BANK OF THE PHILIPPINE ISLANDS v. 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 DE 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

- DEC I S I 0 N- C.T.A. Case No. 4481 -2- In 1985, the 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

- 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 o� Revenue Regulation No. 26 states: What may be regarded as telegraphic transfer. a local bank cables to a 393

- DEC 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

- DEC 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

- DEC 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

- DEC 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

- DEC 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, i t 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 taxable document enjoys exemption �rom the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable �or the tax. 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

- DE 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

- DEC 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 is to certify that Volume 75, No. 15, of April 9, 1979 issue of the Official Ga z ette was officially released for circulation on June 14, 1979. <p.138, Rollo> 40 0

- DEC 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

- DEC I S I 0 N- C.T.A. Case No. 4481 - 12 - Therefore BPI should only be liable �or the DST that corresponds to those transactions after June 1986. As shown in the worksheet prepared by the BIR examiners, Petitioner should be liable �or the DST corresponding to the sale o� US$18 million �or F367,856,000, or P551,784, in addition to the 25% surcharge and P300 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 o� 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 Peso Date Slip Ro. Ro. 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 20.438 4018761000 T 0 T AL 210001000 P367,856,000 $18,000,000 ------------ ----------- , 551,784.00 Docu�entary Sta�p Tax Due: , 137,946.00 ((367,856,000 I 2001 x 0.3011 300.00 1381246.00 , 690, 030. 00 Add: 25% Surcharge =============== 1551,784.00 x 25XJ Co�pro�ise Penalty Total Amount Due 40 2

- DEC 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. GRUBA Judge WE CONCUR: t-JXO.. ~ ERNESTO D. ACOSTA Presiding Judge <on leave) RAMON 0. DE VEYRA Associate Judge CERTIFICATION I hereby certi�y that this decision was reached a�ter due consultation among the members o� the Court o� Tax Appeals in accordance with Section 13, Article VIII, o� the Constitution. c.. (H"Q_._~ ERNESTO D. ACOSTA Presiding Judge Court o� Tax Appeals 403