The Supreme Court has definitively ruled that Voluntary Arbitrators (VAs) lack the authority to decide on the legality of tax withholdings from employees’ wages. This jurisdiction rests solely with the Commissioner of Internal Revenue (CIR), the administrative body empowered to interpret tax laws. This decision clarifies the boundaries of VAs’ powers, limiting them to resolving labor disputes and preventing them from venturing into tax-related matters. The ruling ensures that tax issues are handled by the appropriate experts, maintaining consistency and accuracy in tax law application.

Navigating the Nuances: When Labor Grievances Collide with Tax Law

The case arose from a dispute between Victoria Manufacturing Corporation (VMC) and its employees’ union (VMCEU) regarding the company’s decision to withhold income tax from the wages of union members. VMC sought an opinion from the Bureau of Internal Revenue (BIR) on the tax implications of their collective bargaining agreement’s (CBA) wage structure. The BIR advised that VMCEU members were not exempt from income tax, leading VMC to withhold taxes. This prompted a grievance meeting and, eventually, a Submission Agreement designating a Voluntary Arbitrator (VA) to resolve the issue, among others. The VA ruled in favor of VMCEU, ordering VMC to reimburse the withheld taxes, a decision VMC challenged before the Court of Appeals (CA).

The central question before the Supreme Court was whether the CA correctly set aside the VA’s decision based on a lack of jurisdiction. Jurisdiction, in legal terms, refers to the power of a court or tribunal to hear and decide a case. In this context, it hinges on whether the VA, under the Labor Code, had the authority to rule on the legality of VMC’s tax withholding practices. The Labor Code grants VAs original and exclusive jurisdiction over unresolved grievances arising from the interpretation or implementation of Collective Bargaining Agreements (CBAs) and company personnel policies. However, the critical point is whether a dispute over tax withholding falls within the ambit of a “labor dispute.”

The Supreme Court, referencing its earlier decision in Honda Cars Philippines, Inc. v. Honda Cars Technical Specialist and Supervisors Union, firmly stated that VAs do not have the competence to rule on the taxability of benefits or the propriety of tax withholdings. The Court emphasized that such issues are tax matters, not labor disputes, and should be addressed by the CIR. The rationale is rooted in the principle that the jurisdiction of an administrative body is confined to its area of specialized competence. Since tax laws govern income tax withholding, the CIR, with its expertise in tax matters, is the appropriate authority to resolve such disputes. The court stated:

The [VA] 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. To be exact, 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 [Tax Code]. They do not require the application of the Labor Code or the interpretation of the [Memorandum of Agreement] and/or company personnel policies. Furthermore, the company and the union cannot agree or compromise on the taxability of the gas allowance. Taxation is the State’s inherent power; its imposition cannot be subject to the will of the parties.

The decision reinforces the principle that parties cannot confer jurisdiction upon a tribunal through agreement or conduct if that jurisdiction is not granted by law. The VMCEU argued that VMC’s participation in the arbitration proceedings and its agreement to abide by the VA’s decision estopped it from challenging the VA’s jurisdiction. However, the Court rejected this argument, reiterating that jurisdiction over the subject matter is conferred by law and cannot be created by the actions or omissions of the parties. This principle is crucial because it prevents parties from manipulating the system by submitting to a tribunal’s authority and then challenging it if the outcome is unfavorable. VMC’s participation did not validate the VA’s actions.

The Supreme Court acknowledged the doctrine of estoppel by laches, established in Tijam, et al. v. Sibonghanoy, which may bar jurisdictional challenges if raised too late. Estoppel by laches occurs when a party’s unreasonable delay in asserting a right prejudices the opposing party. However, the Court emphasized that this is a narrow exception to the general rule that lack of jurisdiction can be raised at any time. In this case, VMC raised the jurisdictional issue before the CA promptly after the VA rendered its decision, negating any claim of unreasonable delay.

In essence, the Court affirmed that a voluntary arbitrator, even with the consent of both parties, cannot overstep the boundaries of its jurisdiction as defined by law. This boundary is defined when:

Art. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies x x x.

The ruling underscores the importance of adhering to the legal framework that governs the jurisdiction of quasi-judicial bodies, ensuring that disputes are resolved by the appropriate authorities with the requisite expertise. This avoids the risk of inconsistent or incorrect decisions that could undermine the integrity of the legal system. The Court, in this instance, was keen on maintaining a clear delineation of responsibilities between labor and tax authorities.

FAQs

What was the key issue in this case?	The central issue was whether a Voluntary Arbitrator (VA) has the jurisdiction to rule on the legality of tax withholdings from employees’ wages, or if that authority rests solely with tax authorities.
What did the Supreme Court decide?	The Supreme Court ruled that Voluntary Arbitrators lack the jurisdiction to decide on the legality of tax withholdings. That power lies with the Commissioner of Internal Revenue (CIR).
Why did the Court rule that way?	The Court reasoned that tax matters fall outside the scope of labor disputes, which is the area of expertise for Voluntary Arbitrators. Tax matters are governed by the Tax Code, which the CIR is tasked to interpret.
What is estoppel by laches, and how does it relate to this case?	Estoppel by laches is a legal doctrine that prevents a party from asserting a right due to an unreasonable delay that prejudices the other party. The Court ruled that estoppel by laches did not apply because VMC raised the jurisdictional issue in a timely manner.
Can parties agree to give a court or tribunal jurisdiction it doesn’t legally have?	No, jurisdiction is conferred by law, not by the agreement of the parties. Parties cannot expand a court’s or tribunal’s jurisdiction beyond what the law allows.
What is a Submission Agreement, and what role did it play in this case?	A Submission Agreement is a contract where parties agree to submit their dispute to arbitration. While VMC and VMCEU had a Submission Agreement, the Court found that it could not confer jurisdiction on the VA over tax matters.
What should employers and unions do if they disagree about tax withholdings?	They should seek a tax ruling from the Bureau of Internal Revenue (BIR). If they disagree with the withholding, the employee or union should file an administrative claim for refund with the CIR.
What was the significance of the Honda Cars case in this decision?	The Supreme Court relied on its prior ruling in Honda Cars Philippines to support its decision. The Honda Cars case similarly held that Voluntary Arbitrators lack competence to rule on tax-related issues.

This decision provides clear guidance on the jurisdictional limits of Voluntary Arbitrators and the appropriate forum for resolving tax-related disputes in a labor context. It reinforces the principle that expertise matters, and disputes should be handled by the authorities best equipped to address them. For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Victoria Manufacturing Corporation Employees Union vs. Victoria Manufacturing Corporation, G.R. No. 234446, July 24, 2019