EN BANC
G.R. No. 198756, August 16, 2016
BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING CORPORATION, METROPOLITAN BANK & TRUST COMPANY, PHILIPPINE BANK OF COMMUNICATIONS, PHILIPPINE NATIONAL BANK, PHILIPPINE VETERANS BANK, AND PLANTERS DEVELOPMENT BANK, Petitioners,
RIZAL COMMERCIAL BANKING CORPORATION AND RCBC CAPITAL CORPORATION, Petitioners-Intervenors,
CAUCUS OF DEVELOPMENT NGO NETWORKS, Petitioner-Intervenor, v. REPUBLIC OF THE PHILIPPINES, COMMISSIONER OF INTERNAL REVENUE, BUREAU OF INTERNAL REVENUE, SECRETARY OF FINANCE, DEPARTMENT OF FINANCE, THE NATIONAL TREASURER, AND BUREAU OF TREASURY, Respondents.
R E S O L U T I O N
LEONEN, J.:
This resolves separate motions for reconsideration and clarification filed by the Office of the Solicitor General1 and petitioners-intervenors Rizal Commercial Banking Corporation and RCBC Capital Corporation2 of our Decision dated January 13, 2015, which: (1) granted the Petition and Petitions-in-Intervention and nullified Bureau of Internal Revenue (BIR) Ruling Nos. 370-2011 and DA 378-2011; and (2) reprimanded the Bureau of Treasury for its continued retention of the amount corresponding to the 20% final withholding tax that it withheld on October 18, 2011, and ordered it to release the withheld amount to the bondholders.
In the notice to all Government Securities Eligible Dealers (GSEDs) entitled Public Offering of Treasury Bonds3 (Public Offering) dated October 9, 2001, the Bureau of Treasury announced that "P30.0 [billion] worth of 10-year Zero[-]Coupon Bonds [would] be auctioned on October 16, 2001[.]"4 It stated that "the issue being limited to 19 lenders and while taxable shall not be subject to the 20% final withholding [tax]."5chanrobleslaw
On October 12, 2001, the Bureau of Treasury released a memo on the Formula for the Zero-Coupon Bond.6 The memo stated in part that the formula, in determining the purchase price and settlement amount, "is only applicable to the zeroes that are not subject to the 20% final withholding due to the 19 buyer/lender limit."7chanrobleslaw
On October 15, 2001, one (1) day before the auction date, the Bureau of Treasury issued the Auction Guidelines for the 10-year Zero-Coupon Treasury Bond to be Issued on October 16, 2001 (Auction Guidelines).8 The Auction Guidelines reiterated that the Bonds to be auctioned are "[n]ot subject to 20% withholding tax as the issue will be limited to a maximum of 19 lenders in the primary market (pursuant to BIR Revenue Regulation No. 020 2001)."9chanrobleslaw
At the auction held on October 16, 2001, Rizal Commercial Banking Corporation (RCBC) participated on behalf of Caucus of Development NGO Networks (CODE-NGO) and won the bid.10 Accordingly, on October 18, 2001, the Bureau of Treasury issued P35 billion worth of Bonds at yield-to-maturity of 12.75% to RCBC for approximately P10.17 billion,11 resulting in a discount of approximately P24.83 billion.
Likewise, on October 16, 2001, RCBC Capital entered into an underwriting agreement12 with CODE-NGO, where RCBC Capital was appointed as the Issue Manager and Lead Underwriter for the offering of the PEACe Bonds.13 RCBC Capital agreed to underwrite14 on a firm basis the offering, distribution, and sale of the P35 billion Bonds at the price of P11,995,513,716.51.15 In Section 7(r) of the underwriting agreement, CODE-NGO represented that "[a]ll income derived from the Bonds, inclusive of premium on redemption and gains on the trading of the same, are exempt from all forms of taxation as confirmed by [the] Bureau of Internal Revenue . . . letter rulings dated 31 May 2001 and 16 August 2001, respectively."16chanrobleslaw
RCBC Capital sold and distributed the Government Bonds for an issue price of P11,995,513,716.51.17 Banco de Oro, et al. purchased the PEACe Bonds on different dates.18chanrobleslaw
On October 7, 2011, barely 11 days before maturity of the PEACe Bonds, the Commissioner of Internal Revenue issued BIR Ruling No. 370-201119 declaring that the PEACe Bonds, being deposit substitutes, were subject to 20% final withholding tax.20 Under this ruling, the Secretary of Finance directed the Bureau of Treasury to withhold a 20% final tax from the face value of the PEACe Bonds upon their payment at maturity on October 18, 2011.21chanrobleslaw
On October 17, 2011, replying to an urgent query from the Bureau of Treasury, the Bureau of Internal Revenue issued BIR Ruling No. DA 378-201122 clarifying that the final withholding tax due on the discount or interest earned on the PEACe Bonds should "be imposed and withheld not only on RCBC/CODE NGO but also [on] 'all subsequent holders of the Bonds.'"23chanrobleslaw
On October 17, 2011, petitioners filed before this Court a Petition for Certiorari, Prohibition, and/or Mandamus (with urgent application for a temporary restraining order and/or writ of preliminary injunction).24chanrobleslaw
On October 18, 2011, this Court issued a temporary restraining order25cralawred "enjoining the implementation of BIR Ruling No. 370-2011 against the [PEACe Bonds,] . . . subject to the condition that the 20% final withholding tax on interest income therefrom shall be withheld by the petitioner banks and placed in escrow pending resolution of [the] petition."26chanrobleslaw
RCBC and RCBC Capital, as well as CODE-NGO separately moved for leave of court to intervene and to admit the Petition-in-Intervention. The Motions were granted by this Court.27chanrobleslaw
Meanwhile, on November 9, 2011, petitioners filed their Manifestation with Urgent Ex Parte Motion to Direct Respondents to Comply with the TRO.28chanrobleslaw
On November 15, 2011, this Court directed respondents to: "(1) show cause why they failed to comply with the October 18, 2011 resolution; and (2) comply with the Court's resolution in order that petitioners may place the corresponding funds in escrow pending resolution of the petition."29chanrobleslaw
On December 6, 2011, this Court noted respondents' compliance.30chanrobleslaw
On November 27, 2012, petitioners filed their Manifestation with Urgent Reiterative Motion [To Direct Respondents to Comply with the Temporary Restraining Order].31chanrobleslaw
On December 4, 2012, this Court noted petitioners' Manifestation with Urgent Reiterative Motion and required respondents to comment.32chanrobleslaw
Respondents filed their Comment,33 to which petitioners filed the Reply.34chanrobleslaw
On January 13, 2015, this Court promulgated the Decision35 granting the Petition and the Petitions-in-Intervention. Applying Section 22(Y) of the National Internal Revenue Code, we held that the number of lenders/investors at every transaction is determinative of whether a debt instrument is a deposit substitute subject to 20% final withholding tax. When at any transaction, funds are simultaneously obtained from 20 or more lenders/investors, there is deemed to be a public borrowing and the bonds at that point in time are deemed deposit substitutes. Consequently, the seller is required to withhold the 20% final withholding tax on the imputed interest income from the bonds. We further declared void BIR Rulings Nos. 370-2011 and DA 378-2011 for having disregarded the 20-lender rule provided in Section 22(Y). The Decision disposed as follows:ChanRoblesVirtualawlibrary
WHEREFORE, the petition for review and petitions-in-intervention are GRANTED. BIR Ruling Nos. 370-2011 and DA 378-2011 are NULLIFIED.On March 13, 2015, respondents filed by registered mail their Motion for Reconsideration and Clarification.37chanrobleslaw
Furthermore, respondent Bureau of Treasury is REPRIMANDED for its continued retention of the amount corresponding to the 20% final withholding tax despite this court's directive in the temporary restraining order and in the resolution dated November 15, 2011 to deliver the amounts to the banks to be placed in escrow pending resolution of this case.
Respondent Bureau of Treasury is hereby ORDERED to immediately release and pay to the bondholders the amount corresponding to the 20% final withholding tax that it withheld on October 18, 2011.36chanroblesvirtuallawlibrary
(a) | Will the imposition of the 20% final withholding tax violate the non-impairment clause of the Constitution? |
(b) | Will it constitute a deprivation of property without due process of law? |
[T]he jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals. The questioned BIR Ruling Nos. 370-2011 and DA 378-2011 were issued in connection with the implementation of the 1997 National Internal Revenue Code on the taxability of the interest income from zero-coupon bonds issued by the government.In Commissioner of Internal Revenue v. Leal,43 the Commissioner issued Revenue Memorandum Order (RMO) No. 15-91 imposing 5% lending investors tax on pawnshops, and Revenue Memorandum Circular (RMC) No. 43-91 subjecting the pawn ticket to documentary stamp tax.44 Leal, a pawnshop owner and operator, asked for reconsideration of the revenue orders, but it was denied by the Commissioner in BIR Ruling No. 221-91.45 Thus, Leal filed before the Regional Trial Court a petition for prohibition seeking to prohibit the Commissioner from implementing the revenue orders.46 This Court held that Leal should have filed her petition for prohibition before the Court of Tax Appeals, not the Regional Trial Court, because "the questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of pawnshops."47 This Court held that such rulings in connection with the implementation of internal revenue laws are appealable to the Court of Tax Appeals under Republic Act No. 1125, as amended.48chanrobleslaw
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals), as amended by Republic Act No. 9282, such rulings of the Commissioner of Internal Revenue are appealable to that court, thus:
chanRoblesvirtualLawlibrarySEC. 7. Jurisdiction. - The CTA shall exercise:ChanRoblesVirtualawlibrarya. Exclusive appellate jurisdiction to review by appeal, as herein provided:In Commissioner of Internal Revenue v. Leal, citing Rodriguez v. Blaquera, this court emphasized the jurisdiction of the Court of Tax Appeals over rulings of the Bureau of Internal Revenue, thus:ChanRoblesVirtualawlibrary. . . .
- Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein.
. . . .
SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No civil proceeding involving matters arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the provisions of this Act.While the Court of Appeals correctly took cognizance of the petition for certiorari, however, let it be stressed that the jurisdiction to review the rulings of the Commissioner of Internal Revenue pertains to the Court of Tax Appeals, not to the RTC.. . .
The questioned RMO No. 15-91 and RMC No. 43-91 are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of pawnshops.
. . . .
Such revenue orders were issued pursuant to petitioner's powers under Section 245 of the Tax Code, which states:ChanRoblesVirtualawlibrary"SEC. 245. Authority of the Secretary of Finance to promulgate rules and regulations. — The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code.The Court, in Rodriguez, etc. vs. Blaquera, etc., ruled:ChanRoblesVirtualawlibrary
The authority of the Secretary of Finance to determine articles similar or analogous to those subject to a rate of sales tax under certain category enumerated in Section 163 and 165 of this Code shall be without prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including ruling on the classification of articles of sales and similar purposes."
. . . ."Plaintiff maintains that this is not an appeal from a ruling of the Collector of Internal Revenue, but merely an attempt to nullify General Circular No. V-148, which does not adjudicate or settle any controversy, and that, accordingly, this case is not within the jurisdiction of the Court of Tax Appeals.
We find no merit in this pretense. General Circular No. V-148 directs the officers charged with the collection of taxes and license fees to adhere strictly to the interpretation given by the defendant to the statutory provisions abovementioned, as set forth in the Circular. The same incorporates, therefore, a decision of the Collector of Internal Revenue (now Commissioner of Internal Revenue) on the manner of enforcement of the said statute, the administration of which is entrusted by law to the Bureau of Internal Revenue. As such, it comes within the purview of Republic Act No. 1125, Section 7 of which provides that the Court of Tax Appeals 'shall exercise exclusive appellate jurisdiction to review by appeal . . . decisions of the Collector of Internal Revenue in . . . matters arising under the National Internal Revenue Code or other law or part of the law administered by the Bureau of Internal Revenue.'"42chanroblesvirtuallawlibrary
The jurisdiction of the Court of Tax Appeals is defined in Republic Act No. 1125, as amended by Republic Act No. 9282. Section 7 thereof states, in pertinent part:British American Tobacco involved the validity of: (1) Section 145 of Republic Act No. 8424; (2) Republic Act No. 9334, which further amended Section 145 of the National Internal Revenue Code on January 1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) RMO No. 6-2003.53chanrobleslaw
chanRoblesvirtualLawlibrary. . . .
While the above statute confers on the CTA jurisdiction to resolve tax disputes in general, this does not include cases where the constitutionality of a law or rule is challenged. Where what is assailed is the validity or constitutionality of a law, or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function, the regular courts have jurisdiction to pass upon the same. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.
In Drilon v. Lim, it was held:ChanRoblesVirtualawlibraryWe stress at the outset that the lower court had jurisdiction to consider the constitutionality of Section 187, this authority being embraced in the general definition of the judicial power to determine what are the valid and binding laws by the criterion of their conformity to the fundamental law. Specifically, B.P. 129 vests in the regional trial courts jurisdiction over all civil cases in which the subject of the litigation is incapable of pecuniary estimation, even as the accused in a criminal action has the right to question in his defense the constitutionality of a law he is charged with violating and of the proceedings taken against him, particularly as they contravene the Bill of Rights. Moreover, Article X, Section 5(2), of the Constitution vests in the Supreme Court appellate jurisdiction over final judgments and orders of lower courts in all cases in which the constitutionality or validity of any treaty, international or executive agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in question.The petition for injunction filed by petitioner before the RTC is a direct attack on the constitutionality of Section 145(C) of the NIRC, as amended, and the validity of its implementing rules and regulations. In fact, the RTC limited the resolution of the subject case to the issue of the constitutionality of the assailed provisions. The determination of whether the assailed law and its implementing rules and regulations contravene the Constitution is within the jurisdiction of regular courts. The Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. Petitioner, therefore, properly filed the subject case before the RTC.52 (Citations omitted)
Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty, international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial courts. This is within the scope of judicial power, which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments.57chanroblesvirtuallawlibraryWe revert to the earlier rulings in Rodriguez, Leal, and Asia International Auctioneers, Inc. The Court of Tax Appeals has exclusive jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other administrative issuances of the Commissioner of Internal Revenue.
Based on this constitutional provision, this Court recognized, for the first time, in The City of Manila v. Hon. Grecia-Cuerdo,58 the Court of Tax Appeals' jurisdiction over petitions for certiorari assailing interlocutory orders issued by the Regional Trial Court in a local tax case. Thus:ChanRoblesVirtualawlibraryARTICLE VIII
JUDICIAL DEPARTMENT
Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied)
[W]hile there is no express grant of such power, with respect to the CTA, Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law and that judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.This Court further explained that the Court of Tax Appeals' authority to issue writs of certiorari is inherent in the exercise of its appellate jurisdiction:ChanRoblesVirtualawlibrary
On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA includes that of determining whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.59 (Emphasis in the original)
A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it effectively, to make all orders that will preserve the subject of the action, and to give effect to the final determination of the appeal. It carries with it the power to protect that jurisdiction and to make the decisions of the court thereunder effective. The court, in aid of its appellate jurisdiction, has authority to control all auxiliary and incidental matters necessary to the efficient and proper exercise of that jurisdiction. For this purpose, it may, when necessary, prohibit or restrain the performance of any act which might interfere with the proper exercise of its rightful jurisdiction in cases pending before it.Judicial power likewise authorizes lower courts to determine the constitutionality or validity of a law or regulation in the first instance.61 This is contemplated in the Constitution when it speaks of appellate review of final judgments of inferior courts in cases where such constitutionality is in issue.62chanrobleslaw
Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction should have powers which are necessary to enable it to act effectively within such jurisdiction. These should be regarded as powers which are inherent in its jurisdiction and the court must possess them in order to enforce its rules of practice and to suppress any abuses of its process and to defeat any attempted thwarting of such process.
In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall possess all the inherent powers of a court of justice.
Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction, in addition to those expressly conferred on them. These inherent powers are such powers as are necessary for the ordinary and efficient exercise of jurisdiction; or are essential to the existence, dignity and functions of the courts, as well as to the due administration of justice; or are directly appropriate, convenient and suitable to the execution of their granted powers; and include the power to maintain the court's jurisdiction and render it effective in behalf of the litigants.
Thus, this Court has held that "while a court may be expressly granted the incidental powers necessary to effectuate its jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual incidental powers essential to effectuate it, and, subject to existing laws and constitutional provisions, every regularly constituted court has power to do all things that are reasonably necessary for the administration of justice within the scope of its jurisdiction and for the enforcement of its judgments and mandates." Hence, demands, matters or questions ancillary or incidental to, or growing out of, the main action, and coming within the above principles, may be taken cognizance of by the court and determined, since such jurisdiction is in aid of its authority over the principal matter, even though the court may thus be called on to consider and decide matters which, as original causes of action, would not be within its cognizance.60 (Citations omitted)
Republic Act No. 1125 transferred to the Court of Tax Appeals jurisdiction over all matters involving assessments that were previously cognizable by the Regional Trial Courts (then courts of first instance).64chanrobleslaw
(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue; (2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges; seizure, detention or release of property affected fines, forfeitures or other penalties imposed in relation thereto; or other matters arising under the Customs Law or other law or part of law administered by the Bureau of Customs; and (3) Decisions of provincial or city Boards of Assessment Appeals in cases involving the assessment and taxation of real property or other matters arising under the Assessment Law, including rules and regulations relative thereto.
Section 7. Jurisdiction - The CTA shall exercise:ChanRoblesVirtualawlibraryThe Court of Tax Appeals has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law or regulation when raised by the taxpayer as a defense in disputing or contesting an assessment or claiming a refund. It is only in the lawful exercise of its power to pass upon all maters brought before it, as sanctioned by Section 7 of Republic Act No. 1125, as amended.
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided: 1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; 2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; 3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; 4) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau of Customs; 5) Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals; 6) Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code; 7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties.
SEC. 95. Definition of Deposit Substitutes. The term "deposit substitutes" is defined as an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations. These instruments may include, but need not be limited to, bankers' acceptances, promissory notes, participations, certificates of assignment and similar instruments with recourse, and repurchase agreements. The Monetary Board shall determine what specific instruments shall be considered as deposit substitutes for the purposes of Section 94 of this Act: Provided, however, That deposit substitutes of commercial, industrial and other nonfinancial companies issued for the limited purpose of financing their own needs or the needs of their agents or dealers shall not be covered by the provisions of Section 94 of this Act. (Emphasis supplied)Banks are entities engaged in the lending of funds obtained from the public in the form of deposits.80 Deposits of money in banks and similar institutions are considered simple loans.81 Hence, the relationship between a depositor and a bank is that of creditor and debtor. The ownership of the amount deposited is transmitted to the bank upon the perfection of the contract and it can make use of the amount deposited for its own transactions and other banking operations. Although the bank has the obligation to return the amount deposited, it has no obligation to return or deliver the same money that was deposited.82chanrobleslaw
Section 22. Definitions - When used in this Title:For internal revenue tax purposes, therefore, even debt instruments issued and sold to 20 or more lenders/investors by commercial or industrial companies to finance their own needs are considered deposit substitutes, taxable as such.
chanRoblesvirtualLawlibrary. . . .
(X) The term 'quasi-banking activities' means borrowing funds from twenty (20) or more personal or corporate lenders at any one time, through the issuance, endorsement, or acceptance of debt instruments of any kind other than deposits for the borrower's own account, or through the issuance of certificates of assignment or similar instruments, with recourse, or of repurchase agreements for purposes of relending or purchasing receivables and other similar obligations: Provided, however, That commercial industrial and other non-financial companies, which borrow funds through any of these means for the limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as performing quasi-banking functions.
(Y) The term 'deposit substitutes' shall mean an alternative form of obtaining funds from the public (the term 'public' means borrowing from twenty (20) or more individual or corporate lenders at any one time), other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of re-lending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. (Emphasis supplied)
[I]nterest on bank deposit is one of the items includible in gross income. . . . [M]any bank depositors fail to declare interest income in their income tax returns. . . . [I]n order to maximize the collection of the income tax on interest on bank deposits, it is necessary to apply the withholdings system on this type of fixed or determinable income.In the same year, Presidential Decree No. 115487 was also promulgated. It imposed a 35% transaction tax (final tax) on interest income from every commercial paper issued in the primary market, regardless of whether they are issued to the public or not.88 Commercial paper was defined as "an instrument evidencing indebtedness of any person of entity, including banks and non-banks performing quasi-banking functions, which is issued, endorsed, sold, transferred or in any manner conveyed to another person or entity, either with or without recourse and irrespective of maturity." The imposition of a final tax on commercial papers was "aimed primarily to improve the administrative provisions of the National Internal Revenue Code to ensure the collection on the tax on interest on commercial papers used as principal instruments issued in the primary market."89 It was reported that "the [Bureau of Internal Revenue had] no means of enforcing strictly the taxation on interest income earned in the money market transactions."90chanrobleslaw
Sec. 32. Gross Income. -Thus, trading gains, or gains realized from the sale or transfer of bonds (i.e., those with a maturity of more than five years) in the secondary market, are exempt from income tax. These "gains" refer to the difference between the selling price of the bonds in the secondary market and the price at which the bonds were purchased by the seller. For discounted instruments such as the zero-coupon bonds, the trading gain is the excess of the selling price over the book value or accreted value (original issue price plus accumulated discount from the time of purchase up to the time of sale) of the instruments.106chanrobleslaw
. . . .
(B) Exclusions from Gross Income. - The following items shall not be included in gross income and shall be exempt from taxation under this title:
chanRoblesvirtualLawlibrary. . . .
(7) Miscellaneous Items. -
. . . .
(g) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. - Gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with a maturity of more than five (5) years.
A primary dealer who fails to comply with its obligations will be dropped from the roster of primary dealers and classified as an ordinary dealer.
- Must submit at least one competitive bid in each scheduled auction.
- Must have total awards of at least 2% of the total amount of bills or bonds awarded within a particular quarter. This requirement does not cover special issues.
- Must be active in the trading of GS [government securities] in the secondary market.113
Section 57. Withholding of Tax at Source. —Likewise, Section 2.57 of Revenue Regulations No. 2-98 (implementing the National Internal Revenue Code relative to the Withholding on Income subject to the Expanded Withholding Tax and Final Withholding Tax) states that the liability for payment of the tax rests primarily on the payor as a withholding agent. Section 2.57 reads:ChanRoblesVirtualawlibrary
(A) Withholding of Final Tax on Certain Incomes. — Subject to rules and regulations, the Secretary of Finance may promulgate, upon the recommendation of the Commissioner, requiring the filing of income tax return by certain income payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E); 27(D)(1), 27(D)(2), 27(D)(3), 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(2), 28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c), 33 and 282 of the Code on specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 58 of this Code.
Sec. 2.57. WITHHOLDING OF TAX AT SOURCE. —From these provisions, it is the payor-borrower who primarily has the duty to withhold and remit the 20% final tax on interest income or yield from deposit substitutes.
(A) Final Withholding Tax — Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee of said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the payor/withholding agent[.] (Emphasis supplied)
SEC. 59. Tax on Profits Collectible from Owner or Other Persons. - The tax imposed under this Title upon gains, profits, and income not falling under the foregoing and not returned and paid by virtue of the foregoing or as otherwise provided by law shall be assessed by personal return under rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner. The intent and purpose of the Title is that all gains, profits and income of a taxable class, as defined in this Title, shall be charged and assessed with the corresponding tax prescribed by this Title, and said tax shall be paid by the owners of such gains, profits and income, or the proper person having the receipt, custody, control or disposal of the same. For purposes of this Title, ownership of such gains, profits and income or liability to pay the tax shall be determined as of the year for which a return is required to be rendered. (Emphasis supplied)The intent and purpose of the National Internal Revenue Code provisions on withholding taxes is also explicitly stated, i.e., that all gains, profits, and income "are charged and assessed with the corresponding tax"134 and said tax paid by "the owners of such gains, profits and income, or the proper person having the receipt, custody, control or disposal of the same."135chanrobleslaw
The rationale behind General Circular No. V-334 was clearly stated therein, however: "It ha[d] been determined that the tax is still imposed on income derived from capital, or labor, or both combined, in accordance with the basic principle of income taxation . . . and that a mere return of capital or investment is not income. . . ." "A part of the receipts of a non-resident foreign film distributor derived from said film represents, therefore, a return of investment." The circular thus fixed the return of capital at 50% to simplify the administrative chore of determining the portion of the rentals covering the return of capital.San Roque has held that the 120-day and the 30-day periods under Section 112 of the National Internal Revenue Code are mandatory and jurisdictional. Nevertheless, San Roque provided an exception to the rule, such that judicial claims filed by taxpayers who relied on BIR Ruling No. DA-489-03—from its issuance on December 10, 2003 until its reversal by this Court in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.164 on October 6, 2010—are shielded from the vice of prematurity. The BIR Ruling declared that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the C[ourt] [of] T[ax] A[ppeals] by way of Petition for Review." The Court reasoned that:ChanRoblesVirtualawlibrary
Were the "gross income" base clear from Sec. 24(b), perhaps, the ratiocination of the Tax Court could be upheld. It should be noted, however, that said Section was not too plain and simple to understand. The fact that the issuance of the General Circular in question was rendered necessary leads to no other conclusion than that it was not easy of comprehension and could be subjected to different interpretations.
In fact, Republic Act No. 2343, dated June 20, 1959, supra, which was the basis of General Circular No. V-334, was just one in a series of enactments regarding Sec. 24(b) of the Tax Code. Republic Act No. 3825 came next on June 22, 1963 without changing the basis but merely adding a proviso (in bold letters).(b) Tax on foreign corporation. — (1) Non-resident corporations. — There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical gains, profits and income, a tax equal to thirty per centum of such amount: PROVIDED, HOWEVER, THAT PREMIUMS SHALL NOT INCLUDE REINSURANCE PREMIUMS. (double emphasis ours)Republic Act No. 3841, dated likewise on June 22, 1963, followed after, omitting the proviso and inserting some words (also in bold letters)."(b) Tax on foreign corporations. — (1) Nonresident corporations. — There shall be levied, collected and paid for each taxable year, in lieu of the tax imposed by the preceding paragraph, upon the amount received by every foreign corporation not engaged in trade or business within the Philippines, from all sources within the Philippines, as interest, dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable annual or periodical OR CASUAL gains, profits and income, AND CAPITAL GAINS, a tax equal to thirty per centum of such amount."The principle of legislative approval of administrative interpretation by re-enactment clearly obtains in this case. It provides that "the re-enactment of a statute substantially unchanged is persuasive indication of the adoption by Congress of a prior executive construction." Note should be taken of the fact that this case involves not a mere opinion of the Commissioner or ruling rendered on a mere query, but a Circular formally issued to "all internal revenue officials" by the then Commissioner of Internal Revenue.
It was only on June 27, 1968 under Republic Act No. 5431, supra, which became the basis of Revenue Memorandum Circular No. 4-71, that Sec. 24(b) was amended to refer specifically to 35% of the "gross income."163 (Emphasis supplied)
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. . . .The previous interpretations given to an ambiguous law by the Commissioner of Internal Revenue, who is charged to carry out its provisions, are entitled to great weight, and taxpayers who relied on the same should not be prejudiced in their rights.166 Hence, this Court's construction should be prospective; otherwise, there will be a violation of due process for failure to accord persons, especially the parties affected by it, fair notice of the special burdens imposed on them.
. . . .
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional.165 (Emphasis supplied)
The temporary restraining order enjoins the entire implementation of the 2011 BIR Ruling that constitutes both the withholding and remittance of the 20% final withholding tax to the Bureau of Internal Revenue. Even though the Bureau of Treasury had already withheld the 20% final withholding tax when they received the temporary restraining order, it had yet to remit the monies it withheld to the Bureau of Internal Revenue, a remittance which was due only on November 10, 2011. The act enjoined by the temporary restraining order had not yet been fully satisfied and was still continuing.Respondent Bureau of Treasury's Journal Entry Voucher No. 11-10-10395 dated October 18, 2011 submitted to this court shows:ChanRoblesVirtualawlibrary
Under DOF-DBM Joint Circular No. 1-2000A dated July 31, 2001 which prescribes to national government agencies such as the Bureau of Treasury the procedure for the remittance of all taxes they withheld to the Bureau of Internal Revenue, a national agency shall file before the Bureau of Internal Revenue a Tax Remittance Advice (TRA) supported by withholding tax returns on or before the 10th day of the following month after the said taxes had been withheld. The Bureau of Internal Revenue shall transmit an original copy of the TRA to the Bureau of Treasury, which shall be the basis in recording the remittance of the tax collection. The Bureau of Internal Revenue will then record the amount of taxes reflected in the TRA as tax collection in the Journal of Tax Remittance by government agencies based on its copies of the TRA. Respondents did not submit any withholding tax return or TRA to prove that the 20% final withholding tax was indeed remitted by the Bureau of Treasury to the Bureau of Internal Revenue on October 18, 2011.
Respondents did not submit any withholding tax return or tax remittance advice to prove that the 20% final withholding tax was, indeed, remitted by the Bureau of Treasury to the Bureau of Internal Revenue on October 18, 2011, and consequently became part of the general fund of the government. The corresponding journal entry in the books of both the Bureau of Treasury and Bureau of Internal Revenue showing the transfer of the withheld funds to the Bureau of Internal Revenue was likewise not submitted to this Court. The burden of proof lies on them to show their claim of remittance. Until now, respondents have failed to submit sufficient supporting evidence to prove their claim.
Account Code Debit Amount Credit AmountBonds Payable-L/T, Dom-Zero 442-360 35,000,000,000.00Coupon T/Bonds (Peace Bonds) - 10 yr Sinking Fund-Cash (BSF) 198-001 30,033,792,203.59Due to BIR 412-002 4,966,207,796.41 To record redemption of 10 yr Zero coupon (Peace Bond) net of the 20% final withholding tax pursuant to BIR Ruling No. 378-2011, value date, October 18, 2011 per BTr letter authority and BSP Bank Statements.
The foregoing journal entry, however, does not prove that the amount of P4,966,207,796.41, representing the 20% final withholding tax on the PEACe Bonds, was disbursed by it and remitted to the Bureau of Internal Revenue on October 18, 2011. The entries merely show that the monies corresponding to 20% final withholding tax was set aside for remittance to the Bureau of Internal Revenue.171
The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax on Income]." It thus becomes important to note that under Section 53 (c) of the NIRC, the withholding agent who is "required to deduct and withhold any tax" is made "personally liable for such tax" and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law.In Commissioner of Internal Revenue v. Smart Communication, Inc.:175
A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The terms "liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him.
In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, this Court pointed out that a withholding agent is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary government agent:ChanRoblesVirtualawlibraryThe law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent of both the Government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the Government's agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas the Commissioner and his deputies are not made liable by law.If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim. This implied authority is especially warranted where, as in the instant case, the withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under the effective control of such parent-stockholder. In the circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to claim a refund and to commence an action for such refund.
. . . .
We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a "taxpayer" within the meaning of Section 309, NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such claim.174 (Emphasis supplied, citations omitted)
[W]hile the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what he has recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund.176chanroblesvirtuallawlibrarySince respondents have not sufficiently shown the actual remittance of the 20% final withholding taxes withheld from the proceeds of the PEACe bonds to the Bureau of Internal Revenue, there was no legal impediment for the Bureau of Treasury (as agent of petitioners) to release the monies to petitioners to be placed in escrow, pending resolution of the motions for reconsideration filed in this case by respondents and petitioners-inervenors RCBC and RCBC Capital.
[T]he rule is that no interest on refund of tax can be awarded unless authorized by law or the collection of the tax was attended by arbitrariness. An action is not arbitrary when exercised honestly and upon due consideration where there is room for two opinions, however much it may be believed that an erroneous conclusion was reached. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions.180 (Emphasis supplied, citations omitted)Here, the Bureau of Treasury made no effort to release the amount of P4,966,207,796.41, corresponding to the 20% final withholding tax, when it could have done so.
Endnotes:
1Rollo, pp. 2193-2239.
2 Id. at 2253-2309.
3 Id. at 130.
4 Id.
5 Id.
6 Id. at 131. The memo states:
chanRoblesvirtualLawlibraryBelow is the formula in determining the purchase price and settlement amount of the P30B Zero-Coupon Bond to be auctioned on October 16, 2001. Please be advised that this is only applicable to the zeroes that are not subject to the 20% final withholding due to the 19 buyer/lender limit
1. SA = PP*FV
2. PP = 1/[1+i/m]n
n = (MP * m) - E/x
x = 360/m
E = Settlement Date - Original Issue Date
(Y2 - Y1) 360 + (M2 - M1) 30 + (D2 - D1)
Where:
Y2 M2 D2 = Settlement Date/Value Date
Y1 M1 D1 = Original Issue Date
Note:
chanRoblesvirtualLawlibrary a) Based on 30/360 days count, compounded semi[-]annually
b) If D1-31 change it to 30
c) Up to at least 10 decimal places
Where:
chanRoblesvirtualLawlibrarySA = Settlement Amount --- Cash Out PP = PurchasePrice FV = Face Valuei = Yield to Maturityx = days in the present compounding period
m = no. of conversion per year
(1 = annual, 2 = semi-annual, 4 = quarterly)
MP = Maturity Period (or tenor) in years
E = Bond Lapsed Days
7 Id.
8 Id. at 132.
9 Id.
10 Id. at 27.
11 Id. at 27 and 497.
12 Id. at 1060-1074.
13 Id. at 1060.
14 Id. at 1066. Section 5 of the underwriting agreement provides that the "underwriting fee and selling commission [shall be] in such amount as may be agreed upon between CODE NGO and [RCBC Capital] but not to exceed two percent (2%) of the total issue price of the total Bonds sold[.]"
15 Id. at 1062.
16 Id. at 1069.
17 Id. at 28.
18 Id.
19 Id. at 217-230.
20 Id. at 222.
21 Id. at
22 Id. at 634-637.
23 Id. at 637.
24 Id. at 13-83.
25cralawred Id. at 235-237.
26 Id. at 236.
27 Id. at 1164-1166.
28 Id. at 1094-1109.
29 Id. at 1164.
30 Id. at 1346-1347.
31 Id. at 1938-1964.
32 Id. at 1965.
33 Id. at 1995-2010.
34 Id. at 2044-2060.
35 Id. at 2072-2116.
36 Id. at 2115.
37 Id. at 2193-2239.
38 Id. at 2253-2309.
39 Id. at 2566-2603.
40 Id. at 2675-2684.
41 TAX CODE, sec. 4 provides:
chanRoblesvirtualLawlibrarySEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
42Banco de Oro v. Republic, G.R. No. 198756, January 13, 2015, 745 SCRA 361, 400-403 [Per J. Leonen, En Banc], citing Commissioner of Internal Revenue v. Leal, 440 Phil. 477, 485-487 (2002) [Per Sandoval-Gutierrez, Third Division], as, in turn, cited in Asia International Auctioneers, Inc. v. Hon. Parayno, Jr., 565 Phil. 255, 268-269 (2007) [Per C.J. Puno, First Division]; Rodriguez v. Blaquera, 109 Phil. 598 (1960) [Per J. Concepcion, En Banc].
43 440 Phil. 477 (2002) [Per Sandoval-Gutierrez, Third Division].
44 Id. at 480.
45 Id. at 481.
46 Id.
47 Id. at 485.
48 Id.
49 565 Phil. 255 (2007) [Per C.J. Puno, First Division].
50 Id. at 269.
51 584 Phil. 489 (2008) [Per J. Ynares-Santiago, En Banc].
52 Id. at 510-512.
53 Id. at 498.
54 680 Phil. 681 (2012) [Per J. Sereno, Second Division].
55 Id. at 686.
56 Id.
57 Id. at 689, citing Smart Communications v. National Telecommunications Commission, 456 Phil. 145 (2003) [Per J. Ynares-Santiago, First Division].
58 726 Phil. 9 (2014) [Per J. Peralta, En Banc].
59 Id. at 24.
60 Id. at 26-28.
61Ynot v. IAC, 232 Phil. 615, 621 (1987) [Per J. Cruz, En Banc]. See also Garcia v. Drilon, 712 Phil. 44, 78-80 (2013) [Per J. Perlas-Bernabe, En Banc].
62 CONST., art. VIII, sec. 5.
63Ursal v. Court of Tax Appeals, 101 Phil. 209, 211 (1957) [Per J. Bengzon, En Banc].
64See Republic v. Abella, 190 Phil. 630 (1981) [Per C.J. Fernando, Second Division], citing Good Day Trading v. Board of Tax Appeals, 95 Phil. 569, 575 (1954) [Per J. Montemayor, En Banc]; Millarez v. Amparo, 97 Phil. 282, 284 (1955) [J. Bengzon, En Banc]; Ollada v. Court of Tax Appeals, 99 Phil. 604, 608-609 (1956) [Per J. Bautista Angelo, En Banc]; Castro v. David, 100 Phil. 454, 457 (1956) [Per J. Padilla, En Banc]; and Ledesma v. Court of Tax Appeals, 102 Phil. 931, 934 (1955) [Per J. Montemayor, En Banc].
65 Rep. Act No. 1125 (1954), sec. 1, as amended by Rep. Act No. 9282 (2004).
66Metro Construction, Inc. v. Chatham Properties, Inc., 418 Phil. 176, 202-203 (2001) [Per C.J. Davide, Jr., First Division]: "A quasi-judicial agency or body has been defined as an organ of government other than a court and other than a legislature, which affects the rights of private parties through either adjudication or rule-making. The very definition of an administrative agency includes its being vested with quasi-judicial powers. The ever increasing variety of powers and functions given to administrative agencies recognizes the need for the active intervention of administrative agencies in matters calling for technical knowledge and speed in countless controversies which cannot possibly be handled by regular courts."
67 We apply by analogy the ruling In National Water Resources Board v. A. L. Ang Network, Inc., 632 Phil. 22, 28-29 (2010) [Per J. Carpio Morales, First Division], which states that "[s]ince the appellate court has exclusive appellate jurisdiction over quasi-judicial agencies under Rule 43 of the Rules of Court, petitions for writs of certiorari, prohibition or mandamus against the acts and omissions of quasi- judicial agencies, like petitioner, should be filed with it."
68 An Act Reorganizing the Judiciary, Appropriating Funds Therefor, and for Other Purposes (1981).
69 Revenue Memorandum Order No. 9-2014 (2014).
70 TAX CODE, sec. 4 provides: SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
71Rollo, p. 2207.
72 Id. at 2210.
73 BIR Ruling No. 007-04 (2004), signed by Commissioner Guillermo L. Parayno, Jr. essentially held that government debt instruments are deposit substitutes irrespective of the number of lenders at the time of origination.
74Rollo, p. 2209.
75 Id. at 2211.
76Commissioner of Internal Revenue v. Philippine American Accident Insurance Co., Inc., 493 Phil. 785, 793-794 (2005) [Per J. Carpio, First Division]: "Unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be presumed. Where there is doubt, tax laws must be construed strictly against the government and in favor of the taxpayer. This is because taxes are burdens on the taxpayer, and should not be unduly imposed or presumed beyond what the statutes expressly and clearly import."
Commissioner of Internal Revenue v. Court of Appeals, 338 Phil. 322 (1997) [Per J. Panganiban, Third Division]; Marinduque Lion Mines Agents, Inc. vs. Hinabangan Samar, 120 Phil. 413, 418 (1964) [Per J. Reyes, J.B.L., En Banc].
77 TAX CODE, sec. 22(Y).
78 The 20% final tax treatment of interest from bank deposits and yield from deposit substitutes was first introduced in the 1977 Tax Code through Presidential Decree No. 1739 issued in 1980. Later, Presidential Decree No. 1959, effective on October 15, 1984, formally added the definition of deposit substitutes, viz:
(y) 'Deposit substitutes' shall mean an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. These promissory notes, repurchase agreements, certificates of assignment or participation and siniilar instrument with recourse as may be authorized by the Central Bank of the Philippines, for banks and non-bank financial intermediaries or by the Securities and Exchange Commission of the Philippines for commercial, industrial, finance companies and either non-financial companies: Provided, however, that only debt instruments issued for inter-bank call loans to cover deficiency in reserves against deposit liabilities including those between or among banks and quasi-ba shall not be considered as deposit substitute debt instruments.
79Commissioner of Customs v. Court of Tax Appeals, G.R. Nos. 48886-88, July 21, 1993, 224 SCRA 665 [Per J. Melo, Third Division].
80 Rep. Act No. 8791 (2000), secs. 3 and 8.
81 CIVIL CODE, art. 1980; Guingona, Jr. v. City Fiscal of Manila, 213 Phil. 516, 523 (1984) [Per J. Makasiar, Second Division].
82Guingona, Jr. v. City Fiscal of Manila, 213 Phil. 516, 523 (1984) [Per J. Makasiar, Second Division].
83 I THE NEW CENTRAL BANK ACT ANNOTATED, 328 (2010).
84 Pres. Decree No. 71 (1972), sec. 2-D provides:
chanRoblesvirtualLawlibrarySec. 2-D. For purposes of Sections Two, Two-A, Two-B, and Two-C the following definition or terms shall apply:
chanRoblesvirtualLawlibrary
(a) 'Public' shall mean twenty or more lenders; (b) 'Quasi-Banking Functions' shall mean borrowing funds, for the borrower's own account, through the issuance, endorsement or acceptance of debt instruments of any kind other than deposits, or through the issuance of participations, certificates of assignment, or similar instruments with recourse, trust certificates, or of repurchase agreements, from twenty or more lenders at any one time, for purposes of relending or purchasing of receivables and other obligations: Provided, however, That commercial, industrial, and other non-financial companies, which borrow funds through any of these means for the limited purpose of financing their own needs or the needs of their agents or dealers, shall not be considered as performing quasi-banking functions.
85 II THE NEW CENTRAL BANK ACT ANNOTATED 75 (2010).
86 Amending Section 30 and 53 of the National Internal Revenue Code.
87 Further Amending Certain Sections of the National Internal Revenue Code, as amended, so as to impose a final tax on the interests derived from every commercial paper issued in the primary market. Issued on June 3, 1977.
88 1977 TAX CODE, sec. 210 provides:
chanRoblesvirtualLawlibrarySEC. 210. Percentage tax on certain transactions. — (a) Stock transactions. — . . . .
(b) Commercial paper transactions.—There shall be levied, assessed, collected and paid on every commercial paper issued in the primary market as principal instrument, a transaction tax equivalent to thirty-five per cent (35%) based on the gross amount of interest thereto as defined hereunder, which shall be paid by the borrower/issuer: Provided, however, That in the case of a long-term commercial paper whose maturity exceeds one year, the borrower shall pay the tax based on the amount of interest corresponding to one year, and thereafter shall pay the tax upon accrual or actual payment (whichever is earlier) of the untaxed portion of the interest which corresponds to a period not exceeding one year. The transaction tax imposed in this section shall be a final tax to be paid by the borrower and shall be allowed as a deductible item for purposes of computing the borrower's taxable income, For purposes of this tax—
(1) "Commercial paper" shall be defined as an instrument evidencing indebtedness of any person or entity, including banks and non-banks performing quasi-banking functions, which is issued, endorsed, sold, transferred or in any manner conveyed to another person or entity, either with or without recourse and irrespective of maturity. Principally, commercial papers are promissory notes and/or similar instruments issued in the primary market and shall not include repurchase agreements, certificates of assignments, certificates of participations, and such other debt instruments issued in the secondary market.
(2) The term "interest" shall mean the difference between what the principal borrower received and the amount it paid upon maturity of the commercial paper which shall, in no case, be lower than the interest rate prevailing at the time of the issuance or renewal of the commercial paper. Interest shall be deemed synonymous with discount and shall include all fees, commissions, premiums and other payments which form integral parts of the charges imposed as a consequence of the use of money. In all cases, where no interest rate is stated or if the rate stated is lower than the prevailing interest rate at the time of the issuance or renewal of commercial paper, the Commissioner of Internal Revenue, upon consultation with the Monetary Board of the Central Bank of the Philippines, shall adjust the interest rate in accordance herewith, and assess the tax on the basis thereof.
The tax herein imposed shall be remitted by the borrower to the Commissioner of Internal Revenue or his Collection Agent in the municipality where such borrower has its principal place of business within five (5) working days from the issuance of the commercial paper. In the case of long term commercial paper, the tax upon the untaxed portion of the interest which corresponds to a period not exceeding one year shall be paid upon accrual payment, whichever is earlier.
89 Pres. Decree No. 1154 (1977).
90 Pres. Decree No. 1154 (1977).
91 Pres. Decree No. 1158 (1977), A Decree to Consolidate and Codify all the Internal Revenue Laws of the Philippines.
92 Providing Fiscal Incentives by Amending Certain Provisions of the National Internal Revenue Code, and for Other Purposes.
93Western Minolco Corporation v. Commissioner of Internal Revenue, 209 Phil. 90, 101 (1983) [Per J. Gutierrez, Jr., En Banc].
94Commissioner v. Court of Appeals, G.R. No. 95022, March 23, 1992, 207 SCRA 487 [Per J. Melencio-Herrera, En Banc].
95Rollo, pp. 2609-2610.
96 Id. at 2611.
97 Id. at 2610.
98 Id. at 2215-2219.
99 Id. at 2258-2265.
100 Id. at 2582-2583.
101 Pres. Decree No. 129 (1973), The Investment Houses Law, secs. 2 and 7 provide:
chanRoblesvirtualLawlibrarySECTION 2. Scope. — Any enterprise which engages in the underwriting of securities of other corporations shall be considered an "Investment House" and shall be subject to the provisions of this Decree and of other pertinent laws.
SECTION 7. Powers. — In addition to the powers granted to corporations in general, an Investment House is authorized to do the following:
chanRoblesvirtualLawlibrary
(1) Arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities; (2) Participate in a syndicate undertaking to purchase and sell, distribute or arrange to distribute on a guaranteed basis securities of other corporations and of the Government or its instrumentalities; (3) Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a best- efforts basis securities of other corporations and of the Government or its instrumentalities; (4) Participate as soliciting dealer or selling group member in tender offers, block sales, or exchange offering or securities; deal in options, rights or warrants relating to securities and such other powers which a dealer may exercise under the Securities Act (Act No. 83), as amended); (5) Promote, sponsor, o.r otherwise assist and implement ventures, projects and programs that contribute to the economy's development; (6) Act as financial consultant, investment adviser, or broker; (7) Act as portfolio manager, and/or financial agent, but not as trustee of a trust fund or trust property as provided for in Chapter VII of Republic Act No. 337, as amended; (8) Encourage companies to go public, and utilities and/or promote, whenever warranted, the formation, merger, consolidation, reorganization, or recapitalization of productive enterprises, by providing assistance or participation in the form of debt or equity financing or through the extension of financial or technical advice or service; (9) Undertake or contract for researches, studies and surveys on such matters as business and economic conditions of various countries, the structure of financial markets, the institutional arrangements for mobilizing investments; (10) Acquire, own, hold, lease or obtain an interest in real and/or personal property as may be necessary or appropriate to carry on its objectives and purposes; (11) Design pension, profit-sharing and other employee benefits plans; and (12) Such other activities or business ventures as are directly or indirectly related to the dealing in securities and other commercial papers, unless otherwise governed or prohibited by special laws, in which case the special law shall apply.
102 Pres. Decree No. 129, sec. 3(a) provides:
chanRoblesvirtualLawlibrary
(a) "Underwriting" is defined as the act or process of guaranteeing the distribution and sale of securities of any kind issued by another corporation. The Omnibus Rules and Regulations for Investment Houses and Universal Banks Registered as Underwriters of Securities (July 23, 2002) defines underwriting as follows: Underwriting of Securities is the act or process of guaranteeing by an Investment House duly licensed under P.D. 129 or a Universal Bank registered as an Underwriter of Securities with the Commission, the distribution and sale of securities issued by another person or enterprise, including securities of the Government or its instrumentalities. The distribution and sale may be on a public or private placement basis: Provided, That nothing shall prevent an Investment House or Universal Bank registered as Underwriter of Securities from entering into a contract with another entity to further distribute securities that it has underwritten.
103 HERBERT B. MAYO, BASIC INVESTMENTS 15-27 (2006).
104Perez v. Court of Appeals, 212 Phil. 587, 596-597 (1984) [Per J. Melencio-Herrera, First Division] discusses the nature of a money market transaction:
chanRoblesvirtualLawlibrary"As defined by Lawrence Smith, fthe money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man br dealer in the open market. It involves 'commercial papers' which are instruments 'evidencing indebtedness of any person or entity . . . which are issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse.' The fundamental function of the money market device in its operation is to match and bring together in a most impersonal manner both the 'fund users' and the 'fund suppliers.' The money market is an 'impersonal market,' free from personal considerations. The market mechanism is intended 'to provide quick mobility of money and securities.'
"The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a commercial paper in the money market necessarily knows in advance that lit would be expeditiously transacted and transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the investor."
105 CIVIL CODE, art. 1956; China Banking Corporation v. Court of Appeals, 451 Phil. 772 (2003) [Per J. Carpio, First Division].
106See BIR Ruling No. 026-02(2002).
107 TAX CODE, sec. 32 provides:
chanRoblesvirtualLawlibrarySEC. 32. Gross Income. -
(A) General Definition. - Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items:
chanRoblesvirtualLawlibrary(1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and cralawlawlibrary
(11) Partner's distributive share from the net income of the general professional partnership.
108 Exec. Order No. 449 (1997), sec. 1.
109 Bureau of the Treasury, About Government Securities <http://www.treasury.gov.ph/?page_id=1430> (last visited on August 1, 2016). A Government Securities Eligible Dealer (GSED) is a Securities and Exchange Commission-licensed securities dealer belonging to a service industry regulated by the government (Securities and Exchange Commission, Bangko Sentral ng Pilipinas or Insurance Commission) and accredited by the Bureau of Treasury as eligible to participate in the primary auction of government securities. It must meet the following requirements:
chanRoblesvirtualLawlibrary(a) P100 million unimpaired capital and surplus account;
(b) Statutory ratios prescribed for the industry; and cralawlawlibrary
(c) Infrastructure for an electronic interface with the Automated Debt Auction Processing System (ADAPS) and the official Registry of Scripless Securities (RoSS) of the Bureau of the Treasury using Bridge Information Systems (BIS).
The List of GSEDs are mostly banks with a few non-banks with quasi-banking license.
110 Treasury Memo. Circ. No. 2-2004 (2004), sec. 1.
111 Treasury Memo. Circ. No. 2-2004 (2004), sec. 1.
112 Treasury Memo. Circ. No. 2-2004 (2004), sec. 1.
113 Treasury Memo. Circ. No. 2-2004 (2004), sec. 3.
114 Other selling arrangements provided in DOF Department Order No. 141-95 are over the counter (Section 15) and tap method (Section 26).
115 DOF Department Order No. 141-95, sec. 9.
116 DOF Department Order No. 141-95, sec. 10.
117 DOF Department Order No. 141-95, sec. 11 and 12.
118 DOF Department Order No. 141-95, sec. 29.
119 Handbill on Eligibility to Bid for Government Securities in the Primary Market: Oath of Undertaking for Registry of Scripless Securities <http://www.treasury.gov.ph/wp-content/uploads/2014/04/handbill.pdf> (visited August 1, 2016).
120 Handbill on Eligibility to Bid for Government Securities in the Primary Market: Oath of Undertaking for Registry of Scripless Securities <http://www.treasury.gov.ph/wp-contentuploads/2014/04/oathrossgsed.pdf> (visited August 1, 2016).
121See Bank of Commerce v. Nite, G.R. No. 211535, July 22, 2015 <http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2015/july2015/211535ipdf> [Per Acting C.J. Carpio, Second Division].
122 525 Phil. 673 (2006) [Per J. Austria-Martinez, First Division].
The case was cited in Bank of the Philippine Islands v. Laingo, G.R. No. 205206, March 16, 2016 <http://sc.judiciary.gov.ph/pdf/web/viewer.html?file=/jurisprudence/2016/march2016/205206.pdf> [Per J. Carpio, Second Division], where this Court held that BPI acted as agent of FGU Insurance with respect to the insurance feature of its own marketed product, and consequently obligated to give proper notice of the existence of the insurance coverage and the stipulation in the insurance contract for filing a claim to the beneficiary, upon the insured's death.
123 Id. at 688.
124 Id.
125 Id.
126 Id.
127 Id.
128 Id.
129Constantino, Jr. v. Cuisia, 509 Phil. 486, 509-510 (2005) [Per J. Tinga, En Banc] holds that "[b]onds jare interest-bearing or discounted government or corporate securities that obligate the issuer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan at maturity. An investor who purchases a bond is lending money to the issuer, and the bond represents the issuer's contractual promise to pay interest and repay principal according to specific terms."
130Rollo, pp. 2213-2214. Respondents contend that the application of the 20-lender rule as per the court's decision creates an uncertainty due to the possibility that regular government securities may be held by less than 20 investors at any one time as reflected in the Registry of Scripless Securities (ROSS). Respondents provide two illustrations:
chanRoblesvirtualLawlibrary
[a] ... In the case of T-Bills, there have been instances before that only one (1) GSED was awarded the full volume issued. Given that transactions in T-bills attract non-resident investors, there could be an instance where there would apparently only be a few transfers in ownership from a ROSS records standpoint despite an actual transfer of beneficial ownership to 20 or more (foreign or combination of foreign and local investors). This is because these non-resident lenders/investors together with resident lenders/investors may be lumped together in a common custodian account in the ROSS. [b] ... In the case of T-Bonds, during auctions, most of the time, if not all the time, the Auction Committee awards to less than 20 GSEDs. While technically these GSEDs redistribute these bonds in the secondary market to a wider pool of investors, the settlement convention in the market (T+1 or T+2) may create a lag or delay in the actual transfers of the bonds from one registered holder to another. Hence, the ROSS records may technically reflect 19 or less lenders/investors at a given time, when the beneficial owners of the government securities may in fact be 20 or more depending on the number of "lagging" or not-yet-settled transactions.
131 Id. at 2215. Respondents argue that the requirement that "funds are simultaneously obtained from 20 or more lenders/investors" provides a loophole in that a bondholder may conveniently turn around and sell his holdings in several tranches to 19 or less investors for each tranche. Thus, even if he eventually sold his entire stock to 1000 investors, as long as there is no element of simultaneous sale to 20 people, there is no deposit substitute.
132See Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), 500 Phil. 586, 608 (2005) [Per J. Panganiban, Third Division].
133Abakada Guro Party List v. Ermita, 506 Phil. 1, 120 (2005) [Per J. Austria-Martinez, En Banc].
134 TAX CODE, sec. 59.
135 TAX CODE, sec. 59.
136 Revenue Regulations No. 2-98, sec. 2.57.4.
137Rollo, pp. 2626-2627.
138See BIR Ruling No. 177-95.
139 Revenue Regulations No. 2-98, sec. 2.57(A).
140 Omnibus Revised Rules and Regulations Implementing Rep. Act No. 245, as amended, and Rep. Act No. 1000, as amended, in Relation to Rep. Act No. 7653 (2010). The Order superseded and repealed DOF Dep. O. No. 141-95.
141Rollo, pp. 560-575. Under the Definitions and Interpretation, Issue Date shall be on October 18, 2001; Offering Period shall mean the period commencing on 9:00 a.m. of October 17, 2001 and erding on 12:00 noon of October 17, 2001. (p. 561); Under Terms and Conditions of Application and Payment for the Bonds, RCBC Capital will submit to CODE NGO a consolidated report on sales made not later than 4:00 p.m. of the last day of the Offering Period; and remittance of the purchase price for the bonds should be made not later than 10:00 a.m. of the Issue Date.
142 Id. at 576.
143See Omnibus Rules and Regulations for Investment Houses and Universal Banks Registered as Underwriters of Securities (2002), sec. 8.
144Rollo, pp. 2271 and 2274-2275.
145 Id. at 2276-2277.
146 Id. at 2280-2281.
147 Id. at 2281-2284.
148 Id. at 2277.
149 Id. at 2277-2279 and 2288-2291.
150 703 Phil. 310 (2013) [Per J. Carpio, En Banc].
151Rollo, pp. 2292-2304.
152 Id. at 2304-2306.
153 Id. at 2389.
154 Id. at 2390.
155 Id. at 2395.
156 Id.
157 Id. at 2395-2396.
158 Id. at 2397.
159 Id. at 2398.
160 Id. at 138-140.
161 Id. at 141-143.
162 195 Phil. 33 (1981) [Per J. Melencio-Herrera, First Division].
163 Id. at 42-43.
164 646 Phil. 710 (2010) [Per J. Del Castillo, First Division].
165Commissioner of Internal Revenue v. San Roque Power Corporation, 703 Phil. 310, 375-376 (2013) [Per J. Carpio, En Banc].
166See Everett v. Bautista, 69 Phil. 137, 140-141 (1939) [Per J. Diaz, En Banc].
167Rollo, pp. 2677-2678.
168 Id. at 394.
169 Id. at 396 and 2228-2235.
170 Id. at 2235.
171Banco de Oro v. Republic, G.R. No. 198756, January 13, 2015, 745 SCRA 361, 428-430 [Per J. Leonen, En Banc].
172 281 Phil. 425 (1991) [Per J. Feliciano, En Banc].
173 121 Phil. 755 (1965) [Per J. Bengzon, En Banc].
174Commissioner of Internal Revenue v. Procter & Gamble Phil. Mfg. Corp., 281 Phil. 425, 441-444 (1991) [Per J. Feliciano, En Banc].
175 643 Phil. 550 (2010) [Per J. Del Castillo, First Division].
176 Id. at 563-564.
177Rollo, pp. 2593-2597.
178Blue Bar Coconut Co. v. City of Zamboanga, 122 Phil. 929, 930 (1965) [Per J. J.B.L. Reyes, En Banc]; Carcar Electric & Ice Plant Co., Inc. v. Collector of Internal Revenue, 100 Phil. 50, 56 and 59 (1956) [Per J. J.B.L. Reyes, En Banc].
179 365 Phil. 572 (1999) [Per J. Quisumbing, Second Division].
180 Id. at 580.
181Rollo, pp. 235-237.
182 Id. at 236.
183 Id. at 1164.
184 Circ. No. 799 (2013), of the Bangko Sentral ng Pilipinas Monetary Board effective July 1, 2013, in part:
chanRoblesvirtualLawlibraryThe Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
chanRoblesvirtualLawlibrarySection 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
See Nacar v. Gallery Frames, 716 Phil. 267 (2013) [Per J. Peralta, En Banc].