CTA Case No. 5555 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS -QUEZON CITY BANK OF THE PHI LIPPI NE ISLANDS, C.T.A. C SE NO. 555 5 P e t i t i o n e 1�' , COMMISSIONER OF INTERNAL REvENUE, Res ond ent. x----- - - - DECISION This a p etition for�- rev iew filec by pe titioner , B NK OF THE ~H LIPPI NE ISLA NDS, again.t the respondent COMMISSIONER OF INTER 'AL REV ENUE , f Ot'' latt~r's decision to as se ss the former th e t otal amount of P2B,020. 0 0, alle g ed ly re presen~ing the pevitioner's i deficiency docu menta ry stamp tax <DST and compt'omise ! penalty for t he year 1985 . Peti t ioner is a comm~rcial banki ng corporation dul y organ ized and existin g under the laws of th e P ili p in es wit 1 add t~ess a t BPI Bldg. , Ayala Ave. coy�net' Paseo de On June 6, 1985, petitionet' sold to the Cen t ral Bank of the Philippines (now Bang .o Sentral ng P i l ipinas > US$500 ,000.00. On .T une 1'+ o f the sam e yea t' l ' oi- aga i n l" s o d to said institution a nother USS500,000. 00. On October' 10 ~ 989, resp o nden t issued Assessment 1\otice lo. FAS- 5 - 35- 89- 002054 , assessing petitioner o � de ficie n cy doc ument .:n�y s.1,-amp. taxes on the above in the amount of P27, 720. 00 p.us P30C.CO

�' DECISION -- C&T.A. CASE NO. 5555 c 2 compromise penalty or a total amount of P2B1 020.00. T~ same was received by petitioner on October 20, 1983 <Exhibit "A"). On November� 17, 1989, petitioner filed with .-~es ::JOnden t its p ro test against the subject assessm~nt <E>< hib it "B"). It anchored its protest an the pr~emise �hat under established market practice in the sales of foreign exchange , it is t he buyer~ who pays the documentary stamp tax on the transaction , hence, it i s the Central Bank of t he P1iliJpines that s loulcl have paid the 1;ax. that i t ex~ou n ded that s i nee t; he Cent ��� -.:~ time was exempt ta><es, then n o Bani-< at documentary stamp taxes were due on the two transact io n s. said that while it is true that under P.D. 1994, a ::wovi s o was added to Section i~2i:=~ <nolA.' Section 173) of the Tax Cod e "that whenever~ one par~t y to a taxable document enjoys exemption ft~om the tax her~e in imposed , �the other~ par�ty there �t;o who is no" e >< em t s1all be the on e directly . i a b 1e fat' t h e t e.x " , t h e sam e i s n ot applicable in the case at bar since the questioned r~ansa ~ tions took plac~::: befon? Januar�' y 1. , 1986 ~ the Ja�t e \"hen r-. D. 199'+ took e ff ect. Sev en (7) y e a~, s and n i n e (9) months ther eafter y Ot' on Sept ember~ 11. , 1997 , pe~itioner received a letter from responde nt dated August 13, 1'397, denying the pr�ot est it filed last November 17 , 1989~ promptin g the petitioner to

DECISION C.T.A. CASE NO. 5 ~55 file wit this Court the in s tant petition for revi ew on October 10 ~ 1997. � Petitioner re pleads its stance a quo in the in st ant petition for review with the additional argument that the t��es Jondent' s t' i ght t; () c ol ec� the .::1ssessmen, has On the o her" hand~ 1���espondent in his answer rationalized that while industr y ~r acti c e or market convent i on has the f orce of law between members of a particu l ar ind ustry , it does nat bind resJondent ' s bureau which has never be en a party thereto , should no t prejudi c e the latter in its task o f collecting revenues necessary and vita_ to the o erations a �� the d i ffer"ent and various agencies of the go v enHHHit . Further, he said that even before t,e a mendment of Sec. 222 (now Sec. that the other party who is not exempt from Ja yment of DST is liable f or the tax , citin g BIR Unnumbered Ruling dated May 30, 1977 and BIR Rul in g No. lLi-4-84 dated September 3, 1984. issues to be resolved by the Court are whether or not the right of respondent to collect fr om pet it ioner the alleged deficiency DST f 0 ~" 1'3 8 5 h <":\ s p r escribed and <2) whether or not petitioner' s total sale of US$1,000,000.00 last June 6~ 1985 and June 1 4 ~ 1985 o the Central Bank are subj ect to documentary starn tax.

.. l DECISION C.T.A. CASE NO. 5555 -�- 1.~ - We disagree with the petitioner that respondent's right to co ll ect the alleged deficiency DST for 1985 has already prescribed. Under Section 318 <now 203) of the 1985 Tax Code, quoted hereunder, the genera l prescriptive period for col l ection of internal revenue taxes, fees and ! (3) years from date of assessment. Th~ exceptions to said period are set forth in ~)~?ction 319 ./"""- (now 222) of the 1985 Tax Code, as well as in decisional \ \, ,.~ul ings. Letter (c) of Section 319 which i s applicable in th~ inst.:mt case is aiso quoted h ere under for ~asy "SEC. 318. Period oF limitation upon assessment and collection oF taxes. Except as provided in the succeeding section, internal revenue taxes shall be assessed within three years after the last day p res cribed by law for the filing of the return, and no proceeding in court without assessment for the co l lection of such taxes s hall be be g un after the expiration of suc h period: Provide~ That in a cas e where .a return is filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. For the purposes of this section , a return filed before the last day prescribed by law for the filing thereof shall be co nsidered as filed on such last day." <Under~~;ccn~ing ~; uppU.ed) "SEC. 319. Exceptions as to period or limitation oF assessment and collection oF taxes. (a) x >< >< (b) X X X "(c) Any inter�nal r~evenue tax which has been assessed within the period of limitation above - prescribed may be collected within three years following the assessment of the tax. I (ibid) 00

.., - - I DECISION --- J C. T. A.. Cr-ISE NO . 5 55~5 .o_::J:- In the ca-::;e of Commissioner of Inte rna l Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to the fit��st issue. It categorically ruled is to be treated as request for reinvestigation 01�~ reconsideration and a mere request for reexamination or ( reinvestigation tolls p!?r~ i od of the Commissioner to collect on an assessment , thus~ " !;-3 !? t t 1 !:? d 1 s t h e 1�' u 1 e t h at t h f~ p ,.~ e s c ,., i p t i v e period provided by law to make a collection by distraint or l evy or by a proce eding in court is interr upted once a taxpayer re qu ests for reinvestigat{on or reconsideration of the assessment. In the case of Commissioner oF Int ernal Revenue vs. Capitol Subdivision, Inc. , this Co ut~t h e 1 d: "Th e pet'io d of pr~escr�ipt:i.on of action to co ll ect .=."-\ taxpayey-' ~; deficiency income tax as:;essm�~nt i~; interrupted when thf? t <"1Xpa yer�� r~ e q u E~ s t ~; f o t~ i~ t'1View en~ 1�' e c o n !; i d e r~ a t i o n !;e.�dd a':;!;!?ssmen �t, and starts to run again ~""hen said )( X X XXX X )( >< Although the protest l etters prepared by SGV & Co. in behalf of pr~ ivate t~espondent did not categorically state or use the words "r~e inVE!stige:\tion" and "r~ec on side r��a t i on ", the same are to be treated as letters of reinvestigation and reconsideration . By virtue of these l et ters , the Bureau of Inter na l Revenue ordered its Ma nufacturing Audi t Di vision to review the asse s s me n ts made. s claim Fut~ti"HH~mcn~e, pr~ive:\te ,.�-e~; ponden t ' t h a t i t did not seek reinvesti gation or reconsideration of the assessments is belied by the subsequent

, DECISION , C.T.A. CASE NO. 5555 - 5- corres ondence or letters v~'l"�itten by officers , as shown above. These l etters of Wyeth Suaco interru ted the run n ing of the five- year prescriptive pet~iad ,o call ct the deficiency �taxes. Tl ,e B m~eau of I nt er~na 1 Revenue, afte r' having reviewed the reco rd s o f Wyeth Suac o , in accor'dance wit\ its t'equest for�� reinvesti gation, renrered a fina l assessment. Thi s f ina l assessment issued by then Acti Commissioner Rube n B. Ancheta was dated December 10, 979 and r e c e ived b y private _ t'esponden t on Sanuat'Y 2 , 1980, fixed its tax iability at P1 7 973, 112.86 as de f ici ency wi thholding tax at source and P61, 155.21 as deficie nc y sa l es tax. � t was only upon rece~pt by Wyeth Suaco of this final asse ssment that the fi ve-year pres c ri pt ive peri od started to t''Url again. Ve ril y, t he origina . assessments dateo � De cembe r' 16 an._ 1 7, 19 7 L~ wt.n�' e bo�i;h r' t.~ceived by Wyeth Suaco on De cem er�� 1 '3, 1974. However' , w en yeth Suaco protested t 1e assessments and sou y ht i�i;s r� e c on . idet��ati on in two (2} let teJ�'s received b y th e Bureau of I ntern a l Revenue on J anuat'Y 20 and Feb~'uat'Y 10, 1975, th e prescriptive period was interrupted. Th is period started to run again wh en the Burea u of Internal Re ven u e served the final assessment to Wye �l;h St_taco on Januar�� y 2 , 1980. S i nee the waY-r-ants of d).str��aint ant-.l levy ~-Jel~e ser'ved on Wyeth S uaco on Mar'ch 1;:::, 1':380 , then , on 1 y a b out f our <4) months of the f' ve - year p rescriptive per~iod was used. " I n the case at bar, t 1ere bein g no dispute that etitioner file d i~s retest on the sub j ect assessmen - on Novemb e 1�' 17 , 1989 , there can e no conFlusion other than that sai< pt'o �te st stop ped the t~unnin g of the pr' e sct~i pt ive period of the Co mmissioner to c ollect. Sect :i. on 320 (now 223) of the Tax Co de ~ state s that a r equest for� . reinves t i gat ion which is b y t he Commissioner'; shall sus pe nd the

DEC.ISION C.T.Au CASE NO. 5555 - 7- prescript've er i od .o c o llec t. The unde rscored porti on abo ve does not mean th at the Com missio ner will c ancel the subj ect assessment Com missioner by not issuing same was entertained by the any ~"'at~r��ant of dis'tr��ai nt ot~ lev y on the pt~opet��ties of the taxpayet~ at~ any act i on pr~e jud icia. l .. a the latter~ unle s s and until the re uest fo r reinvesti gatio n is f in ally given due Taking into con sideration thi s pt~avision of l aw and t e a��orementioned ruling of the 1 Su �r�eme Com~t in t...tyeth Suaco vhic:.1 sJeci "ica ll)' a.nd \''.�'~ categorically states that a Jrot est could be considered reinvestigatio n, We that prescr iption has not set in against the government. Anent the other iss ue, th e sa me should be ruled in the negative. r On a 1 fours with the case at bar on the sec on d '1 ' issue , by n;:ason of the c l ose simil.::n~it y o f fa.c �.. ual ci rcumstances and the prov isi ons of law involved , is t e cas e o f Cons olidated .Bank & TY�u sf; Co. Com mission er of Int ernal Rev e nue, C Tf.'1 Ca~;e.� No . Nove n be r 21, .1.994 , whet~ &dn th is Cour�t t~ ~~so l ved the s ame issue now brought befot��e us in t his proceeding in th e following 1"-l ise~ "Petitionet~ fr_wthet~ at~g u es that even if DST i t these transact ion s were taxable for because c oul d still not be held liable establ ished banking practi ce dictates that i 't I

DECISION �- C~ "AQ CASE NO. 5555 -�- 8 i s t he u y e ~, o f f o Y' e i g n cu r� r' en c y �,-.J 1 o a ' s -. e documentary stamp tax. The above-cited arguments of petitioner I n ega ting i t s liaoility � or the 1ayment o � the i documentary stam p tax have no merit and this was clear ly enunciated by the Court of Appeal s i n i - s d e c i s i o n i n t 1 e c.:~ s e e n t i t 1 e d " Ch i n a Ban ki n g Cor p orat ion v s. Co mmissio n e r of Inte'r~nal Revenue" ; CA--G. R. SP No. 33551:; Sept embet~ 23, 1994 , ~"'iet~ ei.n i t categm~ically ru ed that in a si tuation where the Central Bani~ is the uye1���, it is the.� se 11 e1�' of fo1�~e i n cut~t~ency ~"'ho is 1 i ab e fm~ the pa y ment of ~. 1e documentary stamJ tax. ,/ \ In its de ci sion , the C o~rt of Appeals t~ 1..\led that t H:! CentTa Bani�< f~" om th e � er�.iod of June 11 , 198L~ until Mar~ch 9 , 1987 had bee n g r anted tax exemption priv11eges by virtue of, Resolution No. 35- 85 of the Fisca Incent ive Review Boat~d cia � ed March 3 7 1985, such that l. n 1986, the year covered by the assessment in the China Bankin g cas e, the Cent r al Bank could n ot be held liab e fo~ its payment . In this situation where th e other _arty is exem pt, the liabi ity then automatically falls upon the petitioner bank as seller pursuan t to ~o 994 wh'ch took effect on Janu ,:n~ y 1, 1986 and brought about an amendment to ~ection 222 (no w Section 17 3 of the N. RC ) which reads , thus : \ " Whenevet�� one pa.r"t y to the ~axable pcument enjoys exemption fr'om t .1e t.:.3.w: het�� c~in im osed , the other' Jar�ty thet'eto ~.;;no is nat exempt sha. l be the one di rectly lia ble for '\;he -cax." Fu rth ermore , the decision of the Court of Appeal s in the Ch i na Banking case .hr ew out t e argument of ~etitioner that such transactions at'' e n o t '�ax a b l e �f o t' cl o cum en t at'' y s � amp t a>< and instead upheld this Court's rulin� that the taxabili ty of sue, sa e of foreign exchange finds legal support in Section 51 of Revenue Re u la�..; ions No. 26 ( su ~t"a). " From the abovement:oned decision of this C olwt ~ i t can be gl eaned that the Centra. Bank uring the perio d

DEC:SIO ~ - r�o C,,�~I n '-=":'~~~J-r.':";' A c rAc-..ltc..-. \1 " � -- 3 June 1.1 , 1984 -.o Mar'ch '3 , � ga7 en j oyed tax privi l ege , inc l udin the payment of documentary stamp tax <DST ) pur-�suant to Resolution . o. 35-85 dc:.ted Nay .3, 1'385 o f the F isca Incenuive Review Board. As such , che from paying the documentary stamp �ax or the period above- mentioned. This Court further expounded that said ( tax exem tion o f the Ce n tr a l Bank was modi�ie~ be g inning <P .. D.) �. -.~'34 tool-< effect. Under this decree , the la b ility � ot� DST on sa es of foreign currency to �he Centra � Bank is shif�-.ed to the seller. Appl y ing the above decision to the case at petitioner cannot be he. liable for DST on ""' .l. -!-- ~ 19 5 sales of foreign currencies to the Central Bank , as the l ttet' who is t1e puy�chaser~ oft! e sub j ect cun'encie s is the one l iable thereof. is exem .,; 1985 by vi r��'.; ue of Resolution No � .35-85 of the - i scal In c en t ive Rev iew Board dated ial�' h 3, �1'385 , neithe r' the ' p(~titioner-� ntH' the Centra � Bank is liable for the payment of the documentary 1985 sales of currencies to the This a f orecited case of Consolidated Bank vs. Commis s ioner of In-~rnal Revenue was affirmed by the Court o f Appeals in its decisio n 1 95 , CA�- GR SP o. 35950. Said decision

DECIS.O C.TaR . CASE NO. 555~ -- 1( - was in turn affirmed by the Supreme in i s resolut: on den y ing the pet ition _ iled by Canso_idated Bank dated ~~ovelnbet�� i~O , 1':3'35 ~'>lith t:\e Sup ~~eme Com~ u:nd<.H"� Ent~~y .o f Ju dgment dated iYiat~ch 1 , 1995. Petitioner cannot be held liab l e for DST fo~�� transactions held in 1385 .ecause the Central Bank which is the purchaser of the sub 'ect forei n currency thereof is ta>{ e>cempt (f.Jh.i.lippine� Ca!!Ttrlet��c.ia.l lnt:�r:�r��nationa l Bani< v.s . The Comll7.i.Ssionet' or Int'ern.-=:. 1 ReVt:.'T7f.IE? y CTR CcRS1? No. �48831 Ptpri 1 11 , 1996 w:i.tt�\ Entl�~y of ~Jucl me nt dc:ttecj 1ay 8 , 1 ggE,)" IN THE LIGHT 0 A_L HE FOREGOING , j �.td me n t is het'eby l''enderec g�r'�antin the her�ein petition. Re~~ on Jent I to CANCEL Assessment r ct i ce No. Ft~S-3��- is hereb y ORDERED 35- 9-(02054 which he issued against petitioner on the latter's alleged de iciency DS and com pr omise penal ty for the year 1985. No pronouncement as to ~osts. SO ORDERED. ~&.~ �~ ERNESTO D. ACOSTA 't~ esiding Judge WE c,..,; ~,J; RAMON 0. DE VE!~ A ss oc iat e .Judg e .d.~.~k_!,~ flo;-;~. 'A~ ~ ... .=..<..... Associate

, ' o. � rEC IS ON �- C. . A. CAS - NO. 3355 �- 11 -- CERTIFICATION I ,ereby cer i fy tha - the above decision was reached after due consu .. ta~ion with the members of the C ou r ~ 0 ) Tax Appeal s in a c c orda nc e with Section 13, Art ic le V. II of the Co ns t it uti on. ~(Q~Qy\._ ERNESTO D. ACOSTA Pt~esidin g J1.1d g e ,.