Bank of the Philippine Islands vs. Commissioner of Internal Revenue

The running of the prescriptive period for the collection of deficiency taxes is suspended only when the taxpayer's request for reinvestigation is granted by the Commissioner of Internal Revenue; the mere filing of protest letters or requests for reinvestigation, without such grant, does not toll the statute of limitations.

The case involves the assessment of deficiency documentary stamp taxes against BPI for the years 1982-1986 arising from its SWAP (foreign exchange swap) transactions with the Central Bank. The BIR issued assessment notices in 1989, which BPI protested. The controversy centers on whether the government's right to collect prescribed due to the CIR's inordinate delay in resolving the protest and whether cabled instructions in SWAP transactions are subject to DST.

• Petitioner Bank of the Philippine Islands (BPI) is the surviving bank after its merger with Far East Bank and Trust Company, with principal office at Ayala Avenue corner Paseo de Roxas Avenue, Makati City.
• On November 26, 1986, the Bureau of Internal Revenue (BIR) issued a Pre-Assessment Notice (PAN) to BPI for alleged deficiency taxes for the years 1982-1986.
• On April 7, 1989, the BIR issued Assessment/Demand Notices for deficiency withholding tax on Swap Transactions (P190,752,860.82) and deficiency documentary stamp tax (P24,587,174.63) covering the years 1982 to 1986.
• On April 20, 1989, BPI filed a protest letter on the assessment notices, supplemented by another protest on May 8, 1989, effectively requesting reinvestigation.
• On March 12, 1993, BPI requested an opportunity to present or submit additional documentation regarding the Swap Transactions with the then Central Bank.
• On June 17, 1994, BPI submitted Swap Contracts with the Central Bank to the BIR in connection with the reinvestigation of the assessment.
• BPI executed several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994.
• On August 9, 2002, the CIR issued a final decision on BPI's protest ordering the withdrawal and cancellation of the deficiency withholding tax assessment but reiterating the DST assessment and ordering payment within thirty days from receipt.
• BPI received the final decision on January 15, 2003, and filed a Petition for Review with the CTA on January 24, 2003.

• The government's right to collect the deficiency DST had prescribed because the CIR failed to issue any reply granting the request for reinvestigation manifested in the protest letters dated April 20 and May 8, 1989, and only acted on the request after the lapse of more than thirteen years on August 9, 2002.
• The CIR was not precluded from collecting the tax within three years from the issuance of the assessment notice on April 7, 1989, or until the expiration of the last waiver on December 31, 1994.
• The cabled instructions to the correspondent bank are not subject to DST because the National Internal Revenue Code of 1977 does not contain a specific provision subjecting cabled instructions on SWAP transactions to DST.
• The CIR violated procedural due process in issuing the assessment notice relative to the documentary stamp deficiency.
• The March 4, 1987 Memorandum of the Legal Service Chief approved by the BIR Commissioner vested rights to BPI.

• The prescriptive period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR, as evidenced by BPI's submission of additional documents pertaining to its SWAP transactions in support of its request for reinvestigation.
• The period to collect commenced to run only upon BPI's receipt on January 13, 2003 of the August 9, 2002 Decision.
• BPI is estopped from raising the defense of prescription in view of its repeated requests for reinvestigation which induced the CIR to delay the collection of the assessed tax, citing Collector of Internal Revenue v. Suyoc Consolidated Mining Company.
• BPI is liable for DST on its cabled instructions to its foreign correspondent bank as these are in the nature of telegraphic transfers subject to DST under Section 195 of the Tax Code.

• Procedural Issues:
  • Whether the collection of the alleged deficiency DST is barred by prescription.
  • Whether the waivers of the statute of limitations signed by BPI are valid.
  • Whether the CIR violated procedural due process in issuing the assessment notice.
• Substantive Issues:
  • Whether BPI is liable for documentary stamp tax on its SWAP loan transactions from 1982 to 1986.
  • Whether cabled instructions to a foreign correspondent bank regarding SWAP transactions are subject to DST.

• Procedural:
  • The collection of the deficiency DST is barred by prescription. Under Section 320 of the Tax Code of 1977 (now Section 223 of the NIRC of 1997), the running of the statute of limitations is suspended only when the taxpayer requests for a reinvestigation which is granted by the Commissioner. The CIR bears the burden of proving that the request was granted, either expressly or impliedly.
  • In this case, there was no evidence that the CIR granted the request for reinvestigation. The CIR's inaction and "piercing silence" for over thirteen years indicate the request was never granted. The submission of additional documents by BPI did not constitute an implied grant of reinvestigation.
  • The case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc. is distinguishable because there, the BIR actually conducted a reinvestigation and the taxpayer was aware of it, whereas here there was no evidence of actual reinvestigation.
  • The Suyoc case is inapplicable because BPI did not induce the CIR to postpone collection; its requests were never acted upon and thus could not have persuaded the CIR to delay.
  • The waivers of the statute of limitations are void for failing to show a date of acceptance as required by RMO No. 20-90.
  • The three-year prescriptive period for collection (from April 7, 1989) was not tolled and had already expired.
• Substantive:
  • N/A. The Court deemed it unnecessary to pass upon the validity of the assessment and the liability for DST given that the government's claim had already prescribed.

• Suspension of Prescriptive Period in Tax Collection — Under Section 320 of the Tax Code of 1977 (now Section 223 of the NIRC of 1997), the running of the statute of limitations for assessment and collection is suspended only when a request for reinvestigation is granted by the Commissioner of Internal Revenue; mere filing of a request is insufficient. The burden of proof that the request was actually granted lies with the CIR.
• Estoppel by Inducement (Suyoc Doctrine) — A taxpayer who, by repeated requests for reinvestigation, induces the government to delay collection of taxes cannot later invoke prescription; however, this applies only when the government was actually induced to postpone collection to accommodate the taxpayer's requests, not when the requests are ignored or left unacted upon.
• Purpose of Statute of Limitations in Taxation — The law prescribing limitation of actions for tax collection is beneficial to both the government (obliging prompt action by tax officers) and citizens (protecting against harassment by unscrupulous tax agents and providing security after the lapse of the period).

• "The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension."
• "There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation..."
• "The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents..."
• "Given the prescription of the government's claim, we no longer deem it necessary to pass upon the validity of the assessment."

• Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc. (G.R. No. 76281, 30 September 1991) — Cited by the CTA to support tolling of prescriptive period by request for reinvestigation, but distinguished by the Supreme Court because in Wyeth Suaco, the BIR actually conducted a reinvestigation which the taxpayer knew about, unlike in the instant case where the CIR was silent and inactive.
• Collector of Internal Revenue v. Suyoc Consolidated Mining Company (104 Phil. 819 [1958]) — Cited by the OSG for the principle that a taxpayer who induces delay cannot invoke prescription; held inapplicable because BPI's requests were never acted upon and thus did not induce the CIR to postpone collection.
• Republic of the Philippines v. Gancayco — Established the rule that the request for reinvestigation must first be granted to effect suspension of the prescriptive period.
• Republic of the Philippines v. Acebedo — Reiterated that a request for reinvestigation not acted upon does not suspend the running of the period for collection.
• Bank of the Philippine Islands v. Commissioner of Internal Revenue (G.R. No. 139736, 17 October 2005) — Prior decision emphasizing that the CIR must first grant the request for reinvestigation to suspend the statute of limitations.
• Republic of the Philippines v. Ablaza (108 Phil. 1105 [1960]) — Discussed the beneficent purpose of the statute of limitations in protecting taxpayers from harassment.

• Section 195 of the National Internal Revenue Code of 1977 — Provision cited by the CTA and OSG regarding DST on telegraphic transfers, though not ruled upon by the Supreme Court.
• Section 249 of the National Internal Revenue Code — Cited by the CTA regarding the imposition of 20% interest on the deficiency tax.
• Section 318 of the National Internal Revenue Code of 1977 (now Section 203 of the Tax Reform Act of 1997) — Prescribes the three-year period for assessment and collection of internal revenue taxes.
• Section 320 of the National Internal Revenue Code of 1977 (now Section 223 of the Tax Reform Act of 1997) — Provides for the suspension of the running of the statute of limitations when the taxpayer requests for a reinvestigation which is granted by the Commissioner.
• Batas Pambansa Blg. 700 — Shortened the statute of limitations from five years to three years for assessments made on or after April 5, 1984.
• Revenue Memorandum Order (RMO) No. 20-90 — Prescribes the requirements for waivers of the statute of limitations, specifically requiring a date of acceptance to be valid.