G.R. No. 167679 - ING Bank N.V. vs. Commissioner of Internal Revenue

Case Summary (G.R. No. 167679)

Procedural History — assessments, CTA rulings, and appeal to the Supreme Court

BIR issued a Final Assessment Notice (dated December 3, 1999; received by ING on January 3, 2000) for multiple deficiency tax liabilities for taxable years 1996 and 1997, aggregating detailed basic taxes, surcharges and interest. ING paid minor items and protested the bulk of the assessments, filing a Petition for Review with the Court of Tax Appeals (CTA) on October 26, 2000 (CTA Case No. 6187). The CTA Second Division (August 9, 2004) cancelled several assessments but upheld deficiency withholding tax on compensation for 1996–1997, deficiency onshore tax (1996), and deficiency documentary stamp tax (DST) on special savings accounts (1996, 1997). Motions for reconsideration were denied (November 12, 2004). The CTA En Banc denied due course to petitioner’s petition (April 5, 2005). ING filed a petition for review to the Supreme Court.

Subsequent tax-amnesty availment and related filings

While the Supreme Court case was pending, ING filed a Notice of Availment under Republic Act No. 9480 on December 14, 2007, submitting the required SALN as of December 31, 2005 (original and amended), BIR Form No. 2116 (Tax Amnesty Return), and BIR Form No. 0617 showing payment of amnesty tax in the amount of P500,000. The bank sought recognition of its amnesty availment and entitlement to immunities and privileges under Section 6 of RA 9480, specifically as to deficiency documentary stamp taxes on special savings accounts (1996–1997) and deficiency onshore tax for 1996.

Issues presented to the Supreme Court

(1) Whether ING Bank could validly avail itself of the RA 9480 tax amnesty while its tax cases were still pending and while some court rulings had favored the BIR but were not final and executory; and (2) Whether ING Bank was properly assessed for deficiency withholding tax on compensation for accrued bonuses in taxable years 1996 and 1997.

Legal question and controlling rule on tax amnesty (RA 9480)

RA 9480 authorizes a tax amnesty covering unpaid national internal revenue taxes for taxable year 2005 and prior years, subject only to express statutory exceptions (notably tax cases that are the subject of final and executory court judgments). The implementing rules (DOF Order No. 29-07) and RA 9480 itself limit exclusions to those specified in the statute. The Supreme Court recognized controlling precedent (CS Garment, Inc. and LG Electronics Philippines, Inc.) holding that the BIR’s Revenue Memorandum Circular No. 19-2008, which attempted to exclude issues or cases “ruled by any court (even without finality) in favor of the BIR prior to amnesty availment,” was invalid to the extent it went beyond RA 9480’s express exceptions.

Court’s analysis and conclusion on tax amnesty availment

The Court found that ING Bank complied with RA 9480’s formal requirements (notice of availment, Tax Amnesty Return, SALN, and payment of the prescribed amnesty tax). The Commissioner did not dispute the authenticity of the documents or the payment. The contestability period lapsed. Under RA 9480 and its IRR, the Commissioner’s role is limited to determining qualification for the amnesty, verifying compliance with documentary requirements, and confirming payment of the correct amnesty tax; the statute does not confer upon the Commissioner discretion to introduce additional exceptions or conditions or to refuse the legal effects of a valid availment. Because ING had validly availed itself and met the conditions, it was entitled to the immunities and privileges of Section 6 of RA 9480. Consequently, the Court set aside the assessments for deficiency documentary stamp taxes on special savings accounts (1996–1997) and for deficiency onshore tax on onshore interest income (1996), as those liabilities were covered by the amnesty.

Legal framework and issues concerning withholding tax on compensation (accrual vs payment)

Section 72 of the 1977 Code (withholding at source) requires employers to deduct and withhold tax upon payment of wages; Revenue Regulations and jurisprudence expand this to include constructive payment and the accrual of withholding obligations. Section 29(j) of the 1977 Code (now Section 34(K) of the 1997 Code) conditions the deductibility of certain payments (including compensation) on proof that the tax required to be withheld therefrom has been paid to the BIR. Revenue Regulations define constructive receipt: compensation is constructively paid when credited or set apart so that it may be drawn upon by the employee without substantial restriction.

Court’s analysis and conclusion on withholding tax for accrued bonuses

The CTA found and the Supreme Court affirmed that ING recorded accrued bonuses as expenses in its books for 1996 and 1997, but did not withhold and remit the corresponding withholding taxes at those times. The independent CPA’s forensic verification (commissioned by the CTA) substantiated only part of the bonuses as reimbursements; the remainder remained unsubstantiated and thus treated as compensation. The Court applied the all-events test for accrual accounting: an expense is accrued when the obligation is fixed and the amount can be determined with reasonable accuracy. Where a payor/employer records an expense (such as accrued bonuses) in its books, the employe

Case Syllabus (G.R. No. 167679)

Case Caption, Decision and Author

G.R. No. 167679; Decision promulgated July 22, 2015 by Justice Leonen (Second Division).
The Petition for Review was filed pursuant to Rule 45 of the Rules of Court, appealing the April 5, 2005 Decision of the Court of Tax Appeals (En Banc), which had affirmed the August 9, 2004 Decision and November 12, 2004 Resolution of the Court of Tax Appeals Second Division.
The Supreme Court opinion (Leonen, J.) addresses: (a) the availability and effect of the 2007 Tax Amnesty Act (Republic Act No. 9480) for taxpayers with pending tax cases; and (b) the propriety of deficiency withholding tax on compensation assessed against petitioner for taxable years 1996 and 1997.

Parties and Nature of Petition

Petitioner: ING Bank, N.V. Manila Branch — Philippine branch of Internationale Nederlanden Bank N.V., a foreign banking corporation, authorized by Bangko Sentral ng Pilipinas to operate as a branch with full banking authority.
Respondent: Commissioner of Internal Revenue.
Relief sought by petitioner in CTA Case No. 6187: cancellation and withdrawal of deficiency tax assessments for taxable years 1996 and 1997 — specifically deficiency documentary stamp tax on special savings accounts, deficiency onshore tax, and deficiency withholding tax on compensation.

Procedural and Documentary Chronology (selected)

December 3, 1999: Details of Assessment and assessment notices issued; Final Assessment Notice received by petitioner on January 3, 2000.
February 2, 2000: Petitioner paid minor items (1996 compromise penalty P1,000; 1997 deficiency documentary stamp tax P1,000; 1997 deficiency final tax P75,013.25) and protested the remaining ten deficiency tax assessments totaling P672,576,939.18.
October 26, 2000: Petition for Review filed before the Court of Tax Appeals (docketed CTA Case No. 6187).
August 9, 2004: CTA Second Division Decision — cancelled several assessments but upheld (inter alia) deficiency withholding tax on compensation for 1996 and 1997, deficiency onshore tax for 1996, and certain deficiency documentary stamp tax items; ordered aggregate payment of P240,106,928.94 plus 20% delinquency interest per annum from February 3, 2000.
November 12, 2004: Motion for Reconsideration denied by CTA Second Division (Resolution).
December 8, 2004: Appeal to CTA En Banc filed; April 5, 2005: CTA En Banc denied due course and dismissed ING Bank’s Petition for Review for lack of merit.
Petition for Review to the Supreme Court filed (received by the Court May 25, 2005); Commissioner filed Comment (Oct 5, 2005); petitioner filed Reply (Dec 14, 2005); memoranda and supplemental memoranda were filed thereafter.
December 14, 2007: Petitioner filed Notice of Availment of Tax Amnesty under Republic Act No. 9480 with BIR, submitted SALN (as of Dec. 31, 2005), Tax Amnesty Return (BIR Form No. 2116), and Tax Amnesty Payment Form (BIR Form No. 0617) showing payment of amnesty tax of P500,000.00.
January 23, 2008 onward: Parties filed comments and replies concerning petitioner’s availment of tax amnesty; contestability period of one year lapsed without successful challenge by respondent.

Facts — Assessment Schedule and Amounts

Final Assessment Notice covered multiple deficiency assessments for 1996 and 1997, including (inter alia):
- Deficiency Income Tax (1996 and 1997) — large amounts listed.
- Deficiency Withholding Tax on Compensation (1996: basic tax P1,027,267.20 plus surcharge and interest; 1997: P2,505,925.25 plus surcharge and interest).
- Deficiency Onshore Tax (1996).
- Deficiency Branch Profit Remittance Tax (1996 and 1997).
- Deficiency Documentary Stamp Tax (1996 and 1997), including a large 1997 item (P186,997,288.84 basic tax).
- Compromise penalties (1996 & 1997, P1,000 each).
- Deficiency Final Tax (1997).
Total stated in Final Assessment Notice: Basic tax P490,514,844.13; Surcharge P54,830,688.21; Interest P127,307,159.31; Grand total P672,652,691.65 (as presented in the source table).
Petitioner paid small portions on February 2, 2000 and protested the remainder (totaling P672,576,939.18 as protested).
CTA Second Division, after trial, cancelled assessments for certain items but upheld deficiency withholding tax on compensation (1996 and 1997), 1996 deficiency onshore tax, and 1996 & 1997 deficiency documentary stamp tax on special savings accounts, ordering payment of P240,106,928.94 plus 20% delinquency interest per annum from February 3, 2000.

Issues Presented to the Supreme Court

Whether petitioner ING Bank may validly avail itself of the tax amnesty granted by Republic Act No. 9480 while its tax cases remained pending before the courts.
Whether petitioner ING Bank is liable for deficiency withholding tax on accrued bonuses for the taxable years 1996 and 1997.

Petitioner's Contentions (as argued)

Petitioner asserts qualification under Section 5 and not disqualification under Section 8 of RA No. 9480; it submitted required documents and paid the amnesty tax (BIR Form No. 0617 showing payment of P500,000.00).
Petitioner contends BIR Revenue Memorandum Circular No. 19-2008 cannot override RA No. 9480 and its IRR; RMC 19-2008’s exception (excluding “issues and cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty availment of the taxpayer”) goes beyond the statute.
Petitioner relies on precedent that full compliance with tax amnesty requirements extinguishes tax deficiencies; thus, it claims entitlement to immunities and privileges in Section 6 of RA No. 9480, and that its tax amnesty availment should affect the assessments for deficiency documentary stamp taxes on special savings accounts (1996 & 1997) and deficiency onshore tax on interest income (1996).
Regarding withholding tax on compensation, petitioner contends withholding duty arises only upon payment/distribution and cites Section 72 of the 1977 NIRC and BIR Ruling No. 555-88 that withholding on bonuses should be deducted upon distribution; bonuses for 1996 and 1997 were not distributed in those years, so withholding duty did not arise in those years.

Respondent's Contentions (as argued)

Respondent does not dispute authenticity of documents or the payment of the amnesty tax but claims petitioner is not qualified because the CTA En Banc and Second Division had ruled in the BIR’s favor (confirmed liability for DST, onshore taxes, withholding taxes).
Respondent relies on BIR Revenue Memorandum Circular No. 19-2008 to exclude “cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty availment of the taxpayer” from coverage.
Respondent argues its authority includes evaluating amnesty applications and exercising discretion in implementation; petitioner cannot presume amnesty grant without evaluation.
On withholding tax, respondent distinguishes BIR Ruling No. 555-88 (where bonuses were determined and distributed in succeeding year after audit and withholding/remittance were made when distributed) from petitioner’s facts where bonuses were determined during the year but distributed the succeeding year, were claimed as expenses in the year of accrual without withholding, and thus should be disallowed and subject to withholding and disallowance under Section 29(j) of the 1997 NIRC.

Legal Framework — Tax Amnesty (RA No. 9480) and Implementing Rules

RA No. 9480 authorizes a tax amnesty covering “all national internal revenue taxes for the taxable year 2005 and prior years, with or without assessments duly issued therefor, that have remained unpaid as of December 31, 2005,” except persons/cases enumerated under Section 8.
Excerpts quoted in the decision:
- Sec. 2 (Availment): requires filing with BIR a notice and Tax Amnesty Return with SALN as of Dec. 31, 2005 and payment of applicable amnesty tax within six months from IRR effectivity.
- Sec. 4 (Presumption of Correctness of the SALN): SALN considered true and correct except under specified circumstances; contestability period of one year from filing of return and SALN.
- Sec. 6 (Immunities and Privileges): those who availed and fully complied shall be immune from payment of taxes and appurtenant civil, criminal, administrative penalties for taxable year 2005 and prior years; Tax Amnesty Returns and SALN not admissible in proceedings pertaining to taxable year 2005 and prior years (with specified exceptions); books and records not examinable except with Commissioner’s written authorization in limited instances.
DOF Order No. 29-07 (IRR) and BIR RMC No. 69-2007 are referenced to clarify taxes covered; BIR RMC No. 69-2007 states TAP covers all national internal revenue taxes except withholding taxes and taxes passed on and already collected for remitta