BIR Ruling [DA-146-01]

August 30, 2001 BIR RULING [DA-146-01] Ms. Lucina F. Galera Acting Assistant Commissioner Human Resource Development Service Dear Ms. Arguna : This refers to your request for a clarificatory opinion on the exchange rate to be used in the computation of terminal leave credits of Dir. Osmundo G. Umali. As borne out of the docket of the case, it appears that Dir. Osmundo G. Umali (Dir. Umali for brevity) retired from the revenue service effective December 5, 1994 but due to his pending case, his retirement benefits were not immediately released. The Personnel Division of this Bureau thereafter received a certified copy of an Order from the Regional Trial Court, Branch 147, Makati City, " ordering the Bureau of Internal Revenue to release the full retirement benefits of the petitioner with legal interest at the rate of 6% per annum ". Dir. Umali was assigned as Revenue Attache stationed at New York from November 15, 1977 to March 1, 1981. In reply, please be informed that under Section 6 of Ministry Order No. 25-83 , which was the prevailing and applicable issuance on the matter, specifically provides that: "Sec. 6. The foreign service portion of the terminal leave credits earned prior to 1 January 1978 , computed on the basis of highest salary received shall be converted to US dollars at the rate of P2.00 to $1.00 pursuant to Department Order No. 35-67 dated 9 October 1967 and Sec. 10 of P.D. No. 1285, and shall be payable in Philippine pesos at the prevailing rate of exchange at the time of payment ." (Emphasis ours.) Correspondingly, Dir. Umali's terminal leave credits earned prior to January 1, 1978 or from November 15, 1977 to December 31, 1977 shall be computed on the basis of highest salary received, and shall be payable in Philippine pesos at the prevailing rate of exchange at the time of payment. As to the terminal leave credits of Dir. Umali starting January 1, 1978 up to and including March 1, 1981, payment thereof shall be computed on the basis of the highest salary received, and shall be paid in Philippine pesos in accordance with Section 7 of Ministry Order No. 25-83, which reads as follows: "Sec. 7. Payment of the money value of terminal leave credits earned from January 1, 1978 shall be computed on the basis of the highest salary received and shall be paid in Philippine pesos and otherwise shall be on the same basis as home office personnel who retire in the Philippines." (Emphasis supplied.) The Honorable Supreme Court had the occasion to interpret the phrase "at the time of payment" in the case of Philippine Manpower Services, Inc., Adawliah Universal Electronics and Afisco Insurance Corporation vs. National Labor Relations Commission and Arthur P. Pangan (G.R. No. 98450, July 21, 1993). It enunciated that: "In the case of Republic Resources and Development Corporation v. Court of Appeals, 13 reiterating our decision in Kalalo v. Luz, 14 with regard to obligations incurred after enactment of RA No. 529 on June 16, 1950, we also held that the rate of exchange to be applied should be that prevailing at the time of payment . As a consequence of our affirmance of the POEA award, we find incorrect the NLRC Resolution of March 4, 1991 to the effect that the proper rate of exchange to be applied in converting the award of US$11,550.00 to its equivalent in Philippine currency is that prevailing at the time complainant's cause of action accrued and not at the time of actual payment as ruled by the POEA. WHEREFORE, finding no grave abuse of discretion on the part of public respondents, the petition is DISMISSED. The decision of the POEA dated August 10, 1990 is hereby AFFIRMED in toto and the Resolution of the NLRC dated March 4, 1991 is MODIFIED, insofar as the proper rate of exchange to be applied in converting the award of US$11,550.00 in Philippine currency is that prevailing at the time of actual payment ." (Emphasis supplied.) Accordingly, the foreign exchange conversion rate to be applied in the computation of Dir. Umali's leave credit earned should be at the time of its actual payment. It is noteworthy to state that the Honorable Supreme Court's Decision dated March 29, 1999 is silent on the payment of 6% legal interest on the full retirement benefits of Dir. Umali while the Order of the RTC Branch 147, Makati City specifically ordered the BIR " to release the full retirement benefits of Dir. Umali with legal interest at the rate of 6% per annum ". It appears, however, from the narration of facts in the said Order that a "Supplemental Motion to Implement Supreme Court Decision" filed by Dir. Umali explicitly prayed for the payment of legal interest. Despite receipt of a copy of the said Supplemental Motion and the lapse of time from receipt thereof, the Office of the Solicitor General failed to file an opposition to interpose its objections thereto. Consequently, the said RTC imposed the controversial 6% legal interest: Basic and axiomatic is the rule that a final and executory decision or order of a court is the law between the parties concerned. Absent an opposition seasonably filed by the appropriate government office questioning the imposition of the 6% legal interest, this Office has no other recourse but to respect the Order of the RTC. In Maria Balais and Petronilo Eraya vs. Buenaventura, Adela, Rosita and Teresita all surnamed BALAIS (G.R. No. L-33924, March 18, 1988), the Honorable Supreme Court clearly pronounced that: "But as we stated, the error of the court notwithstanding, the case is a closed chapter, the decision having been rendered by a court of competent jurisdiction. And, as noted by the trial court itself, it is a case that had become final and executory, and. in fact, in the process of execution. A decision, no matter how erroneous, becomes the law of the case between the parties upon attaining finality ." (Emphasis supplied.) Furthermore, the Honorable Supreme Court laid down the rules on the imposition and computation of interest in the seminal case of Eastern Shipping Lines, Inc. vs. Hon. Court of Appeals and Mercantile Insurance Company, Inc . (G.R. No. 97412, July 12, 1994), viz: "II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum . No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date of the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained) . The actual base for the computation of legal interest shall, in any case, be on the amount of finally adjudged: 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2 , above, shall be 12% per annum from such finality until its satisfaction , this interim period being deemed to be by then an equivalent to a forbearance of credit. Applying the above decision of the Honorable Supreme Court to the Case of Dir. Umali, this Office opines and so holds that the legal interest of 6% should be imposed from date of judgment by the RTC, i.e., July 15, 1999 until it has become final and executory. The 12% interest per annum shall be imposed from such finality until its satisfaction. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group