim with the CIR. The Court applied this doctrine to hold that the voluntary arbitrator could not rule on the taxability of the gasoline allowance or the propriety of withholding.
• Withholding Agent as Agent of Government and Employee — An employer required to withhold tax acts as both the government’s agent and the employee’s agent. As the Government’s agent, it collects the tax and serves as the payee by fiction of law; as the employee’s agent, it files the income tax return and remits the tax to the Government. The Court used this doctrine to conclude that the company merely performed its statutory duty to withhold and did not violate the employee’s rights by the mere act of withholding.
• No Cause of Action Against Employer for Erroneous Withholding; Recourse Against BIR — If the BIR illegally or erroneously collects tax, the taxpayer’s recourse, and in proper cases the withholding agent’s, is against the BIR, not the withholding agent. The employee’s cause of action for refund or non-withholding is against the taxing authority. Under Section 229 of the NIRC, no suit for recovery of erroneously or illegally collected tax may be maintained until a claim for refund or credit has been filed with the Commissioner. The Court applied this to hold that the union had no cause of action against Honda.
• Taxation as Inherent State Power; Taxability Not Subject to Parties’ Agreement — Taxation is the State’s inherent power, and its imposition cannot be subject to the will of the parties. The company and the union could not agree or compromise on the taxability of the gasoline allowance. This doctrine supported the conclusion that the voluntary arbitrator, a labor tribunal, could not adjudicate the tax question.

• "The Voluntary Arbitrator has no competence to rule on the taxability of the gas allowance and on the propriety of the withholding of tax. These issues are clearly tax matters, and do not involve labor disputes." — This passage states the core jurisdictional ruling: the labor tribunal’s authority does not extend to tax questions, even when they arise in a labor relations setting.
• "Taxation is the State’s inherent power; its imposition cannot be subject to the will of the parties." — This passage explains why the company and the union could not confer jurisdiction on the voluntary arbitrator by agreement or compromise over taxability.
• "Thus, if the BIR illegally or erroneously collected tax, the recourse of the taxpayer, and in proper cases, the withholding agent, is against the BIR, and not against the withholding agent." — This passage defines the proper party against whom a refund or erroneous collection claim must be pursued.
• "The union's cause of action for the refund or non-withholding of tax is against the taxing authority, and not against the employer." — This passage directly resolves the second issue, holding that the employer is not the proper defendant for the union’s refund or non-withholding claim.

• Commissioner of Internal Revenue vs. Procter & Gamble Philippine Manufacturing Corp., G.R. No. L-66838, December 2, 1991, 204 SCRA 377 — Cited to support the rule that the employer, as withholding agent, acts as both the Government’s agent and the employee’s agent; as Government’s agent it collects tax and serves as payee by fiction of law, and as employee’s agent it files the return and remits the tax.
• Heirs of Magdaleno Ypon vs. Ricaforte, G.R. No. 198680, July 8, 2013, 700 SCRA 778 — Cited for the principle that the employer does not violate the employee’s right by the mere act of withholding the tax that may be due the government.
• Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue, G.R. No. 170257, September 7, 2011, 657 SCRA 70 — Cited for the distinction that the NIRC holds the withholding agent personally liable for tax arising from breach of the legal duty to withhold, as distinguished from the duty to pay tax.
• Commissioner of Internal Revenue vs. Smart Communication, Inc., G.R. Nos. 179045-46, August 25, 2010, 629 SCRA 342 — Cited for the rule that if the BIR illegally or erroneously collected tax, the taxpayer’s recourse, and in proper cases the withholding agent’s, is against the BIR and not the withholding agent.

• Labor Code, Article 261 — Vests the voluntary arbitrator with original and exclusive jurisdiction to hear and decide unresolved grievances arising from the interpretation or implementation of the CBA and company personnel policies. Applied to hold that the voluntary arbitrator had no jurisdiction over tax issues.
• Labor Code, Article 262 — Provides that upon agreement of the parties, the voluntary arbitrator shall hear and decide all other labor disputes, including unfair labor practices and bargaining deadlocks. Reinforces the limited jurisdiction of the voluntary arbitrator.
• Labor Code, Article 212(l) — Defines a labor dispute as any controversy or matter concerning terms and conditions of employment or the association or representation of persons in negotiating, fixing, maintaining, changing, or arranging the terms and conditions of employment. Applied to conclude that the taxability and withholding issues were not labor disputes.
• National Internal Revenue Code, Section 4, paragraphs 1 and 2 — Paragraph 1 vests the CIR with exclusive and original jurisdiction to interpret the NIRC and other tax laws, subject to review by the Secretary of Finance; paragraph 2 vests the CIR with original jurisdiction over refunds of internal revenue taxes. Applied to hold that the proper forum for clarification or refund was the BIR/CIR.
• National Internal Revenue Code, Section 33(A) — Imposes a fringe benefit tax on the grossed-up monetary value of a fringe benefit furnished or granted to an employee, except rank-and-file employees, unless the fringe benefit is required by the nature of, or necessary to, the trade, business, or profession of the employer, or is for the convenience or advantage of the employer. The taxability issue involved its application, but the Court did not resolve it because the voluntary arbitrator lacked jurisdiction.
• National Internal Revenue Code, Section 79(A) — Requires every employer, except in the case of a minimum wage earner, to deduct and withhold upon the employee’s wages a tax determined in accordance with rules and regulations prescribed by the Secretary of Finance upon the CIR’s recommendation. Applied to describe the employer’s statutory withholding duty.
• National Internal Revenue Code, Section 79(B) — Provides that if the tax required to be deducted and withheld is not collected from the employer, the employer shall not be relieved from liability for any penalty or addition to the unwithheld tax. Cited in distinguishing the withholding agent’s liability.
• National Internal Revenue Code, Section 229 — Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding may be maintained for recovery of national internal revenue tax alleged to have been erroneously or illegally assessed or collected until a claim for refund or credit has been duly filed with the Commissioner; the suit may be maintained whether or not the tax was paid under protest or duress. Applied to hold that the union’s refund claim must be filed with the CIR.
• National Internal Revenue Code, Article 246 (as cited in footnote) — Provides that any revocation, modification, or reversal of the CIR’s ruling shall not be given retroactive application if prejudicial to taxpayers, except where the taxpayer deliberately misstates or omits material facts, where the facts subsequently gathered by the BIR are materially different, or where the taxpayer acted in bad faith. Cited in relation to tax rulings.
• Rules of Court, Rule 43 — The company appealed the voluntary arbitrator’s decision to the CA through a Rule 43 petition for review.
• Rules of Court, Rule 45 — The company filed the petition for review on certiorari before the Supreme Court under Rule 45.

Antonio T. Carpio (Chairperson), Mariano C. Del Castillo, Jose Catral Mendoza, and Marvic M.V.F. Leonen.