Tax Amnesty Administrative Rules Cannot Override Statutory Law

The Supreme Court has reaffirmed a fundamental principle in Philippine tax law: the Bureau of Internal Revenue (BIR) cannot, through administrative issuances, add exceptions to a tax amnesty law that Congress did not provide. In ING Bank N.V. v. Commissioner of Internal Revenue (G.R. No. 167679, April 20, 2016), the Court denied the BIR's motion for partial reconsideration and held that documentary stamp taxes (DST) are covered by the tax amnesty under Republic Act No. 9480, the Tax Amnesty Act of 2007. The ruling is a clear reminder that revenue memorandum circulars must remain consistent with, and cannot supplant, the law they seek to implement.

The Case Before the Court

ING Bank N.V. Manila Branch was assessed by the BIR for deficiency documentary stamp taxes on its special savings accounts for taxable years 1996 and 1997, as well as deficiency withholding tax on compensation for the same years. The bank sought to avail itself of the tax amnesty under Republic Act No. 9480, which covers all unpaid national internal revenue taxes for taxable year 2005 and prior years.

The BIR opposed the availment, arguing that the bank could not benefit from the amnesty because the Court of Tax Appeals had already ruled against it. The BIR pointed to its own revenue issuance, which excluded from amnesty coverage cases ruled by any court in favor of the BIR prior to amnesty availment of the taxpayer. The exact wording of this issuance is not available in the ASG law library, but the Court addressed and rejected this argument.

In its earlier Decision dated July 22, 2015, the Supreme Court rejected this argument, holding that taxpayers with pending tax cases may avail of the tax amnesty program. The Court noted that Republic Act No. 9480 and its implementing rules only exclude tax cases subject of final and executory judgment by the courts.

The BIR's New Argument

In its Motion for Partial Reconsideration, the BIR raised a new argument: documentary stamp taxes are excluded from the amnesty because they are taxes passed on and collected from customers for remittance to the BIR, citing its revenue memorandum circulars. The exact wording of these circulars is not available in the ASG law library.

The Supreme Court was not persuaded. The Court reiterated a well-settled doctrine: administrative issuances cannot amend or modify the law. Citing Philippine Bank of Communications v. Commissioner of Internal Revenue (361 Phil. 916 [1999]), the Court emphasized that revenue memorandum circulars are entitled to respect only when they are consistent with the statute. Where they override the law, courts will ignore them.

The Court also cited Commissioner of Internal Revenue v. Court of Appeals (310 Phil. 392 [1995]), which held that administrative rules and regulations must remain consistent and in harmony with the law they seek to apply and implement. In that case, the Court rejected a BIR revenue memorandum order that sought to narrow the coverage of a tax amnesty under Executive Order No. 41.

The Statutory Exceptions Are Exclusive

Republic Act No. 9480, Section 8, provides a general grant of tax amnesty subject only to specific exceptions. These include:

• Withholding agents with respect to their withholding tax liabilities;
• Those with pending cases under the Presidential Commission on Good Government;
• Those with pending cases involving the Anti-Graft and Corrupt Practices Act;
• Those with pending cases involving violations of the Anti-Money Laundering Law;
• Those with pending criminal cases for tax evasion and other offenses under the National Internal Revenue Code and the Revised Penal Code; and
• Tax cases subject of final and executory judgment by the courts.

The Court held that the BIR's added exception—taxes passed on and collected from customers for remittance to the BIR—must be essentially equivalent to the withholding tax exception to be sustainable. A taxpayer who is deemed a "withholding or collecting agent" is excluded from amnesty coverage only with respect to its liability as such an agent.

Why DST Is Not a Withholding Tax

The Court drew an important distinction between documentary stamp tax and withholding tax. Withholding tax is a method of collecting income tax in advance, where the withholding agent merely acts as a government collector. In contrast, DST is a tax on documents, instruments, and papers evidencing transactions. Under the National Internal Revenue Code, the tax is paid by the person making, signing, issuing, accepting, or transferring the instrument. The specific section number of this provision is not available in the ASG law library.

In this case, ING Bank was directly liable for the DST as the maker and issuer of the instruments evidencing its special savings accounts. There was no proof that the bank was exempt from the tax, nor was there evidence of any agreement showing that the tax was passed on to clients. The Court refused to give credence to the BIR's unsubstantiated allegation that the bank collected the DST from its customers, noting that bare allegations do not constitute substantial evidence.

Practical Takeaways

• BIR circulars cannot expand the law. Revenue memorandum circulars and other administrative issuances cannot add exceptions to a tax amnesty statute that Congress did not authorize. Courts will strike down any administrative rule that overrides the law it implements.
• Tax amnesty coverage is broad. Republic Act No. 9480 covers all national internal revenue taxes, including documentary stamp taxes, for taxable year 2005 and prior years, subject only to the exceptions expressly listed in Section 8.
• Know the difference between DST and withholding tax. Documentary stamp tax is a direct tax on the person making, signing, issuing, accepting, or transferring the document. It is not a withholding tax merely because a bank or financial institution is responsible for remitting it.
• Substantiate claims of pass-on taxes. A claim that a tax was "passed on" to customers must be supported by evidence. Unsubstantiated allegations have no probative value before the courts.
• Pending cases do not bar amnesty. Taxpayers with pending tax cases may still avail of the tax amnesty, unless the case involves a final and executory judgment, or falls under one of the other statutory exceptions.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.