BANK OF THE PHILIPPINE ISLANDS (Formerly FAR EAST BANK AND TRUST COMPANY) v. COMMISSIONER OF INTERNAL REVENUE

�'' RE PUBLIC OF TI-IE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BANK OF THE PHILIPPINE ISLANDS (formerly FAR EAST BANK AND TRUST COMPANY), P e titi o n e r, - versus - CTJ\. CASE NO. 65 93 COMMISSIONER OF INTERNAL, P romulgated: REVENUE, AUG 3 1 20q4 Res po ndent. ~AjJ d- ~~ X- - - - - - - -- -------- - ----- -- -- -- ------------------------ X DECISION T he petitio n see ks fo r the can cell atio n and withdrawal o f th e allegedl y erron eous deficien cy documentary stamp tax assessment in th e am ow1t of P24,587,474.63 issued b y the respo ndent covering the taxable years 1982 to 1986. T he following arc the relevan t facts as cull ed fro m the records o f the case: P etition er, the surviving bank a fter its tncrgcr with Far East Bank ami T rust Company, is a co rpo ratio n dul y created ami existing und er the laws o f the Republic o f the Philippin es with principal office at J\.yala Avenue co rner Paseo de Roxas Ave., Maka ti City (jJar. 1, SmJJJJ7ri~J' r!f / ldmilted FrJciJ).

DECISION- C.T.A. CASE NO. 6593 PAGE2 Respo ndent thru then Re,-cnue Se n �ice C:hief Cesar M. Valdez, issued a pre-assessment notice (P /\ N) dated No Yember 26, l 986 (par. 1, A dditional Fads .foi11tly Stip11luterl). Pe tition er, in a letter dated Nm-cmbcr 29, l 986, requested for the detail s of the am o unts alleged as 1982 - 19H6 deficiency taxes mentioned in the November 26, 1986 pre-assessment notice (par. 2, / 1rlrlitional I'acls Jointfy StijJIIltll'rl). On April 7, 1989, petitio n er was issued b y respondent assess m ent/ d emand n otices F/\S-1-82 to 86 / 89-t)( )( l and F J\S 5-82 to 86/ 89- UOO, fo r d e fi cicm-~� withh olding tax at source (S ,\�ap Transactio ns) and documentary stamp tax (DS' l) im�o h-in g the amounts of J> 190,752,860.82 and P24,587,174.63, rcspcc tiY ely, for the \Tars I 982 to 1986 (pm: 6, / 1rlrlitional Facts Jointfy StipllkJierl). On i\pril 2tl, I 989, p etitio n er p ro te sted the dem and / assessment n o tices (/Ja)!,eS I 70-176, HI/{ f{ emrdr) and filed as well a supplem ent al protest (paj!p 153- 167, BTl\ Hecord~ o n May 8, 1989. On August 9, 2nn2, respo nd ent issueJ a final d ecisio n on petitioner's protes t o rdering the withdrawal and cancellation o f the deficiency withholding tax assessment in the am o unt o f Pl 9ll,752,86! l.82 and co nsid ered th e same as closed and terminated. On the o ther hand, the deficiency D ST asses sment in the amount of J>24 ,5H7, 174.6l wa s n �itcrall'd and th l' pt'titio n cr was ordered to pa~� the said amount ,,�ithin thirt~� (11 l) dav s from rece ipt o f such order.

D �CIS ION- C.T.A. CASE NO. 6593 PAGE3 Pe titio ner received a co p y o f the said d ecisio n o n January 15, 2003 (pars. 5 ci')-' 6, .\'mmnary C?l / ldmiltrd hid'). Thereafter, o n January 24, 2003, petitioner ft.l ed the m stan t pe tttto n . On l\hrch 12, 21 H13, respondent, 111 hi s An swer, all eged the foll o wing Sp ecial and Affirmative D e fen ses, to w it: 6. The assessm ent in llues tio n was issued in accordance with law and pertinent regulatio n s; 7. All presumptto n s are 111 fa\�o r of correctness o f tax assessments; H. T h e p erio d to assess th e d e ft ciency documentary stamp tax (DST) has not prescribed because during the taxable years tn questio n , there was no rcL1uirement to file a return fo r DST; 9. T h e prescripti,-c perio d to co llect the ta:x was sus pended when petitio n er requested a reim-cstigatio n of th e assessment (CIR t'. lfl) flh S!l�1t'n l ,a/;nm/rm.t'J. /1/(:. :}():} .\'CR/ 1 !2'l); 10. A pre-assessment n otice d ated 1m-ember 2o, 19H6 and signed b y Cesar l\ 1. Vald ez, ReYenue Se n �ice Chief of the Sector O peratio ns Office o n behalf o f the then BIR Commiss ioner Bienvenido /\ . Tan, Jr., \\�as issued to, and received b y, the p eti tioner o n NoYembcr 26, I CJHG. But e\'e n aJJIIIIlillg ex rugtmtelllir th at there was n o pre-assessment n otice gl \Tn b y the respondent to the p etitio n er, such issue was n o t rai sed by th e pe titioner in its p ro tes t lette r dated 1\pril 2( l, 19H9, hence, canno t be rai sed befo re the f Io no rablc Co urt (/ lg!tillaldo lndNJirie.r Corp. T's. CJR, ! ! 2 SCR/ l 136); 11. T he basis of the de ficien cy assessm ent for th e documentary stamp tax is the order o r in structio n of the local bank to its correspo ndent foreign bank to remit a spcc iftc sum o f fo rei6111 currency to the Central Bank's co rrespo ndent bank abroad for credit to the account of the ( :cntral Bank; 12. \Vhen a local bank sel ls a fo reign exc hange (~ pot sale) in swap tra nsac tio n and said lo cal ban k orders its foreit,m

DECISION- C.T.A. CAS E NO. 6593 PAGE4 co rresponde nt bank to remit a specific sum o f forei gn currency to the foreign co rrespo ndent bank of the Central Bank of the Philippines, said o rder is co n sid ered as tclq..,rraphic transfer subject to the D ST und er the then Section 195 o f the Tax Code, as amplifi ed b y Sectio n s 51 and 50 o f Hcgulatio n s No. 26, otherwise know n as th e D ocum entary Stamp Tax Regulations, pertinent provisio ns o f which read as follow s: Sec 195 . - Stamp Tax o n Fo reign Bill s o f l �:xchange and J.etters o f Credit. - On all fo reip1 bills o f exchange and letters o f credit (including o rders, by telegraph o r o th erwi se, fo r the paym ent o f m o ney issued b y express o r steamship companies o r b y any person or perso n s) drawn in but payable o ut o f th e Philippines in se t o f three o r m o re according to th e custom o f the merchants and bankers, there sh all be co llected a documentary stamp tax of thirty centm�os on each two hundred pesos, or fractional part th ereo f o f the face Yalue any such bill o f exc hange o r let ter o f credit-, o r the Philippine C<-juivalcnt o f such face ,�alue, if expressed in forei.!--,rn currency. (as amended by PD 1457 and PO 1589) . (L nderscoring supplied .) Sec. 51 . \\�l1at mav b e co n sidered as telegraphic tran sfer. - If a local bank cables to a certain bank in a fo reign co untry with which bank said local bank has credit, and directs that fo reign bank to pay ano ther bank o r p erso n in same lo cality a certain sum o f m o ney, the document fo r and in respect of such tran sactio n will be regarded as a telct,traphic transfer, taxable und er prm�isions of Section 1449(i) o f the Administrati\-c Code. Sec. 50. - Basis o f a tax case of Telegraphic Transfers. - The basis o f a tax in case telegraphic transfers o r o rders fo r the payment o f m o ney Jrawn in but payable o ut o f th e Philippine l slands (now Philippines) sho uld be the face ,�alue of such telegraphic transfers or orders computed, if expressed in a foreit:m, currency with the rate of exchange taken into consideration." (L ndersco ring supplied .)

DECISION- C.T .A. CASE N O . 6593 PAGE S 13. The fl ow of fund ~ abroad fro m the Philippin e~ i ~ irrelevant to the accrual o f th e D ST. The li abilitv o f :-tn in strument to the documen tary stamp tax and the amo unt o f the tax arc determined b y th e fo rm and face thereo f and c:-tnno t be affec ted b y p roofs o f fac ts o utside the in strument itself (U. S. vs. I slam, 17 \\ 'all , 496, 84 L .S. 49o). T he th en Sec tio n 195 (n ow Sec ti o n 1H2) o f the Tax Code subj ec ts to th e D ST fo rc i~111 bill s o f exch ange and letters of credit (including o rders b y telegraph o r o therwi ~ e) fo r the paym ent o f m o n ey draw n in but payable o ut o f th e Philippines. Accordingly, th e D ST prescribed b y Sec ti o n I95 o f the T ax Code, as am end ed , is du e and p a ~� ablc o n th e o rd er co Yering the fo rwa rd tr:-tn sac tio n as well as o rd er cmTring o r leading to the sp o t sale o f the fo reign exchange and no t o n the sale o r p urch ase o f fo reign exchange \vhich arc n o t subject to the D ST In the case b ar, the re:-tl p arti es to the tr:-tnsactio n are the local b ank as drawer which h as a S\\ '/\P arrangem ent with the CB and th e fo rm er's fo reign co rres po nd ent bank as d rawee / accept�o r. Pursuant to th e th en Sec tio n 222 (n ow Sectio n 173) o f th e T ax Cod e, th e D ST is payabl e indifferentl y b y either p arty m aking , s i~111in g iss uing, accepting o r tran s ferring th e taxabl e d ocum ent. lien ee, sin ce th e drawee 0o cal b ank's fo reitm, co rrespo nd ent bank) is n o t within the Philippin e G o vernment's taxing jurisdictio n , the drawer lo cal bank is liable to p ay the D ST o n the afo rem entio n ed o rders, market con venti o n to th e co ntrary n o t\\�ith standing. \\ 'ith th e am endment o f Sectio n 222 o f th e Tax Code by Presidential Decree N o. 1994 e ffective J anuary 1, 1986, th e liability o f th e local b ank, as drawer, to the D ST o n the o rder/ cable in structio n e ffec ted und er th e S\\ '1\P agreem ent b eco m es m o re ex plic it. T h e factual ques tio n o f wh eth er o r n o t th ere was fl ow o f fu nd fro m o ne co untry to ano th er rc<.Juires p roo f o f facts outside th e in stn1m ent itself. Be th:-tt as it may, where there is n o fund o r credit at,'llin st whi ch an o rd er is Jrawn , th e said order w o uld n o t be accepted o r ho n o red and there is n o con summated tran sactio n to sp eak o f subj ec t documentary sta mp tax (Co mments o n the B/\ P ~. Jcm o o f May 18, �1987 to th e BIR b y J ose J. Santos , C hie f, Fran chi se and Miscell aneous Taxes Di\�isio n). P etitio n er's reliance o n the m em o randum da ted Ma rch 4, 1987 is mi splaced to say the least. The

DECISION- C.T.A. CASE NO. 6593 PAGE6 memorandum is, sad to say wrong interpretation of Section 195 of the Tax Code, as amenJeJ, which is the applicable law in this case. The memorandum h;n�ing been issued on wrong construction of the law, cannot t:,r-iYe ri se to a \T sted right that can be invoked by the petitioner. The Supreme Court laiJ J own this in HilaJo v. Collector of Internal Revenue and the Court of Tax Appeals, G.R. No. L-9408, October 31, 1956, wherein stated that: XXX XXX With regard to the contentio n that General Circular No. V- 139 cannot be given retroactive effectiYe because that \vould affect and obliterate the vested right acquired by petitio ner und er the previous circular, suffice it to say that General Circular No. V- 123, having been issued on a wrong constructio n o f th e law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is o bvio us: a vested right cannot spring fro m a wro ng interpretation. This is too clear to require elaboration . " It seems to clear for seri ous argume nt that an admin istrative officer can not change the law enacted by Congress. A regulation that is merely an interpretation of the statute wh en o nce determined to have beco me erroneous becomes nullity. An erroneous constructi o n o n the law by th e Treasury D epartment o r th e collecto r o n internal reYenue does no t preclude or estop the government from collecting a tax which is legally due." (Ben Stocker, et. al., B.T.A.., 135 1.) "Art. 2254. -No vested o r acquired right can rise from ac ts o r omissions which are against th e law o r which infringe up o n th e rights o f o thers". (Article 2254, New Civil Code) In sum, it is very clear that the said memorandum expands the language of Section 195 o f the Tax Code, as amended. The same cannot be countenanced. It is settled rule o f statutory construction that the implementing rules and regulations cannot amend the act of Congress (Natiollaf Tobacco Administration t'S. COA, 311 SCRA 755) fo r administrative rules and regulation are intended to carry out, not supplant or modify, the law (Grego t'. COJ\ JELEC, 27-f. SCIV-1 -/.81). Likewise it is axiomatic that a rule or regulation must bear upon, and be consistent with, the provisio ns of the enabling statute if such rule or regulations is to be valid (I_ina .Jr. m. Carino, 221 SCRA 515). And in case of discrepancy between the basic law and the rule or regulation issued to implement

DECISION- C.T.A. CASE NO. 6593 PAGE7 the law, the basic law preYail s (1 l[jo f>lrmtation, Inc., l'S. Central Bank, 16-1- SCIVl 192; Conte !'s. Co~trt ofAppeals 26-1- SCIVl I9). 14. Finall y, the government is n o t es to pped b y th e mistake o r errors o f agents, erron eous applicatio n and enfo rcement o f law b y public o ffi cers do no t bloc k the sub sequent applicatio n o f statutes (E. Rodrigmi_; l m: r. Col!edor ; L -230-I- I, J7t!J'3 1, 1969). During the Jul y 17, 2003 hearing, co un sel fo r th e petition er manifes ted that he is submitting the case based o n th e pleadings o n a purel y legal issue, to which the respo ndent o n the Augus t 28, 2003 hearing, likewise manifes ted that h e would n o t submit any evidence. T herea fter, after both parties had fil ed their respective m em o randum, this case was submitted fo r decision on J anuary 22, 2004. D espite previous n o tice to the respondent, he failed to fo rward the BIR Reco rds to the court, hen ce, in its resolution p romulgated on May 19, 2004, this court o rdered respondent's co unsel to fo rward th e 13JR reco rds and to explain why h e failed to deliver the Bill Reco rd s to this co urt despite repeated dem and s. T h e respo ndent ftled a manifes tatio n o n May 26, 2004 info rming the court that o n May 12, 2004 he already transmitted to th e court's Reco rd s Section the BIR Reco rds con sisting o f three hundred sixteen (31 6) pages (pages 113-114, CTA R ecords). The parties agreed that the foll owing are the issues fo r resolution in this case, to wit: 1. T h e validity o f assess ment no tices fo r respo ndent's failure to issue any n o tice fo r info rmal conference with respect to the findings o f the alleged documentary stamp tax de ficiency from 1982 to 1986 as required under Sectio n o f Revenue Regulation No. 12-85 dated N ovember 27, 1985;

DECISION- C.T.A. CASE NO. 6593 PAGES 2. \Vhether the failure o f the res po ndent to furnish petitio ner o f the details, n ature and breakdown of the alleged findings o f tax deficien cy violates p rocedural due p rocess and fair play; 3. T he validity o f the 1982 to 1986 dem and / assessment n o tices issued b y then Assistant Commissio ner fo r Collection - Mr. Aguillo n o n April 7, 1989 (after then Commission er T an made it official to set aside, disregard o r rep robate the very sam e tax assessm ents), fo r failure o f respondent to issue n o tice fo r info rmal co nference and/ o r p re-assessment no tice (PAN) prio r to the issuance o f said assessm ent no tices; 4. Whether o r no t the coll ection o f tax deficiency in ques tion has p res crib e d ; 5. Whether o r n o t petitio ner's cabled instruction to its fo reign co rrespondent bank to remit specific sum o f fo reign curren cy to the fo reign co rres pondent b ank o f the Central Bank o f the Philippines is in the n ature o f a telegraphic transfer subj ect to documentary stamp tax under Section 195 o f the T ax Code, as am ended, and amplified b y Sections 50 and 51 o f Regulations No. 26; 6. Whether o r no t petition er is liable to pay the alleged 1982 and 1986 do cumentary stamp tax deficien cy assessm ent. To sensibly put the issues into o rder, it is necessary to resolve the issues in the following sequence: Firs!, whether o r no t there was a valid assessm en t n o tice fo r the deficiency do cumentary stamp tax. Second, wh ether or n o t the collection o f the do cumentary stamp tax deficiency in questio n has already prescribed. A11d third, whether o r n o t petitioner is liable to pay documentary stamp tax fo r its swap transactions from 1982 to 1986. Anent the first issue, petitio ner contend s that respo ndent's pen chant fo r procedural sho rtcuts - by n o t disclosing to the petitioner, the n ature, detail s an d

DECISION- C.T.A. CASE NO. 6593 PAGE9 basis o f the assess ment and skjrting the issuance o f the no tice fo r an info rmal conference as required b y Revenue Regulation N o. 12-85, violated its right to due p rocess and fllir play. P ertinent provisio ns o f Revenue Regulatio ns N o. 12-85, implem enting Section 319 of then Tax Code are hereunder quo ted fo r easy reference: POST RE PORT IN G NOTI CE Section 1. Post-reporting notice - Upo n receipt o f findjngs, the Division Chief, Revenue District O fficer o f Chief Office Audit Section, as the case may be, shall send to the taxpayer a no tice fo r an informal co nference befo re fo rwarding the repo rt to higher authorities fo r approval. The no tice which is Annex "A" hereo f shall be acco mpanied with a summary o f findings as basis for informal conference. (Annex "A" deleted). In cases where the taxpayer has agreed in wntmg to the proposed assessment, o r where such p roposed assessm ent has b een paid, the required no tice may be dispensed with. P RE-ASSESSMENT N OTICE Section 2. Notice for Propo.red Asse.umml. \Vhen the Commjssioner o r his duly autho rized representative find s that taxes should be assessed, he shall first no tify the taxpayer o f his findings in the attached prescribed fo rm as Annex "B" hereo f. T he notice shall be made in writing and sent to the taxpayer at the address indicated in his return or at his last known address as stated in his no tice o f change o f address. (Annex "B" deleted). In cases where the taxpayer has agreed in writing to the proposed assessment, o r where such proposed assessment has been paid, the required notice may be di spensed with. Section 3. Time to HejJ()'. - I / emtefor 1""7zling l\epb'� - (a) Regio nal Office cases. - x x x x x

DECISION- C.T.A. CASE NO. 6593 PAGE 10 (b) Natio nal Office cases. - The taxpayer shall reply within a perio d o f fifteen (15) days from receipt o f the Pre- Assessment N o tice. In merito rio us cases and upon written reques t o f the taxpayer an ex tension exceed a to tal o f ten (10) days. T he reply o f the taxpayer shall be ft.l cd with the Section Audit Review Divisio n o r the National Audit Review Division, as the case may be, which has jurisdiction over the case. XX X X X X X ISSUANCE O F ASSESS_ME N'f Section 5. Failme? to Rep!J to Pre-Assessment N otices. IssHaJtce rf Assessment. In the event the taxpayer fail s to respo nd to the Pre- Assessm ent N o tice within the above-prescribed period, o r when the Commissio ner o r his duly autho rized representative find s the response witho ut merit, he sho uld be info rmed o f such fact and the report of inves tigatio n shall be given due course." The petitioner claims that th e no n-ob servance o f the afo rec1uo ted sections ofRevenue Regulatio ns N o. 12-85 violated its right to due process. We do no t agree. P etitioner admitted that it received the pre-assessment no tice on November 26, 1986 for de ficiency inco me and business taxes in the amounts o f P153,378,910.44 and P24,587,474.63, respectively, covering the years 1982 to 1986. P etitioner, in a letter dated N ovember 29, 1986, protested the said preliminary assessment notice and reques ted fo r a recon sideration or reinvestigation thereof (page 135, BIR Recorr/4 On April 7, 1989, respondent issued assessment/demand no tices FAS-1-82 to 86/ 89-000 and FAS 5-82 to

DECISION- C.T.A. CASE NO. 6593 PAGE 11 86/89-000 for deficiency withholding tax at source in the amount of P190,752,860.82 and deficiency documentary stamp tax in the amount of P24,587,174.63 for the years 1982-1986. It cannot be denied that on April 20, 1989, petitioner flied its protest to the demand / assessment notices and on May 8, 1989, it flied a supplemental protest. Respondent took cognizance of said protests when in his decision dated August 9, 2002, he cancelled and withdrew the assessment for deficiency withholding taxes amounting to P190,752,860.82. It is noteworthy that petitioner is n o t aq=>111ing that its right to due process was violated as regards the said deficiency assessment for withholding taxes. It would be tantamount to admitting that Sections 1, 2, 3 and 5 of Revenue Regulations No. 12-85 were not disregarded where the assessment for deficiency withholding taxes is concerned. But petitioner cannot claim denial of due process nor allege procedural defects with respect to the subject deficiency documentary stamp tax assessment and not with regard to the deficiency withholding tax assessment which was cancelled. It must be pointed out that both the deficiency withholding tax and documentary stamp tax assessments were contained in only one assessment notice and both assessments were the subject of petitioner's protests. In other words, both assessments underwent the same procedural process. Apparently, petitioner's arguments are bereft of merits. Moreover, we are not persuaded by petitioner's argument that respondent's failure to issue notice for an informal conference invalidates the

DECISION- C.T.A. CASE NO. 6593 PAGE 12 assessm ents. Revenue Regulatio ns N o. 12-85 does no t p rovide so no r does Section 319 o f the Tax Code which it implem en ts. As regards the second issue of w heth er or n o t th e period to collect deficiency do cumentary stamp taxes o n th e part o f res po ndent has prescribed, we rule in the n egative. In the case o f Commissioner if lntemal R et'emte vs. Wyeth Suam Llboratories, Inc., 202 S CRA 125, the Suprem e Court held that altho ugh the p ro tes t letters prepared b y SGV & Co. fo r and in behalf o f th e private respo ndent did n ot categorically state o r use the wo rds "reinves tigatio n ami reconsideration", the same are to be treated as letters o f rein ves tigation and reconsideration . In the case at bar, petitioner ftleJ a p ro tes t o n April 20, 1989 (pages 170 to 116, BIR Records) and a supplem ental protes t o n May 8, 1989 (pages 153 to 161, BIR Records). In its letter p ro tes t o f April 20, 1989, petition er wro te thus: In view o f all the fo regoing, we m os t respectfully reques t that this fundamental issue be resolved first, be fo re anything else, because it affects the very validity and existence o f the assessm ents themselves, no t to m ention the impo rtance and far-reaching significance thereo f. For this purpose, it is reques ted that this be referred to your Legal Department fo r study and resolution. (Underscoring ours) Likewise, in its suppl em ental protes t dated May 8, 1989, petitioner requested: For the purpose of resolving the legal issues raised in this protes t, we request that this be referred to your Law Division for study and reconunendatio n. T hereafter, we reques t that the assessments b e withdrawn and cancelled. (U nderlining supplied)

DECISION- C.T.A. CASE NO. 6593 PAGE 13 Clearly from the foregoing letters, petitioner was asking for a reconsideration and/or reinvestigation of the assessments so issueJ. In fact, in a letter dated June 13, 1994 (page 256, DIR Eecord.~, petitioner categorically stateJ and we quote: "Further to our letter of April 2, 1993 relative to the submission of swap contracts in connection with the reinvestigation of the subject assessment, we are submitting the following:" Under Section 320 [now 223] of then Tax CoJe, the runnmg of the statute of limitations on the making of assessment anJ the beginning of distraint or levy or proceeding in court for collection, in respect to any deficiency, shall be suspended for the period when the taxpayer reyucsts for a reinvestigation which is granted by the Commissioner. We consider petitioner's protest letters as requests for reinvestigation and based on the evidence on record, the respondent granteJ the same. As early as May 29, 1989, petitioner's protest letters were forwardeJ to the Assistant Commissioner, Legal Office (page 115, DIR H.ecords). On October 22, 1991, the Assistant Commissioner for Special Operations Service issued a memorandum to Revenue Officer Aida N. Florencio of Banks, 1'inancing & Insurance Division to conduct a verification of the withholding tax on interest on foreign loans of petitioner and other commercial banks with swap transactions for the years 1982-1986 (page 149, BIR Records). On April 2, 1992, the Senior Assistant Cashier of petitioner submitted to Revenue Officer Florencio copies of swap

DECISION- C.T.A. CASE NO. 6593 PAGE14 contracts in connection with the swap transactions under investigation (page 190, BIR Records). Thereafter, Revenue Officer Florencio issued a 1st Indorsement dated April 30, 1992 (page 193, BIR Records) returning to the Chief of Banks, Financing and Insurance Division the entire docket on the tax case of petitioner [then Far East Bank and Trust Co.]. She recommended that the original assessment of P86,161,704.12, exclusive of penalties be given due course since the documents of petitioner failed to show that it is exempted from withholding tax at source. The Chief of Banks, Financing and Insurance Division then issued a 2nd Indorsement dated February 17, 1993 forwarding to the Assistant Commissioner, Collection Service the said docket and concurring with the recommendation of Revenue Officer Aida Florencio (page 234, BIR Records). On March 8, 1993, petitioner thru SGV & Co., wrote the Bureau of Internal Revenue Attention: Chief, Banks, Financing and Insurance Division that: "On behalf of our above-named client and in compliance with your requirement, we are submitting a duly executed copy of the Waiver of the Statute of Limitation relative to the subject assessments. It would be appreciated if our client can be given the opportunity to present or submit additional documentation on its swap transactions with the Central Bank as agreed upon by the BIR and the BAP Tax Committee." Then on April 2, 1993, petitioner submitted additional documents, particularly the swap contracts and the corresponding ticket advice (pages 228-230, BIR Records).

DECISION- C.T.A. CASE NO. 6593 PAGE 15 On November 25, 1993, Revenue Officer Florencio returned the docket of the case to the Revenue Service Chief, Special Operations Service (page 247, BIR Records). On February 17, 1994, the Regional Director of Revenue Region No. 6 forwarded the case to the Revenue District Officer of Revenue District Office No. 33 on the ground that petitioner "falls within the jurisdiction of that district" (page 246, BIR Records). In an Indorsement dated June 6, 1994, the Revenue Officer of Revenue District No. 33 forwarded to the Revenue District Officer the docket bearing petitioner's case "with the information that the source of assessment is of legal question" and recommended that the same be referred to the Legal Division, National Office (page 272, BIR 1\ecorrls). On June 17, 1994, petitioner submitted to the Revenue District Office No. 33 swap contracts in connection with the reinvestigation of the subject assessment (page 256, BIR Records). On August 17, 1994, petitioner submitted the corresponding FCDU ticket advice for the swap contracts. Petitioner also submitted a copy of the Memorandum of Understanding on \Vithholding Tax Issue Relative to Swap Transactions of Commercial Banks entered into by the BIR and the Bankers Association of the Philippines (pages 268-269, BIR Records). In an Indorsement prepared by Revenue District Officer Jaime Q. Concepcion dated August 26, 1994, the protest case of petitioner was forwarded to the Chief, Legal Service with the ftndings that as per the documents submitted, the foreign exchange used as the object of the Spot Sale and Forward Purchase under the Swap Agreement fell under the exemption agreed upon in the Memorandum of

DECISION- C.T.A. CASE NO. 6593 PAGE 16 Understanding on WithholJing Tax Issue Relative to Swap Transactions of Commercial Banks, hence, not subject to 15�/o [now 20�/ oj withholding tax. However, the issue of DST is not incluJcJ in the saiJ MemoranJum of Understanding, thus, recommenJing once more the Jcficiency tax assessment on DST. On November 27, 2000, a Decision signeJ by Commissio ner Rene Banez was rendered withdrawing anJ cancelling the Jcficiency withholding tax assessment in the amount of P190,752,860.82 but finding petitioner [then Far East Bank & Trust company] liable for Jeficiency Jocumentary stamp tax in the amount of P24,587,174.63 (pages 300-309, DJR Records). l3ut as aJmitted by the parties, it was the D ecision Jatcd August 9, 2002 which was received b y the petitioner on January 15, 2003. Just the same, the contents arc the same. Indeed, based on the above inco ntrovertible facts, petitioner requested for a reinvestigation and reconsideration and the same was granted and acted upon by the respondent. As discussed, the J e ficiency withholding tax assessment amounting to P190,752,860.82 was withdrawn and cancelled and only the deficiency documentary stamp tax assessment amounting to P24,587,174.63 remained. Therefore, the prescriptive period proviJed b y law to make a collection by distraint or levy or b y proceeJing in court for collection relative to the deficiency documentary stamp tax subject of this case was suspended. It was only upon receipt by the petitioner o f the Decision on the protest on January 13, 2003 that the perioJ to collect started to run again. It

DECISION- C.T.A. CASE NO. 6593 PAGE 17 follows that respondent's right to collect said deficiency tax assessment has no t prescribed. In fact, on October 10, 2002, a Final Notice Before Seizure was already issued by the BIR's Chief of Large Taxpayers Collection and Enforcement Division (page 310, BIR Record~. H owever, this case was under judicial review as ofJanuary 24, 2003. As to the final issue of whether or not petitioner is liable for documentary statnp ta.x on its swap transactions for the years 1982-1986, this court has ruled in a number of cases, the latest of which is the case of A1.etropo!itan Bank and Tmst Compmry vs. The Commission rf Intema! 1\er'enlle, C 1/ 1 Case No. 6378, ./-lp1if 26, 2004, that petitioner's cabled instructions to its foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve Bank to be crec.liteJ to the account of the Central Bank is in the nature of a tclet,'Laphic transfer subject to the DST under Section 195 (now 182) of the Tax Code. In the cases of China Banking C01poration t'S. The Commissioner rf lntemal Revmue, CTA Case No. 4361, December 22, !993 anJ Consolidated Bank and Tmsl Compmry vs. The Commissiomr rf Intema! Rer�emte, CT/~ Case No. 4647, Nor;ember 21, 1994, this court declared that the liability of petitioner for the payment of documentary stamp tax for the transfer or sale of foreign bills of exchange fmJs support under Section 51 of Revenue Regulation No. 26. "A documentary stamp tax is in the nature of an excise tax. It is not imposed upon the business transacted but upon the privilege, opportunity or facility offered at exchanges

DECISION- C.T.A. CASE NO. 6593 PAGE 18 / for the transactio n of the business" (Commi.rsioner ~/ lntemal 1\er;enue vs. Ll eald / Lumber Co., GR No. L -16340, Fe!mtary 29, 196-1-). Significantly, our pronouncements in the aforesaid cases were affirmed in toto by the Court o f Appeals in the cases of China Banking Corporation vs. Commissioner of Internal Revenue, CA-G.R SP No. 336Jl, September 23, 1994 and Consolidated Bank & Trust Company vs. The Comm,issioner of Internal Revenue and the Court of Tax Appeals, CA-G.R SP. No. 3J9JO, March 31, 199J, respectively, And again, in the case o f Bank of the Philippine Islands vs. The Commissioner of Internal Revenue, CTA Case No. 4481, May 31, 1994, the court h ad the occasio n to pass upo n the same issue in this wise: "It has been shown above that by virtue o f Section 51 of Revenue Regulatio ns N o. 26, m ere cabled instructions to a foreign correspondent to pay m oney wouJJ fall within the ambit of Section 182. Even if such instructions were no t covereJ, Petitioner's argument would still n o t stanJ. Sectio n 182 mentions "foreign bills of exchange and letters of creJit'' that arc "d raw n in but payable out of the Philippines." Obviously, it is n o t money th at is being drawn in the Philippines, as the P etitio ner woulJ have it, but bills o f exchange and letters o f credit "being Jrawn from a place of deposit in the Philippines" in relatio n to J ocumentary stamp tax under Section 182. It is more logical to consider that what the law means with "drawn in" is "executed in" . ln fact, the Centennial 61 E Jition of " Black's Law Dictionary Jefines "Jraw" as: The act f!fa drmJier in tnating a draji. To dnm' a bill qfexchange, check, or draft, is to Jl'file (or ca11se it to be J1!1itten) and sign it; to make, aJ a note.

DECISION- C.T.A. CASE NO. 6593 PAGE 19 T hus to draw bills o f exchange and letters o f credit in the Philippines is to write, sign, o r o therwise execute such bill s o f exchange and letters o f credit in the Philippines. T he Court o f Appeal s likewise affirmed the above decisio n in the case o f Bank ofthe Philippine Islands vs. Conunissioner ofInternal Revenue and The Court ofTax Appeals, CA-G.R SP No. 3.!383, August 14, 1998, and elucidated further, thus: "I f petitio ner would read the said p rovtston in its en tirety and no t m erely rely on the captio n, it is quite apparen t that the imposition o f do cumentary stamp tax in Sectio n 182 is no t limited only to foreign bills o f exchange o r letters o f credit but to all the o rders m ade by telegraph or by an y other m eans for the p aym ent o f money m ade by any person o r persons drawn in but payable o ut o f the Philippines. W as the advise sent by p etttw ner bank via cable to its fo reign co rresponden t a telegraphic transfer and one which wo uld fall within the p rovisio ns o f Section 182? Perusing the provisio ns o f Section f1 ofRevenue Regulations No. 26, We have to say that it is. All the elem ents fo r a telegraphic transfer are indeed present, thus: (1) P etitioner BPI cables its co rrespondent bank in the United States; and (2) Petitio ner bank direc ts that co rrespondent bank to remit the dollar am ount to the Federal Reserve Bank o f New Yo rk fo r credit to the account o f the Central Bank o f the Philippines. Telegraphic transfers being proper subjects fo r the imposition o f documentary stamp tax, \Ve therefo re uphold the findings o f the court a quo." In sum, petitio ner is liable to pay the deficiency documentary stamp tax subject of the instant petitio n.

DECISION- C.T.A. CASE NO. 6593 PAGE 20 IN VIEW OF ALL THE FOREGOING, the petition ts hereby DENIED for lack of merit. Accoruingly, petitioner is ORDERED to PAY the respondent the amount of P24,587,174.G3 representing ueficiency documentary stamp tax for the periou 1982-1986, plus 2U% interest starting February 14, 2003 until the amount is fully paiu pursuant to Section 249 of the Tax Code. SO ORDERED. 54c~ ~. ~ot. );), . jUANITO C. CASTANEDX,jR. Associate Justice WE CONCUR: (On Official Leave) ERNESTO D. ACOSTA Presiding Justice Associate Justice CERTIFICATION I hereby certify that the above decision was reacheu after due consultation with the members of the Court of Tax Appeals in accoruance with Section 13, Article VIII of the Constitution. ;;;l~rd;- <2 � ~ 9.. jtJANITO C. CASTANEDA,':JR. . Associate Justice