PDIC vs. BIR

Section 52(C) of the Tax Code of 1997, requiring a certificate of tax clearance from the BIR before the SEC issues a Certificate of Dissolution, does not apply to banks ordered placed under liquidation by the Monetary Board under Section 30 of the New Central Bank Act.

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI) from doing business, placed it under receivership, and designated the Philippine Deposit Insurance Corporation (PDIC) as receiver. After determining RBTI's insolvency, the Monetary Board directed PDIC to proceed with the liquidation of RBTI under Section 30 of the New Central Bank Act. PDIC accordingly filed a petition for assistance in the liquidation of RBTI before the Regional Trial Court (RTC) of La Trinidad, Benguet.

The Monetary Board of the BSP issued Resolution No. 1056 on October 26, 1994, prohibiting the Rural Bank of Tuba (Benguet), Inc. (RBTI) from doing business in the Philippines, placing it under receivership, and designating the Philippine Deposit Insurance Corporation (PDIC) as receiver. PDIC evaluated RBTI's financial condition and found it insolvent. Consequently, the Monetary Board issued Resolution No. 675 dated June 6, 1997, directing PDIC to liquidate RBTI. Pursuant to Section 30 of the New Central Bank Act, PDIC filed a petition for assistance in the liquidation of RBTI before the RTC of La Trinidad, Benguet, docketed as Special Proceeding Case No. 97-SP-0100. The trial court approved the petition on September 4, 1997.

As an incident of the proceedings, the Bureau of Internal Revenue (BIR) intervened as a creditor and prayed for the suspension of the proceedings until PDIC secured a tax clearance under Section 52(C) of the Tax Code of 1997. The trial court granted the BIR's motion in an Order dated February 14, 2003, directing PDIC to secure the tax clearance. PDIC moved for partial reconsideration, arguing that Section 52(C) does not cover closed banking institutions because their liquidation is governed by Section 30 of the New Central Bank Act. The trial court denied the motion on September 16, 2003.

PDIC elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65, asserting that the trial court committed grave abuse of discretion in applying Section 52(C) to a bank under liquidation. The Court of Appeals affirmed the trial court's orders on December 29, 2005, and denied PDIC's motion for reconsideration on May 5, 2006. PDIC then filed the present petition for review on certiorari before the Supreme Court.

• Applicability of Section 52(C): Petitioner argued that Section 52(C) of the Tax Code of 1997 does not apply to banks ordered placed under liquidation by the Monetary Board, as such banks are not "corporations contemplating liquidation" within the purview of the provision.
• Regulatory Authority: Petitioner maintained that the liquidation of closed banks is governed by Section 30 of the New Central Bank Act, where the Monetary Board, not the SEC, has the power to order or approve closure and liquidation. Section 52(C) applies only to corporations under SEC supervision.

• Applicability of Tax Clearance: Respondent countered that the tax clearance requirement under Section 52(C) is applicable to rural banks undergoing liquidation under Section 30 of the New Central Bank Act.
• SEC Regulations: Respondent argued that BSP's authority to supervise banks does not exclude banking corporations from reasonable regulations imposed by the SEC on corporations.
• Purpose of Tax Clearance: Respondent asserted that the tax clearance requirement ensures the collection of income taxes by imposing on the liquidating corporation the obligation to report its income for the purpose of determining imposable tax.

• Applicability of Tax Clearance Requirement: Whether Section 52(C) of the Tax Code of 1997, requiring a tax clearance from the BIR, applies to banks ordered placed under liquidation by the Monetary Board under Section 30 of the New Central Bank Act.

• Applicability of Tax Clearance Requirement: No. Section 52(C) of the Tax Code of 1997 pertains only to the regulation of the relationship between the SEC and the BIR, and does not apply to banks under liquidation by the PDIC as ordered by the Monetary Board, which are governed by special rules under Section 30 of the New Central Bank Act.

• Applicability of Tax Clearance Requirement: The Court relied on its previous ruling in In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., which established that Section 52(C) of the Tax Code of 1997 regulates relations only between the SEC and the BIR. Banks under liquidation by PDIC constitute a special case governed by Section 30 of the New Central Bank Act, which is silent on securing a tax clearance. Applying the SEC requirement by analogy would be judicial legislation. Furthermore, requiring a tax clearance before approving the project of distribution creates a "chicken-and-egg dilemma," as the BIR can only issue a clearance after full payment of taxes, but the bank cannot pay its taxes until the project of distribution is approved. Only a final tax return is required to satisfy the BIR's interest. Finally, giving tax liabilities absolute preference by requiring prior payment violates Section 30 of the New Central Bank Act and Article 2244 of the Civil Code, which prescribes the order of preference for credits. Taxes due the National Government, other than those on specific property, come only in ninth place in the order of preference.

• Special Law Prevails Over General Law — The liquidation of banks under Section 30 of the New Central Bank Act, a special law, prevails over the general tax clearance requirement in Section 52(C) of the Tax Code of 1997. The special rules and procedures for bank liquidation do not require a tax clearance from the BIR.
• Chicken-and-Egg Dilemma in Liquidation — Requiring a tax clearance, which attests that all tax liabilities have been fully paid, as a prerequisite for approving the project of distribution of a bank's assets creates an impossible situation. The bank cannot pay its tax liabilities without an approved project of distribution, but the BIR will not issue a clearance if there are outstanding tax liabilities.

• "Section 52(C) of the Tax Code of 1997 pertains only to a regulation of the relationship between the SEC and the BIR with respect to corporations contemplating dissolution or reorganization. On the other hand, banks under liquidation by the PDIC as ordered by the Monetary Board constitute a special case governed by the special rules and procedures provided under Section 30 of the New Central Bank Act, which does not require that a tax clearance be secured from the BIR." — This passage states the ratio decidendi, delineating the scope of Section 52(C) and its inapplicability to banks under liquidation by the BSP.
• "It will be a chicken-and-egg dilemma." — This phrase captures the practical impossibility of requiring a tax clearance before the approval of the project of distribution of a closed bank's assets.

• In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., Philippine Deposit Insurance Corporation vs. Bureau of Internal Revenue, 540 Phil. 142 (2006) — Served as the controlling precedent. The Court applied its ruling that Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered placed under liquidation by the Monetary Board and that a tax clearance is not a prerequisite to the approval of the project of distribution of assets.

• Section 52(C), Republic Act No. 8424 (Tax Code of 1997) — Requires a dissolving or reorganizing corporation to secure a certificate of tax clearance from the BIR prior to the issuance of a Certificate of Dissolution by the SEC. The Court held this provision does not apply to banks under liquidation by the BSP.
• Section 30, Republic Act No. 7653 (New Central Bank Act) — Lays down the proceedings for receivership and liquidation of a bank, providing that debts and liabilities are to be paid in accordance with the rules on concurrence and preference of credit under the Civil Code. The Court found this special law to govern the liquidation of banks, excluding the application of the general tax clearance requirement.
• Articles 2241(1), 2242(1), and 2244, Civil Code of the Philippines — Govern the concurrence and preference of credits. The Court applied these provisions to show that requiring a tax clearance would unduly elevate tax claims to absolute preference, contrary to the order of preference under the Civil Code, where general taxes rank ninth.

Maria Lourdes P. A. Sereno (Chief Justice, Chairperson), Lucas P. Bersamin, Martin S. Villarama, Jr., and Bienvenido L. Reyes.