CASE DIGEST: CIR vs. PNB (G.R. No. 195147; July 11, 2016)


The BIR issued a final decision on disputed assessment amounting to more than 41 million pesos against PNB for deficiency payments of documentary stamp taxes (DST), withholding taxes on compensation, and expanded withholding taxes for taxable year 1997. PNB immediately paid except for the DST, arguing that its interbank call loans (ICLs) transacted in 1997 are not subject to DST.

The BIR's position is that, although not considered as deposit subsitute debt instruments (DSDIs), ICLs having maturity of more than 5 days are within the concept of loan agreements. Hence, they are subject to DST.

[1] Considering that PNB's ICLs have a maturity of more than 5 days, are they governed by the amended tax law?
[2] Are ICLs within the concept of loan agreements?
[3] Are ICLs considered DSDI by the Tax Code?
[4] Are ICLs subject to DST?
[1] No, they are not. Although under the amended Tax Code, ICLs with more than 5 days of maturity are considered DSDIs (hence, subject to DST), this amendment came to effect in 1998. Tax laws are generally prospective and cannot be given retroactive effect to the prejudice of PNB.

[2] No, ICLs are not considered loan agreements. An ICL refers to the cost of borrowings from other resident banks and non-bank financial institutions with quasi-banking authority that is payable on call or demand. It is transacted primarily to correct a bank's reserve requirements.

Simply put, an interbank call loan is considered as a deposit substitute transaction by a bank performing quasi-banking functions to cover reserve deficiencies. It does not fall under the definition of a loan agreement. Even if it does, the DST liability under Section 180, supra, will only attach if the loan agreement was signed abroad but the object of the contract is located or used in the Philippines, which was not the case in regard to PNB' s ICLs.

[3] No. Debt instruments issued for inter-bank call loans to cover deficiency in reserves against deposit liabilities including those between or among banks and quasi-banks shall not be considered as DSDIs unless, according to the 1998 amendment, they have maturity of more than 5 days.

[4] No. DST covers (1) loan agreements; (2) bills of exchange; (3) drafts; (4) instruments and securities issued by the Government or any of its instrumentalities; (5) certificates of deposits drawing interest; ( 6) orders for the payment of any sum of money otherwise than at sight or on demand; and (7) promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation, and on each renewal of any such note. ICLs, although not considered as deposit substitutes, are not expressly included among the taxable instruments.

The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. A tax cannot be imposed without clear and express words for that purpose.