CTA Case No. 4647 (Decision)

REPUBLIC OF THE PIIILIPPINES COURT OF TAX APPEALS QUEZON CITY CONSOLIDATED BANI< AND C.T.A. CASE NO. 4647 TRUST COMPANY, Petitioner, - versus - THE COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - -- -- -- - -- -- -- - - -- X DECISION The sole question tendered to this Court for resolution is whether petitioner Consolidated Bank and' Trust Company, as seller of foreign curt~ency, is 1 i able to the payment of documentary stamp tax, ~articularly in a situation where the buyer thereof is the Centt~al Bank of the Philippines. The fac~s are undisputed. Respondent, in a letter dated September 3 0, 1'988, assessed the petitioner for its tax liability in the ~ mount of Pb38,238.38 representing deficiency documentary stamp tax on the foreign bills of exchange it sold to Central Bank in 1'986, computed as follows:

DECI S ION - CTA CASE NO. 46 47 - 2- Foreign Exchange Sold to Central Bank P3lt0, 233, 800. 00 Docu1entary Sta1p TaK Due Thereon PJft0,2JJ, 800. 00 P200.00 ll 0. 30 p 510,350.70 127,587.88 Add: 25j Surchargr p 63.._7_,_9_3_8_._3_8 To t a 1 p 637,938.38 Le~~= Payunt JOO.OQ Total Docu1entary Sta1p TaK And Surcharge Due p 6381238.38 Add: Co1pro1ise Penalty TOTil. ~T Ill� ~D al.LECT lBLE ln acco r dance with th e proced ur e outlined i n the Ta x Cod e, pe titioner duly relayed its prote s t to the afo r e men tioned assessment in a letter dated Oct ober 14, 19 8 8 anchored on two ( 2 ) main assert ions, to wit: Such t r ans actions should no t give r1se to the imposition o f documentary s t a~p tax or other taxes as th e e xercise thereo f is ma ndated under the Cen tral Bank Act; 2 ) Gr ant i ng, withou t conceding, that the t ra nsactions require payment of sta mp taxe s , t h e liability must be that of the Ce ntra l Bank no t only because it is the real party t r ansferring the funds but also bec au s e, as purchaser, it is obligated by the established ma r ket convention to ' shouldet' all c o s ts of remittances. '.

DECISION CiA CASE NO. 4647 3- � Respondent did not give credence to the foregoing arguments and subsequently denied the protest embodied in a letter received by the pe~itioner on September 5, 1991. Petitioner then sought the protection of this Court from what it perceives as an erroneous assessment issued by the respondent without factual and legal bases. Meanwhile, of Garnishment was issued by the respondent against petit i onet~ to the collection of the alleged deficiency documentary stamp tax but this was eventually lifted with the filing of a surety bond by pe tit ion~r. Petit i one�~ seeks to destroy the validity of the assessment by first ~resenting the argum~nt that the tt~ansact ion betw een the Central Bank � and petitioner in this instance is not taxable for documentary stamp tax because it falls outside the scope of Section 195 <now Section 182> o f the Tax Code in relation to Section 51 of Revenue Regulat i ons No. 26 known as the Documentary Stamp Tax Regulations, both provi,ions are quoted hereunder: Section 195 <now Section 182 of the NIRC> on all forei gn bills of exchange and letters of cr ed it (including orders, by telegraph or otherwise f or the payment of money iss~ed by express or steamship companies or by any person or person s ) drawn in but payable out of the Philippines in a set of three o_r more accot~d~ng to the custom of merchants and bankers, there shall be collected a dticumentary stamp tax of thirty centavos on each two hundred pesos, or frac tion al part ther eof, of the face value of

DECISION CTA CASE NO. 4647 - 4- any such bill of exchange or letter of credit, or the Philippine equivalent of such face value, i f expt~essed in fot~eign currency. Section 51 of Revenue Reg ulat i o ns No. 2& what may be considered as a Telegraphic Transf er lf a local bank cables to a certain bank said local bank has a credit and directs that ,foreign bank to pay another bank or person in the same locali ty a certain sum of money, the documents for and in respect of such transactions will be r egarded as �a telegraphic transfer, taxable under the provisions of subsection 144 a<i> o f the Administrative Code (now Section 195 of the NIRCJ. lt is the contention of the . petitioner that the aforecited provisions of law contemplate a situat i on where mo ne y has b ee n drawn on an existing account in the Philippines and made payable abroad which is di f ferent from what actually transpired in the instant case. When Central Bank buys foreign currency from petitioner, pE~titioner bank merely instr ucts its foreign . correspond ent bank to remit the dollar amount to the foreign bank where the Central Bank has an account, as such, there is no actual drawing of money in the Philippines within the meaning of Section 195 of . the Tax 198& Code and Section 51 of Revenue Regulation No. 26. Petitioner further argues that even if thes.e transac ti ons were taxable for DST it ~ could still not be held liab' le because established bankin~ pract ic e di ctates that it is the buyer of foreign currency who pays the document ary stamp tax.

DECISION CTR CRSE NO. 4647 - 5- The above-cited arguments of petitioner negating its liability for the payment of the documentary stamp tax have no mel~it and thi s was clearly enunciated by the of Rppeals in its decision in the case entitled "China Banking Corporation vs. Co��tissioner of Internal Revenue"; CA-G. R. SP No. 3 3651 ; Sept ember 23, 1994, wherein it categorically ruled that in a situation where Bank is the buyer, it is the seller of foreign c urrency who is liable fo1~ the payment of the documentary stamp tax. In its decision, the Court of Appeals ,~ul ed that the Centra l Bank from the period of June 11, 1 984 1.ant i 1 March 9, 13 8 7 had been granted t ax exemption : priv i lPges by virt 1.1e of Resolution No. 3 5- 85 of the Fiscal Incentive Re>v i e w Board dated Nar~ch 3 , 1 9 85, such that in 1986, the . year co vered by the assessment in the China Banking case, Bank co1..tl d not be held liable f Ol~ its payment . Jn this situation where the other is e >< e mpt , t h e liability then automatically falls upon the pet i tioner bank as seller pursuant to PD 1994 which tqok effect on January 1, 1986 and brought about an amendment to Section 222 (now Section 173 of thE? NlRCl which reads, thus: "Whenever one party to the t axable document enjoys exemption from the tax herein imposed, the other party thereto who is not

DECISION CTA CASE NO. 4647 - 6- exempt shall b the one di l~ ect 1 y 1 i a b l e f 01~ t h e t a><. " Furthermore, the decision of the Court of Appeals in the China Ba nking case threw out the of petition er that such transartions taxable document at~y stamp tax and instead upheld this Court's ruling that the taxab i 1 ity of such sale of forei gn exchange finds legal support in Section 51 of Revenue Regulations No. 26 <s ..tpt~a) . Ina sm uch as the China Bank ing case which was the subject of the decision o f the Court of Appe als is substantially similar to the instant case as it presents an identical issue and ref e rs to the same ye ar of 1'986, this Court u pho lds t he lia b ility of the p~ titioner bank for the payment of the documentat~y stamp ta x for the f oreign currenc y it s old to the Ce nt ral Bank in 1986. WHEREFORE, premises considere d, petitioner is h er eby ORDERED to pay res pondent Commissioner o f Rev enue, the amount of P638,238.38 as deficiency documentary stamp tax for the year 1'986 plus 20~ a nnual 1986 unt il f ully paid pm~ suant to Section 2 l::l 3 of the 1986 T a>< Cod e a s amended by P. D. 1994, effecti ve Ja nuary 11 , 1986, which provides 1n part, thus: Section 283. INTEREST. (aJ In General there shall be assessed and collected on any unpaid amo ..mt of ta x , inter~est at the ra te of twenty perc ent C20~) per annum, or such hi gher rate as may be prescribed by regulations, from

DECISION -- payment until the CTA CASE NO. 4647 ~<.Q-~ 7- ERNESTO D. ACOSTA Presiding J1..1dge th~ date pr es cribed for amount is fully ~aid. SO ORDERED. WE CONCUH: GHUBf-l "'-9{1' UltMU~.I~D~ Associate I Ju~le'H CERTIFICATION I het��eby certiFy that this decision was reached after due consultat ion among the members of the Court of Tax Appeals in accordance with Section 13 Rule VIII of the Constitution. ~--Q .. ~ ERNESTO D. ACOSTA Presiding Judge