Bank of the Philippine Islands vs. Commissioner of Internal Revenue

..

-

~epublic of the Philippines

COURT OF TAX APPEALS

Quezon City

BANK OF THE PHILIPPINE ISLANDS,

Petitioner,

-

versus -

C.T.A. CASE NO. 4481

THE COMMISSIONER OF INTERNAL

REVENUE,

Respondent.

X -----------------------------

X

D

E

C

I

S

I

0

N

This is a petition to review the respondent's

assessment

for 1986 deficiency

documentary

stamp

taxes in the amount of P3,106,316.06.

The facts are simple.

In 1986 the Petitioner Bank of the Philippine

Islands sold to the Central Bank of the Philippines

United

States dollars for P1,608,541,900.00.

The

dollars

involved

were deposited

with

the

BPI's

correspondent

bank

in

the

United

States.

The

correspondent bank in turn transferred said dollars

to

the

Federal

Reserve Bank for

credit

to

the

account

of the Central Bank.

Upon the receipt

of

the confirmation that such had been credited to its

account,

the

Central

Bank

then

credited

the

Petitioner with the corresponding ' amount in pesos.

391

-

D E C I S I 0 N -

C.T.A. Case No. 4481

In

1985,

the

-

2 -

Respondent

caused

an

investigation o£ the Petitioner's sales o£

£oreign

exchange,

and as a result thereo£, the

Respondent

issued

a

pre - assessment

notice

in£orming

the

Petitioner that

under Sec. 195 (now 182>

o£

the

NIRC,

as

amended in 1986, Petitioner

was

liable

£or

DST

at the rate o£ P.30 per

P200.00

on

all

£oreign

exchange

sold to the Central

Bank.

Tax

liability

was assessed at P2,412,812.85

plus

25Y.

surcharge o£ P603,203.21 and compromise penalty

o£

P300 or a total o£ P3,015,315.06.

The

Petitioner

disputed

the

£indings

but

despite this, the Respondent issued Assessment

No.

FAS - 5-86-88 - 003022

dated

30

September

1988

£or

P3,016,316.06,

which

was

received

by

the

Petitioner

on

11 October

1988.

The

Petitioner

£ormally protested the assessment, which was denied

by the Respondent.

Hence, this petition.

The Petitioner contends that the transactions

are

not

subject to DST under Section 182

o£

the

NIRC.

It also

insists that

under

a

market

convention

in

the

banking industry,

it is

not

liable

to

pay the DST.

Finally,

the

Petitioner

argues

that even i£ it were liable £or DST, it is

392

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D E C I S I .0 N -

C.T.A. Case No. 4481

-

3 -

only

liable

£or

those

taxes

corresponding

to

transactions a£ter 18 June 1994.

The

Petitioner's contentions are the

issues

we are going to address.

The

Petitioner contends that the sale

could

not

be

subject to DST because although

Sec.

182

mentions only foreign bills of exchange and letters

of

credit~

no such £oreign bill

o£

exchange

or

letter o£ credit was ever issued by the

Petitioner

in this case.

Sec. 182 states:

Sta•p tax on foreign bills of exchange

and letters of credit.

On

all

foreign bills of exchange and letters of

credit including orders, by telegraph or

otherwise,

for

the

payment

of

money

1ssued by express or steamship companies

or

by any person or persons,

drawn

in

but payable out of the Philippines in

a

set

of three or more according

to

the

custom of merchants and

bankers,

there

shall

be collected a documentary

stamp

tax

of

thirty

centavos

on

each

two

hundred

pesos,

or

fractional

part

thereof,

of the face value of any

such

bill of exc hange or letter of credit, or

the

Philippine equivalent of such

face

value,

if expressed

in

a

foreign

currency.

This

contention

has no merit.

Sec.

51

Revenue Regulation No. 26 states:

What

may

transfer.

be

regarded

as

telegraphic

a local bank cables

to

a

393

o£

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

4 -

certain

bank in a £oreign country

with

which bank said local bank has a credit,

and directs that £oreign bank to pay

to

another

bank

or

person

in

the

same

locality

a

certain sum o£

money,

the

document

£or

and

in

respect

such

transaction

will

be

regarded

as

a

telegraphic trans£er, taxable under

the

provisions

o£

Section 1449(i)

o£

the

Administrative Code.

BPI

itsel£

admitted

that it advises its

£oreign

correspondent bank by cable to

remit

the

dollar

amount

to

the Federal

Reserve

Bank

£or

credit

to the account o£ the Central Bank

o£

the

Philippines.

Such an advice squarely £alls

within

the ambit o£ the £oregoing Section 51.

The

Petitioner

also

contends

that

the

transaction does

not £all under

Section

195 (now

182)

o£

the

Tax

Code

because

Section

195

contemplates a situation where money has been drawn

on an existing account here in the Philippines

and

made payable abroad, while the transactions at

bar

merely

involve · instructions

to

a

correspondent

abroad

to

pay

money,

but

without

any

actual

drawings in the Philippines.

In

support o£ this argument, the

Petitioner

in its letter to the Res~ondent dated

12

August

1988, quotes Webster's New Collegiate Dictionary as

de£ining "drawn in" as "to take money £rom a

place

39

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

5 -

of deposit".

The Petitioner implies that "drawn in

the

Philippines"

means "money taken

out

from

a

place of deposit in the Philippines". Since such

a

taking

did

not

take place, then

the

DST

under

Section 195<now Section 182> does not apply.

This

contention has no merit.

It has

been

shown

above that by virtue of Sec. 51

of

Revenue

Regulations

No. 26, mere cabled instructions to

a

foreign

correspondent

to

pay

money

would

fall

within the ambit of Section 182.

Even

if such instructions were not

covered,

Petitioner's

argument

would still not

stand.

Section 182 mentions "foreign bills of exchange and

letters

of credit" that are "drawn in but

payable

out

of

the Philippines".

Obviously,

it is

not

money

that is being drawn in the

Philippines,

as

the Petitioner would have it, but bills of exchange

and

letters of credit.

It is hard to imagine

how

the

law

could contemplate bills of

exchange

and

letters

of

credit being drawn "from

a

place

of

deposit

in

the Philippines" in

relation

to

DST

liability under Section 182.

It is more logical to consider that what

the

laws

means

with "drawn in" is "executed in".

In

fact,

the

Centennial 6th Edition of

Black's

Law

•

395

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

6 -

Dictionary defines "draw" as:

The

act of a drawer in creating

a

draft.

To

draw a

bill

of

exchange,

check, or draft, is to write <or cause it

to be written) and sign it; to make, as a

note.

Thus to draw bills o£ exchange and letters o£

credit

in

the Philippines is to write,

sign,

or

otherwise

execute

such

bills

o£

exchange

and

letters of credit in the Philippines.

The

Petitioner £urther argues

that

Section

182

does

not

apply because

the

Petitioner

was

acting

as

a mere agent o£ the

Central

Bank

and

there£ ore

no sale of £oreign exchange could

have

occurred

between

the

Central

Bank

and

the

Petitioner.

This

argument is immaterial to the issue

on

hand.

Section 182 does not speak o£ any sale, much

less tax said sale. Instead, it taxes the

issuance

of bills o£ exchange and letters o£ credit drawn in

the Philippines but payable abroad.

It is there£ore clear £rom the £oregoing that

Petitioner is liable £or DST under

Section

182.

<China

Banking Corporation vs. CIR, CTA

Case

No.

4361, December 22, 1993>

396

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

7 -

Let

us now move to the issue o£

whether

or

not the market convention should be recognized.

The

Petitioner contends that it is settled

practice in the banking community that in sales

o£

£oreign exchange, it is the buyer who pays £or

the

DST

that is due.

The Respondent itsel£

presented

be£ore this court a memorandum <Exhibit "3"> o£ the

Bankers

Association

o£

the

Philippines

to

its

member banks evidencing the market convention

that

the cost o£ DST is £or the buyer.

Our Civil Code provides:

Article

1315

Contracts

are

per£ected by mere consent, and £rom that

moment the parties are bound not only to

the

£ul£illment

o£

what

has

been

expressly stipulated but also to all the

consequences

which, according to

their

nature,

may

be in

keeping

with

good

£aith, usage and law.

Article

1376

The

usage

or

customs

o£ the place shall be borne

in

mind

in

the

interpretation

o£

the

ambiguities

o£

a contract,

and

shall

£ill the omission o£ stipulations

which

are

ordinarily

established.

<Emphasis

provided>

Our own Supreme Court said "Law writes

custom

into

the contract" <Hongkong and Shanghai Bank

v.

Peters, 16 Phil. 284>.

This

market

convention

in

the

banking

indust~ y may there£ore be recognized by this court.

397

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

8 -

Using

the

market

convention

as

basis,

however, the Petitioner now contends that since the

CB is the buyer o£ the £oreign exchange, it should

be the party liable £or DST.

And since the CB

was

exempt £rom the payment o£ taxes at the time,

then

no DST is collectible.

This argument goes against the amendment made

by PD 1994 to the NIRC Section 222 (now Sec.173> to

wit:

Whenever

one party to the

document

enjoys exemption £rom

herein imposed, the other party

who

is

not

exempt shall

be

directly liable £or the tax.

taxable

the

tax

thereto

the

one

The

Petitioner attacks the above

rule

with

the

argument

that the government

in

taxing

the

Central

Bank, taxes itsel£.

There is no merit

in

this

argument.

The Central Bank, now

the

Bangko

Sentral,

is a government corporation with its

own

charter.

It has a personality distinct £rom

that

o£

the government.

As such, it is subject to

tax

just like any other corporate entity.

In £act, the

law

creating

the

new Bangko Sentral

had

to

be

speci£ic

as

to its tax

exemption

privileges.

Otherwise,

there would be no reason why

it would

not be taxed just like any other juridical person.

398

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

9 -

The

Petitioner also contends that PD

1994's

amendment

is sel£ - de£eating because

the

seller,

still pursuant

to

the

market

convention,

will

simply

seek reimbursement £rom the CB o£

whatever

amount

it has

paid as

taxes.

This

contention

likewise

has

no

merit.

This

amendment

is

a

provision

o£ law whose wisdom could not be

passed

upon by this court.

Finally,

the

Petitioner

argues

that

the

amendment

was

published only in

June

1986.

In

support

thereo£,

the Petitioner has

presented

a

certi£ication by the National Printing O££ice

that

the

pertinent

issue o£ the O££icial

Gazette

was

only

released

£or circulation on

18

June

1986.

There£ore, i£ it should be liable £or the DST, then

it

should

be

liable

£or

only

that

portion

corresponding to the transactions £rom 18 June 1986

up to 31 December 1986.

This

position

is meritorious.

The

Supreme

Court

in

the landmark case o£

Tanada

et.al.

v.

Tuvera et. al., ·146 SCRA 446, 453-454, stated that:

We

hold

there£ore

that

all

statutes,

including

those

o£

local

application

and private

laws, shall be

published

as

a

condition

for

their

effectivity,

which shall begin

£i£teen

days

a£ter

publication

unless

' a

di££erent e££ectivity dates is £ixed

by

the legislature.

399

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

10 -

Covered

by

this

rule

are

presidential

decrees

and

executive

orders

promulgated by the President

in

the

exercise

of

legislative

powers

whenever the same are validly

delegated

by

the

legislature

or,

at

present,

direc~ly conferred by the

Constitution.

XXX

The

Supreme Court further said in

the

same

case that:

Consequently, we have no choice but

to pronounce that under Article 2 of the

Civil Code, the publication of laws must

be made in the Official Gazette, and not

elsewhere,

as a requirement

for

their

effectivity after fifteen days from such

publication or after a different

period

provided by law.

Furthermore,

in

the case of People

of

the

Philippines v. Hon. Regina Veridiano II, et al., GR

No.

L- 52243, October 12, 1984,

th~ Supreme

Court

said:

The Solicitor General admitted

the

certification

issued by Ms. Charita

A.

Mangubat,

Copy Editor of

the

Official

Gazette

Section

of

the

Government

Printing Office, stating:

This

Volume 75,

1979

issue

Ga z ette

is to certify that

No. 15, of April 9,

of

the

Official

was

officially

released

June 14,

for

circulation

on

1979. <p.138, Rollo>

400

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

11 -

It is, there£ore, certain that

the

penal statute in question as made public

only

on

June 14, 1979 and not

on

the

printed date April 9, 1979.

Di££erently

stated,

June 14, 1979 was the

date

o£

publication

o£ Batas

Pambansa

Bilang,

22.

Be£ore the public may be bound

by

its

contents

especially

its

penal

provisions,

the law must

be

published

and

the people o££icially

in£ormed

o£

its contents and/or its penalties.

For,

i£

a

statute had

not

been

published

be£ore its violation, then in the

eyes

o£

the law there was no such law to

be

violated and, consequently, the

accused

could

not

have committed

the

alleged

crime.

We

accept

that the certi£ication

£rom

the

National Printing O££ice marked as Exhibit "C"

£or

the

Petitioner

proves

that

the

issue

o£

the

O££icial Gazette dated December 2, 1993, containing

the text o£ Presidential Decree No. 1994, was

only

released

£or

circulation

on

June

18,

1986.

There£ ore,

the proven £act that said issue o£

the

O££icial Gazette was only released £or

circulation

on June 18, 1986 means that the date o£ publication

£or purposes o£ its e££ectivity was June 18, 1986.

Although

publication

in

a

newspaper

o£

general

circulation was later allowed by law,

the

abqve

rule

was the one in e££ect at the

time

PD

1994 was pr~mulgated.

401

- DECISION -

C.T.A. Case No. 4481

-~ 12 -

Therefore BPI should only be liable for the

DST that corresponds to those transactions after

June 1986. As shown in the worksheet prepared by

the BIR examiners, Petitioner should be liable for

the DST corresponding to the sale of USS18 million

for P367,856,000, or F551,784, in addition to the

295% surcharge and F300 compromise penalty.

The computation of deficiency documentary

stamp tax for the year 1986 only includes those

foreign exchange sold by the petitioner to Central

Bank after the effectivity of PD 1994 or from June

18, 1986 to December 31, 1986, which is as follows:

(see Exh. "A", for petitioner)

BPI Del. CB Advice Dollar Rate of Pego

Date Slip Ho. Ho, Value Exchange Value

07-29-86 8394 005365 3, 000, 000 20. 426 61, 278, 000

09-30-86 8852 005504 2, 000, 000 20. 44 40, 880, 000

10-01-86 8861 005516 2, 000, 000 20. 44 40, 880, 000

10-03-86 8870 005466 4,000, 000 20. 438 81, 752, 000

10-07-86 8880 005553 2, 000, 000 20. 438 40, 876, 000

8877 005553 3, 000, 000 61, 314, 000

10-08-86 8893 005525 2,000, 000 20. 438 40, 876, 000

TOTAL $18, 000, 000 P367, 856, 000

e2tcrsscecs scesss2zz2c=s

S2Sssssssss SSssssssssss

Docuwentary Stamp Tax Due:

((367, 856, 000 / 200) x 0.30)) PR = 551, 784.00

Add: 25% Surcharge

{551,784.00 x 25%) P 137,946.00

Compromise Penalty 300. 00 138, 246. 00

Total Amount Due P = 690, 030. 00

402

-

D E C I S I 0 N -

C.T.A. Case No. 4481

-

13 -

WHEREFORE, premises considered, Petitioner is

hereby

ordered to pay Respondent

Commissioner

o£

Internal Revenue, the amount o£ P690,030

inclusive

o£

surcharge

and

compromise

penalty,

plus

20Y.

annual

interest

until

£ully

paid

pursuant

to

Section 249 <cc><3> o£ the Tax Code.

SO ORDERED.

Quezon City, Metro Manila, 31 May 1994.

WE CONCUR:

t-JXO. .. ~

ERNESTO D. ACOSTA

Presiding Judge

<on leave)

RAMON 0. DE VEYRA

Associate Judge

GRUBA

Judge

CERTIFICATION

I

reached

o£

the

Section

hereby

certi£y

that

this