G.R. No. 195147 - Commissioner of Internal Revenue vs. Philippine National Bank

The controversy arose over whether the interbank call loans transacted by the Philippine National Bank (PNB) in 1997 were subject to Documentary Stamp Taxes (DST).
The Commissioner of Internal Revenue (petitioner) issued assessments alleging deficiency DST on PNB’s interbank call loans and on a special savings account.

On March 23, 2000, the petitioner issued Letter of Authority No. 00058992, which PNB received on March 28, 2000, authorizing an examination of PNB’s tax records for 1997.
On May 12, 2003, PNB received a preliminary assessment notice (dated March 31, 2003) detailing discrepancies including deficiency payments on DST, expanded withholding tax, and withholding tax on compensation.
On May 26, 2003, the petitioner issued a formal assessment notice accompanied by a formal letter of demand, which included:

Assessment No. 97-000064 for deficiency DST on interbank call loans and special savings account aggregating PhP39,550,963.50.
Assessment No. 97-000067 for deficiency expanded withholding tax amounting to PhP2,173,972.25.

PNB promptly paid the assessment on expanded withholding tax (No. 97-000067) but filed a protest against Assessment No. 97-000064.
The petitioner denied the protest in its final decision dated December 10, 2003.

PNB filed its petition for review with the CTA on January 16, 2004 (C.T.A. Case No. 6850).
On March 3, 2009, after trial proceedings in the First Division of the CTA, the judgment disposed the matter as follows:

The assessment for deficiency DST on interbank call loans was cancelled.
The assessment for deficiency DST on the special savings account was affirmed, with PNB ordered to pay PhP14,688,463.15 along with a penalty (25%) and delinquency interest (20% per annum) on the amount from February 15, 2004.

On July 7, 2009, the Division denied the petitioner’s motion for partial reconsideration but held PNB’s motion in abeyance pending a supplemental offer of evidence.

Afforded cancellation of the DST assessment on PNB’s interbank call loans for taxable year 1997.
Affirmed the DST assessment on the special savings account.
Did not pronounce any order regarding costs.

The petitioner sought reconsideration through a resolution dated January 10, 2011, which was ultimately denied by the CTA En Banc.
With no favorable determination forthcoming, the petitioner appealed the CTA En Banc decision.

The sole issue raised for adjudication was whether PNB’s interbank call loans for taxable year 1997 were subject to Documentary Stamp Tax (DST).

The petitioner argued that such transactions fall within the ambit of “loan agreements” and are therefore taxable under Section 180 of the 1977 National Internal Revenue Code (NIRC), as amended by Republic Act No. 7660, and subsequent amendments by R.A. Nos. 8424 and 9243.
The petitioner maintained that there is no specific provision in the 1977 NIRC, as amended by R.A. No. 7660, which exempts these interbank call loans from DST.
The contention also included the proposition that the maturity of the interbank call loans (more than five days) made them akin to standard loan agreements subject to DST.