Case Digest (G.R. No. 205473)
Facts:
In G.R. No. 198756 decided on January 13, 2015 under the 1987 Constitution, Banco de Oro, Bank of Commerce, China Banking Corporation, Metropolitan Bank & Trust Company, Philippine Bank of Communications, Philippine National Bank, Philippine Veterans Bank, and Planters Development Bank (collectively, petitioners), with Rizal Commercial Banking Corporation and RCBC Capital Corporation, and the Caucus of Development NGO Networks (CODE-NGO) as intervenors, sought relief against the Republic of the Philippines, the Commissioner of Internal Revenue (CIR), the Bureau of Internal Revenue (BIR), the Secretary of Finance, the Department of Finance (DOF), the National Treasurer, and the Bureau of the Treasury (BTr). The controversy arose from the tax treatment of the P35 billion “PEACe Bonds,” 10-year zero-coupon treasury bonds issued on October 18, 2001. In May–September 2001, the BIR issued rulings (2001 Rulings) exempting these bonds—issued to a special purpose vehicle on behalf of CODCase Digest (G.R. No. 205473)
Facts:
- Background and Issuance
- In March–September 2001, the Caucus of Development NGO Networks (CODE-NGO), with RCBC and RCBC Capital as financial advisers, secured DOF approval to issue ₱35 billion 10-year zero-coupon Treasury Certificates (PEACe Bonds) for NGO funding.
- BIR Rulings No. 020-2001 (May 31, 2001), 035-2001 (Aug 16, 2001), and DA-175-01 (Sep 29, 2001) held that the Bonds, issued initially to one entity, were not “deposit substitutes” (i.e.,
- Auction and Distribution
- On October 16, 2001, the BTr auctioned ₱30 billion limited to 19 bidders (to preserve tax exemption); 45 bids from 15 GSEDs ranged 12.248%–18.000%; cut-off at 12.75%. RCBC (for CODE-NGO) won ₱35 billion at a discount of ₱24.83 billion (settlement ₱10.17 billion).
- RCBC Capital underwrote and sold the Bonds at ₱11.9955 billion to undisclosed investors; proceeds endowed permanent NGO fund.
- BIR Reinterpretation and Tax Collection
- BIR Rulings No. 007-04 (Jul 16, 2004), DA-491-04 (Sep 13, 2004), and 008-05 (Jul 28, 2005) overruled the 2001 Rulings, declaring all treasury bonds “deposit substitutes” throughout their term—discount treated as interest, taxable at 20% FWT.
- On October 7, 2011, BIR Ruling No. 370-2011 reaffirmed taxability and the DOF directed the BTr to withhold 20% FWT at maturity (Oct 18, 2011), resulting in ₱4.966 billion withheld.
- Judicial Petition and Temporary Restraining Order
- Petitioners (banks, CODE-NGO) filed a Rule 65 petition before the SC on Oct 17, 2011 to annul the 2011 Ruling, prohibit withholding, command full payment, and secure injunctive relief.
- On October 18, 2011, the SC issued a TRO enjoining enforcement of BIR Ruling No. 370-2011 but allowed withholding if placed in escrow pending resolution; the BTr withheld but refused escrow.
Issues:
- Classification and Taxability
- Are the PEACe Bonds “deposit substitutes” under Sec 22(Y), NIRC, subject to 20% FWT?
- Does “borrowing from twenty (20) or more…lenders at any one time” include secondary‐market trades?
- Estoppel and Retroactivity
- Are respondents estopped from imposing FWT after the 2001 Rulings and government representations?
- Does retrospective tax imposition violate the Constitution’s non-impairment clause, due process, or Sec 246 NIRC on non-retroactivity of rulings?
- Procedural Remedies
- Must petitioners exhaust administrative remedies and appeal to the CTA, or is direct SC relief proper?
- Should the TRO remain in force and the withheld tax be escrowed?
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)