REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

ENBANC

COMMISSIONER OF CTA EB No. 2214

INTERNAL REVENUE, (CTA Case No. 9626)
Petitioner,
Present:

DEL ROSARIO, U,
UY,
-versus-
RINGPIS-LIBAN,
MANAHAN,
BACORRO-VILLENA,
MODESTO-SAN PEDRO,
REYES-FAJARDO, and
ESTATE OF MR. CHARLES CUI-DAVID, lL
MARVIN ROMIG
REPRESENTED BY ITS SOLE
HEIR MRS. MARICEL
Promulgated:
NARCISO ROMIG,
Respondent.
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

RESOLUTION

REYES-FAJARDO, L_:

For resolution is petitioner's Motion for Reconsideration

(Decision d ated October 28, 2021)1 filed on November 22, 2021, with
respondent's Comment (Re: Motion for Reconsideration dated
November 22, 2021)2 filed on February 28, 2022.

Petitioner seeks reconsideration of the Decision of the Court En

Bane promulgated on October 28, 20213 ("Assailed Decision" ),

Rollo, pp. 111-130.

2 ld., (unpaged).
3 ld., pp. 85-110.
RESOLUTION
CTA EB No. 2214 (CTA Case No. 9626)
Page 2 of9

affirming the judgment of the Second Division ("Court in Division")

of this Court, the dispositive portion of which reads:

WHEREFORE, considering that the required affirmative votes of

five (5) members of the Court En Bane was not obtained in the instant case,
pursuant to Section 2 of RA No. 1125, as amended by RA No. 9503 in
relation to Section 3 of Rule 2 of the RRCT A, the Petition for Review filed by
the CIR is DENIED and the Decision of the Court in Division promulgated
on September 2, 2019 and the Resolution dated December 27, 2019 are
deemed AFFIRMED.

Accordingly, respondent's claim for refund in the amount of

P4,565,349.07 representing erroneously paid estate taxes of the estate of
Charles Marvin Romig is GRANTED.

SO ORDERED.

Dissatisfied with the Decision of the Court En Bane, petitioner

filed a Motion for Reconsideration raising the following issues, to wit:

I. The Honorable Court erred in ruling that the

Court in Division correctly took cognizance of
the original petition; and

II. The Honorable Court erred in ruling that

petitioner is entitled to the tax refund in the
amount of P4,565,349.07 representing
erroneously paid estate taxes of the estate of
Charles Marvin Romig.

In the first alleged error, petitioner asserts that the Court in

Division should have dismissed the Petition for Review for
respondent's failure to exhaust administrative remedies. According
to petitioner, the filing of respondent's administrative claim for
refund with the Bureau of Internal Revenue ("BIR") at 8:00 a.m. and
judicial claim with the Court of Tax Appeals (CTA) at 4:47p.m. both
on June 28, 2017, deprived the BIR with the opportunity to act on the
administrative claim for refund.

Respondent counters that Sections 204(c) and 229 of the

National Internal Revenue Code (NIRC) of 1997, as amended, only
require that an administrative claim be priorly filed within the two-
year period. Respondent explains that there is nothing in said

~
RESOLUTION
CT A EB No. 2214 (CTA Case No. 9626)
Page 3 of9

provtswns that imply that the taxpayer must await the final
resolution of the administrative claim for refund, when doing so
would be tantamount to the forfeiture of its right to seek judicial
recourse.

We agree with respondent.

The Court has jurisdiction over the case. Both of respondent's

administrative and judicial claims for refund were filed within the
two-year prescriptive period provided by Section 204(C), in relation
to Section 229 of the NIRC of 1997, to wit:

SEC. 204. Authority of the Commissioner to Compromise, Abate and

Refund or Credit Taxes. - The Commissioner may -

(c) Credit or refund taxes erroneously or illegally received or

penalties imposed without authority, refund the value of internal revenue
stamps when they are returned in good condition by the purchaser, and, in
his discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction. No credit or
refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a written claim
for credit or refund.

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. - No

suit or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously or
illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or
in any manner wrongfully collected without authority, or of any sum
alleged to have been excessively or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or
not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the

expiration of two (2) years from the date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment.
Provided, however, That the Commissioner may, even without a written
claim therefor, refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears clearly to have
been erroneously paid.

cr
RESOLUTION
CTA EB No. 2214 (CTA Case No. 9626)
Page 4 of9

The reckoning date of the two-year prescriptive period to claim

for refund is June 30, 2015. Respondent paid Four Million Five
Hundred Sixty-Five Thousand Three Hundred Forty-Nine and 7/100
Pesos (P4,565,349.07), representing additional estate tax on the
resident decedent's United States dollar deposit at the Foreign
Currency Deposit Unit of the Hongkong and Shanghai Banking
Corporation Limited HSBC Premiere-Makati Branch ("HSBC USD
Savings Account") that was declared in respondent's Amended
Estate Tax Return on June 30, 2015. The two-year period for filing a
claim for refund, both administrative and judicial, would end on
June 30, 2017.

Respondent satisfied the requirements to recover erroneously

paid or illegally collected estate tax within two (2) years from the
payment of the tax under Sections 204 and 229 of the NIRC of 1997,
as amended, when: (1) its administrative claim for refund was first
filed with the BIR on June 28, 2017, at 8:00 a.m.; and (2) its judicial
claim was filed with the Court in Division later in the day at 4:47p.m.
without waiting for the commissioner's decision. The law does not,
specify the interval between the two types of claims. The law only
requires that an administrative claim be priorly filed. 4

In a similar case, Commissioner of Internal Revenue v. Carrier Air

Conditioning Philippines, Inc.,s petitioner CIR argued that the judicial
claim for refund, which was filed barely 10 days from the filing of the
administrative claim for refund, was premature and violative of the
doctrine of exhaustion of administrative remedies. Rejecting
petitioner's claim, the Supreme Court held that the short interval
between the filing of the administrative claim and judicial claims was
inconsequential; the law merely requires that both claims were filed
within the two-year prescriptive period. The Supreme Court En Bane
explained:

In these cases, the written claim for refund was duly filed at the
administrative level, but the claim had not been acted upon by the
Commissioner (then Collector) of Internal Revenue. Since the two-year

4 Commissioner of Internal Revenue, v. Univation Motor Philippines, Inc. (Formerly Nissan Motor
Philippines, Inc.), G.R. No. 231581, April10, 2019.
5 G.R. No. 226592. July 27, 2021.

cr
RESOLUTION
CTA EB No. 2214 (CTA Case No. 9626)
Page 5 of9

period was about to lapse, the taxpayer was held justified in filing its
judicial claim, without waiting for the Commissioner's decision, to protect
its interest. Otherwise, should the Commissioner render an adverse
decision after the two-year period, the taxpayer would be barred, to its
prejudice, from pursuing its appeal to the Court of Tax Appeals.

These cases show that the lack of a specific period fixed by the law
within which the Commissioner must decide the claim has led to delays, to
the taxpayer's prejudice. On the other hand, there were instances when
the Commissioner was deprived of the opportunity to act on the matter
within their jurisdiction because of the short interval between the filing
of the administrative claim and the filing of the judicial claim. This is so
because the law merely provides two years for a taxpayer to file the
administrative claim and judicial claim, with the former required to be
filed first.

Nonetheless, the silence or insufficiency in the law on the

reasonable period for the Commissioner's action is one that can be
addressed not by judicial pronouncement, but by appropriate
legislation6

In the second alleged error, petitioner reiterates that the HSBC

USD Savings Account of the resident decedent, Charles Marvin
Romig is subject to estate tax because the HSBC USD Savings
Account is not an allowable deduction under Section 86(A) of the
NIRC of 1997, as amended, nor is it among the acquisitions and
transmissions which are not subject to estate tax under Section 87 of
the same Code. Petitioner argues that the tax exemption of Foreign
Currency Deposit Units under Section 6 of Republic Act (R.A.) No.
6426, otherwise known as the "Foreign Currency Deposit Act of the
Philippines," was revoked upon the enactment of the NIRC of 1997,
as amended.

Respondent counters that R.A. No. 6426, otherwise known as

the "Foreign Currency Deposit Act of the Philippines," being a
special law could not have been impliedly repealed by the general
repealing clause in Section 291 of the NIRC of 1997, as amended,
which is a general law. There is nothing in NIRC of 1997, as
amended, which explicitly states that the exemption of Foreign
Currency Deposit Units from all other taxes under R.A. No. 6426 is
revoked.

We agree with respondent.

6 Boldfacing supplied.

cf
RESOLUTION
CTA EB No. 2214 (CTA Case No. 9626)
Page 6 of9

As a rule, estate tax shall be levied, assessed, collected, and

paid upon the transfer of the net estate of every decedent, whether
resident or nonresident of the Philippines, based on the value of such
net estate,7 by including the value at the time of the decedent's death
of all property, real or personal, tangible or intangible, wherever
situated. 8

A bank deposit constitutes property that should be included in

the decedent's gross estate under Section 85 of the NIRC of 1997, as
amended. True, a foreign currency deposit of a resident decedent is
not among the allowable deductions from the value of the gross
estate of the resident citizen under Section 86 (A) of the NIRC of 1997,
as amended9 nor is among the acquisitions and transmissions which
are not subject to estate tax as provided under Section 87 of the same
Code.1o Yet, it is equally true that by express provision of Section 6 of
R.A. 6426, all foreign currency deposits authorized under Presidential
Decree No. 1034, are exempted from any and all taxes, thus:

7 SEC. 84. Rates of Estate Tax. -There shall be levied, assessed, collected and paid upon the
transfer of the net estate as determined in accordance with Sections 85 and 86 of every
decedent, whether resident or nonresident of the Philippines, a tax based on the value of
such net estate, as computed in accordance with the following schedule: ...
8 SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be determined
by including the value at the time of his death of all property, real or personal, tangible or
intangible, wherever situated: Provided, however, that in the case of a nonresident
decedent who at the time of his death was not a citizen of the Philippines, only that part
of the entire gross estate which is situated in the Philippines shall be included in his
taxable estate.
9 SEC. 86. Computation of Net Estate. -For the purpose of the tax imposed in this Chapter,
the value of the net estate shall be determined:
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or
resident of the Philippines, by deducting from the value of the gross estate -
(1) Expenses, Losses, Indebtedness, and taxes ....
(2) Property Previously Taxed ... .
(3) Transfers for Public Use ... .
(4) The Family Home ... .
(5) Standard Deduction ... .
(6) Medical Expenses ... .
(7) Amount Received by Heirs Under Republic Act No. 4917 ....
10 SEC. 87.Exemption of Certain Acquisitions and Transmissions. - The following shall not
be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary,
in accordance with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable
institutions, no part of the net income of which insures to the benefit of any individual:
Provided, however, That not more than thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used by such institutions for administration purposes.

~
RESOLUTION
CfA EB No. 2214 (CTA Case No. 9626)
Page 7 of9

Section 6. Tax exemption. - All foreign currency deposits made under this
Act, as amended by PD No. 1035, as well as foreign currency deposits
authorized under PD No. 1034, including interest and all other income or
earnings of such deposits, are hereby exempted from any and all taxes
whatsoever irrespective of whether or not these deposits are made by
residents or nonresidents so long as the deposits are eligible or allowed
under aforementioned laws and, in the case of nonresidents, irrespective
of whether or not they are engaged in trade or business in the
Philippines.n

R.A. No. 6426, remains the governing law on the exemption

from estate tax of foreign currency deposits. We agree with the Court
in Division that the provisions of the NIRC of 1997, as amended,
which is the general law on national internal revenue taxes, cannot
impliedly repeal R.A. No. 6426, a special law, which governs the
foreign currency deposit system in the Philippines. A special law
cannot be repealed or modified by a subsequently enacted general
law in the absence of any express provision in the latter law to that
effect. A special law must be interpreted to constitute an exception to
the general law in the absence of special circumstances warranting a
contrary conclusion. 12 Additionally, we find no such intent to
expressly repeal R.A. No. 6426 in the provisions of the NIRC of 1997,
as amended. The repealing clause, Sec. 291 of the NIRC of 1997,13 as
amended does not mention the express repeal of R.A. No. 6426.

In fact, in the recent case of Department of Finance (DOF),

represented by its Secretary and the Bureau of Internal Revenue (BIR)
represented by its Commissioner v. Asia United Bank, et a/., 14 the Supreme
Court reminds the CIR that R.A. No. 6426 was enacted to address the
country's foreign currencies deficit and that R.A. No. 6426 provided
tax exemptions and incentives to encourage foreign currency
deposits. The Supreme Court declared void Revenue Regulations
(RR) No. 4-2011 15 that provided that any cost or expense related with
or incurred for the operations of a bank's Foreign Currency Deposit
Units (FCDUs), Expanded Foreign Currency Deposit Units (EFCDU),
or Offshore Banking Units (OBUs) are not allowed as deduction from
the Regular Banking Unit's taxable income. Thus:

11 Boldfacing required.
12 Commissioner of Internal Revenue v. Bases Conversion and Development Authority, G.R. No.
217898, January 15, 2020
13 SEC. 291. In General. - All laws, decrees, executive orders, rules and regulations or parts
thereof which are contrary to or inconsistent with this Code are hereby repealed,
amended or modified accordingly.
14 G.R. Nos. 240163 & 240168-69, December 1, 2021.
15 Proper Allocation of Costs and Expenses Amongst Income Earnings of Banks and Other
Financial Institutions for Income Tax Reporting Purposes.

~
RESOLUTION
CTA EB No. 2214 (CTA Case No. 9626)
Page 8 of9

Moreover, it bears noting that prior to the passage of RA 6426, one of

the main economic challenges of the country was its unstable financial
condition which was greatly caused by, among other factors, heavy dollar
spending. This, in turn, caused a dollar deficit in our country. Dollars were
necessary to finance foreign currency liabilities and dollar-denominated
transactions. Foreign currencies were also considered to be part of the
country's internal reserves. To address this deficit and increase reserves, the
government encouraged foreign currency deposits in duly authorized
banks in order that these may be put into the stream of the banking system.
Towards this end, RA 6426 provided tax exemptions and incentives to
FCDU deposits, as well as banks and financial institutions having FCDU
license. Thus, to give life and meaning to the intention of legislature in
the enactment of RA 6426, We agree that common expenses should be
deducted from RBU income, instead of allocating a portion to be
deducted from FCDU/EFCDU or OBU income.16

Respondent's HSBC USD Savings Account is exempt from any

and all taxes, including estate tax. Thus, the Court En Bane stands by
its ruling that respondent has the right to recover the amount of
P4,565,349.07 representing estate tax, including interest and penalties
on respondent's HSBC USD Savings Account that it erroneously paid
to the government.

In sum, petitioner failed to raise any compelling reason to

warrant the reversal of this Court's findings in the Assailed Decision
affirming the Court in Division's Decision dated September 2, 2019,
and its Resolution dated December 27,2019.

WHEREFORE, premises considered, petitioner's Motion for

Reconsideration is hereby DENIED for lack of merit.

SO ORDERED.

~~f.~·r~
MARIAN~~ F..Re'YES-:f'AJARDO
Associate Justice

16 Boldfacing supplied.
RESOLUTION
CTA EB No. 2214 (CTA Case No. 9626)
Page 9 of9

We Concur:

Presiding Justice

With due respect, I join the Dis~pinion

Modesto-San Pedro.
of Justice Maria Rowena

ERLINDA P. UY
Associate Justice

(/:b.;. ~ --r '------

MA. BELEN M. RINGPIS-LIBAN
Associate Justice

ON LEAVE
CATHERINE T. MANAHAN
Associate Justice

JEAN lvHu'-.rr. r.¥"A'CORRO-VILLENA

issenting Opinion Position.

'A M~DESTO-SAN PEDRO
Associate Justice

~iJ-1#1~
With due respect, please see my Dissenting Opinion.
LANEE S. CUI-DAVID
Associate Justice
 REPUBLIC OF THE PHILIPPINES
COURT OF TAX APPEALS
QUEZON CITY

ENBANC

COMMISSIONER OF INTERNAL CTA EB NO . 2214

REVENUE, (CTA Case No . 9626)
Petitioner,
Present:

DEL ROSARIO, P.J.,

UY,
-versus- RINGPIS-LIBAN,
MANAHAN,
BACORRO-VILLENA,
MODESTO-SAN PEDRO,
REYES-FAJARDO, and
ESTATE OF MR. CHARLES CUI-DAVID, JJ.
MARVIN ROMIG REPRESENTED
BY ITS SOLE HEIR MRS.
MARICEL NARCISO ROMIG,
Respondent.
){ - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ){

DISSENTING OPINION

CUI-DAVID, J. :

With high respect to my esteemed colleague Justice

Marian Ivy F. Reyes-Fajardo , I vote to deny respondent's claim
for refund of alleged erroneously paid estate t~es in the amount
oLP4,565,349.07.

In essence, the ponencia holds that foreign currency

deposits (FCDs) are e){empt from any and all t~es , including
estate t~ pursuant to Section 6 of Republic Act (RA) No. 6426 ,1
as amended, or the Foreign Currency Deposit Act (FCDA) ,

1
AN ACT INSTITUTING A FO REIGN CURRENCY DEPOS IT SYSTEM IN THE PHILIPP INES, AND FOR OTHER
I
PURPOSES, April4, 1974....
SEC. 6. Tax exemption.- All foreign currency deposits marle under this Act, as amended by PO No. 1035, as well as
foreign cu rrency deposits authorized under PO No. I 034, including interest and all other income or earnings of such
deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made
by residents or nonresidents so long as the deposits are eligible or allowed under aforementioned laws and, in the case of
nonresidents, irrespective of whether or not they are engaged in trade or business in the Philippines. (As amended by PO
No. 1246, prom. November 2 1, 1977.)
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 2 of 12
x-----------------------------------------------------------------x
which, as the ponencia suggests, remains to be the governing
law on the exemption from estate tax of FCDs.

I respectfully dissent. The tax exemption contemplated

under Section 6 of RA No. 6426 refers to tax exemption on FCDs,
including interest and all other income or earnings of such
deposits; whereas estate tax is an excise tax imposed on the
privilege of transferring a property upon the death of the owner. 2
An estate tax is not a property tax because their imposition does
not rest upon general ownershi? but rather, they are imposed
on the act of passing ownership ofproperty. 3

The Supreme Court has held that statutes are to be

construed in light of the purposes to be achieved and the evils
sought to be remedied.4 Thus, in construing a statute, the
reason for its enactment should be kept in mind and the statute
should be construed with reference to the intended scope and
purpose. 5 The Court may consider the spirit and reason of the
statute, where a literal meaning would lead to absurdity,
contradiction, injustice, or woulJ defeat the clear purpose of the
lawmakers. 6

From the foregoing, let us first ascertain the purpose

behind RA No. 6426, its amendments, as well as its related
statute, RA No. 84247 (Tax Reform Act of 1997 or the 1997
National Internal Revenue Code [NIRC], as amended) in order to
determine whether the HSBC USD Savings Account of the
decedent herein, a resident alien, is exempt from estate tax.

The circumstances, among others, that led to the

enactment of RA No. 6426 are spelled out in the following
"Whereas" clause of Presidential Decree (PD) 12468 amending
the said RA, viz.:

... WHEREAS, in order to assure the development and

speedy growth of the Foreign Currency Deposit System and the
Offshore Banking System in the Philippines, certain incentives ~

2 Cabaneiro, From Living to Leaving (2018), p. 127, cited in 2019 Edition, Memory Aid in Taxation Law, San Beda
University, College of Law, p. 178.
3 Memory Aid in Taxation Law, San Beda University, College of Law, p. 178.
4
Limson v. Gonzalez, G.R. No. 162205, March 31,2014.
5
Ursua v. Court of Appeals, citing People v. Purisima, G.R. Nos. L-42050-66, November 28, 1978.
6 /d., citing Gregorio, Antonio L., Fundamentals of Criminal Law Review, 1985 Ed., p. 9; People v. Manantan, G.R. No.

L-14129, July 31, 1962.

7
AN ACT AMENDING THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES, January I, 1998.
8 FURTHER AMENDING CERTAIN PROVISIONS OF REPUBLIC ACT NUMBERED SIXTY-FOUR HUNDRED

AND TWENTY-SIX, AS AMENDED BY PRESIDENTIAL DECREE NUMBERED ONE THOUSAND THIRTY-

FIVE, November 21, I977.
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 3 of 12
x-----------------------------------------------------------------x

were provided for under the two Systems such as confidentiality

of deposits subject to certain exceptions and tax exemptions on
the interest income of depositors who are nonresidents and are
not engaged in trade or business in the Philippines; ....

PD 1246 did not only incorporate amendments with

provisions relating to tax exemption9 and secrecy of FCDs, 10 but
also expressly allowed the enactment of new laws and
regulations decreasing said rights but shall be applied
prospectively . 11

It is in view of the above provision that the sweeping

preferential tax treatment of FCDs was lifted on January 1,
1998, when RA No. 8424 took effect. Notably, the phrase that
FCDs "are hereby exempted fror1 any and all taxes whatsoever"
contained in Section 6 of RA No. 6426, as amended, was deleted
in RA No. 8424.12"'

9
SEC. 6. Tax Exemptions- All foreign currency deposits made under this Act, as amended by Presidential Decree No.
1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, including interest and all other
income or earnings of such deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or
not these deposits are made by residents or non-residents so long as the deposits are eligible or allowed under
aforementioned laws and, in the case of non-residents, irrespective of whether or not they are engaged in trade or business
in the Philippines.
10 SEC. 8. Secrecy of Foreign Currency Deposits- All foreign currency deposits authorized under this Act, as amended

by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. I 034,
are hereby declared as and considered of an absolutely confiC~ntial nature and, except upon the written permission of the
depositors, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person,
government official, bureau or office whether judicial or administrative or private: Provided, however, that said foreign
currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body whatsoever.
11 SEC. 12-A. Amendatory Enactments and Regulations- In the event a new enactment or regulation is issued decreasing

the rights hereunder granted, such new enactment or regulation shall not apply to foreign currency deposits already made
or existing at the time of issuance of such new enactment or regulation, but such new enactment or regulation shall apply
only to foreign currency deposits made after its issuance.
12 o .. 1,.... .. , ;"" th .. '" ............ , ... , .....
I J .... I V n 1.;> UJ.._. JUJIIIIIUJ ,....f tax
- - treatments
--- ····-··-- of
- ..FCD o .
Income Type Tax Rates

PD 1158-A (1977 Tax PD 1246, amending RA 8424

Code; September 30, RA 6426
1977) (November 21, (1997 Tax Code)
1977)

Income from foreign 5% of the NTI in lieu Exempt I 0% FWT [Sec. 27

currency loan and of all taxes, except net (D)(3)]
transactions with income subject to
nonresidents, OBUs and other RCIT [Sec. 24.
depositary banks under (b)(2)(f)(2), par. I]
EFCDS

Interest income from foreign 10% FWT [Sec. 24, Exempt 10% FWT [Sec.
currency loans granted by (b)(2)(f)(2). par. 2] 28[A][7][B]
such depositary bank under
EFCDs to residents

Interest income received by None provided; Net Exempt 7 1/2% FWT [Sec. 24
an individual taxpayer income subject to (B)( I)]
(except a nonresident
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 4 of 12
x-----------------------------------------------------------------x

The legislative intent to repeal the tax exemption of FCDs

is clear during the Senate deliberations of House Bill No. 1977 13
sponsored by Senator Enrile, which later became the Tax
Reform Act of 1997 on January 1, 1998:

Senator Gonzales: ...

On page 24, there is provided in subparagraph (1) a
final tax at the rate of 20% upon "the amount of interest from
any currency bank deposit."

Is this what is commonly known as the dollar deposit or

dollar account?

Senator Enrile: This is the expanded foreign currency

deposit system, Mr. President[.] ...

Senator Gonzales: Is this the same as the so-called

"FCDUs," Mr. President, or is it different?

Senator Enrile: That is correct, Mr. President.

Senator Gonzales: It is the FCDUs.

Senator Enrile: Yes. I would like to define the operation

of this banking system ...

... [T]his is what they call the "expanded foreign currency

deposit system," where one goes to a commercial bank and he
is allowed to open a dollar ar;count. But these are dollar
accounts. The dollars are either kept here in the vault or
deposited in the foreign depository bank of the local
commercial bank outside of the country. These are not also
included in the reserve, in the foreign currency reserve of the
Republic.

Now, in both cases, the offshore banking unit is

exempted from income taxation on its interest income or
whatever income it derives from the utilization of deposits
made to it in foreign currency. And these are large amounts.

Equally, a domestic banking institution that is

allowed to operate an FCDU is exempt from taxation for

individual) from a depository graduated tax rates

bank under the EFCDs [Sec.21]

Any Income of nonresidents Exempt [Sec. 24, Exempt Exempt :

not engaged in trade or (b)(2)(1)(2), par. 3]

business in the Philippines
from foreign currency loans
to depositary banks under
EFCDS

~
13
Record of the Senate, Third Regular Session, July 28 to September 30, 1997.
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 5 of 12
x-----------------------------------------------------------------x

the interest it earns out of the lending of this deposit. But,

at the same time, the interest that it pays to the depositor is
deducted from its gross income. I think this is unfair, apart
from the fact that these banking institutions are the most
affluent ones. That is why we have a very thriving banking
system in the country because of this system. They are
exempted from taxation on this particular item.

Mr. President, according to the Bangko Sentral, the

total FCDU in the country is C"3$17 billion. If they lend that
out at 10%, that is US$1.7 billion times P29:US$1.00, that is
more than almost US$60 billion in interest. Twenty percent of
that is $12 billion. That is what the Philippine government is
losing from this sector of the economy.

That is why I see no justification in exempting this

group from taxation. If we are going to burden a sari-sari
store, a professional with income tax, then I ask the pertinent
questions: Why should we exempt these people from
income taxation? What is the impelling reason?

Senator Gonzales: Mr. President, I understand-and

correct me if I am wrong-that FCDUs were originally
introduced as a means to encourage remittances and to
reverse capital flight. Through the years, there has been a
rapid expansion of these accounts and foreign exchange
liberalization which permitted the exporters to retain their
earnings in foreign currency to such an extent that by the
sponsor's own statement, the amount of dollar deposits now,
according to the Bangko Sentral and also the Philippine
Chamber of Commerce and Industry, is about US$17 billion
which is actually higher than our international reserves of
only US$12 billion.l4

Senator Enrile: ...

Money will go anywhere where it can make money. They
are in the Philippines not because we exempt them from
taxation but because they earn a very high interest rate in the
Philippines .

. . . They will never leave this country, and yet we are

foolish enough to accept that proposition that they ought
to be exempted from income taxation.

Now, of the FCDUs that we have, I understand from the

government sector, from the Executive, that 81 percent of all
FCDUs in the country are actually held by the residents of
the republic. They converted their pesos into dollars and
deposited them as dollars because we are foolish enough
to exempt these FCDUs from income taxation.

14 /d. at 279. ~
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 6 of 12
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So, I leave it to the Chamber if we want to be deluded
with this kind of a system.

I have an FCDU account; yet I am imposing that

obligation that I must pay tax on it.lS

Senator Angara: ... Let me move to my next point, and

that is the lifting of the preferential tax treatment of
FCDUs as well as OBUs.

Would this not cause some drastic consequences on

offshore as well as foreign currency deposits which I
understand today are the prime sources of our current
account spending? Many of our exporters depend on this
FCDUs and OBUs for their foreign exchange needs, and if we
remove the preferential tax t:-eatment that we have been
enjoying all these years, are we not going to drive away the
foreign currency deposits and OBUs from our shore?

Senator Enrile: Mr. President, money goes to a place

where it can make profit. Whether we have the tax on FCDUs
or OBUs, if depositors can make a margin that is favorable to
them, they will be here. Business makes profit because it
assumes risk.

I do not subscribe to the theory that these people will

run away. In fact, they are saying that because of the
announcement we made, on this FCDUs, deposits are flying
away from the country. But if we look at the figures, out of a
total of P17 billion or so, only a little over P200 million left the
country. But, I think, this P200 million left the country to pay
for obligations in order to stave off a potential increase in the
peso equivalent of the foreign currency obligation, and not
because of the effort to tax FCDUs. That is one.

Two, we are not discussing here a problem of

competition between pesos and dollars or deutschmark or
francs. We are talking here of equity in taxation. These are
the more affluent members o: the taxable community and
yet, they get away with their tax burden. Another thing that
I cannot take is, as a member of this Senate and as a member
of the community, that we should tax depositors of our own
currency in banks and we exclude from taxation depositors of
foreign currencies. We are insulting our own currency.

Senator Angara: Mr. President, I can accept all the

reasons given by the sponsor. But this repeal of the
exemption to me is a very strong signal that we are changing
policies in the middle of the stream. We attracted these FCDUs
as well as OBUs on the promise that their income will be~
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 7 of 12
x-----------------------------------------------------------------x

subject to special tax or in some cases, the offshore income of

FCDUs will be exempt from any taxation. Now we are saying
"No, we do not need you anymore."16

Senator Enrile: ... I would like to put into the Record

that the exemption of FCDUs from paying income tax in
the Philippines as well as the secrecy of their bank deposits
was introduced in 1977, on November 21, 1977, under
Presidential Decree No. 1246 by the then President
Ferdinand E. Marcos. I would like to remind the nation and
this Chamber that they have been enjoying this tax
concession since then.

But what have they done at a time when we were in

crisis? In 1983, 1984, 1985, 1986 all the way to 1990, they all
flew away. They left the country. So it is not really a question
of taxation that is involved here. It is a question of whether
the economy is stable enough, strong enough to lessen the
risk. They will withdraw from this country even if we give
them all these tax concessions and the secrecy for as long
as they feel that they are going to risk their capital because of
the economic weakness of the country-not because we
are taxing them. They will remain here as other foreign
businessmen and Filipino businessmen will remain in
business even if we tax them if they can make money .17

We are just saying, "Well, you earn money; you pay your
share of the tax burden of the government." IS

The point is, why should we tax our depositors of pesos

and we do not tax these people? Yet, these banks, the local
banks which are enjoying the protection of government, are
paying I think less on their peso deposits and higher on their
FCDUs.

I cannot justifiably support the proposition that we

should be exempting the most capable members of the
economy from income taxation and tax sari-sari stores,
barbershops and beauty parlors for their income.

Senator Angara: But is this move also in contradiction

to the liberalization of our foreign exchange?

Senator Enrile: No, Mr. President. Taxation is one

thing. Liberalization and conversion of funds into foreign
currencies is different. These are quite apart. 19 (Emphasis
supplied) • ,..../

"!d. at414.
11 /d. at414-415.
~T'
18 /d. at416.
19 /d. at417.
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 8 of 12
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The foregoing interpellations also solidify the thesis that
the tax exemption under RA No. 6426 pertains to the income of
FCDs and such exemption was repealed by RA No. 8424.

Accordingly, with the enactment of RA No. 8424, the

interest income received by an individual taxpayer (except a
nonresident individual) from a depository bank under the
expanded foreign currency deposit system (EFCDS) is subjected
to a final income tax at the rate of7Y2% (increased to 15% under
RA No. 10963 or the TRAIN Law) of such interest income.2o

It is basic in statutory construction that there exists a

valid presumption that undesirable consequences were never
intended by a legislative meast:re, and that a construction of
which the statute is fairly susceptible is favored, which will
avoid all objectionable, mischievous, indefensible, wrongful,
evil, and injurious consequences.21

Hence, it must be presumed that when a law, such as RA

No. 6426, was promulgated, it was not intended to bring up an
inequitable or oppressive result at the expense of another. 22
Indeed, as put forth by Senator Gonzales during the 1997 Tax
Code deliberations, RA No. 6426 was initially enacted to
increase remittances and reverse capital flight. However,
according to the data, as explained by Senator Enrile, the
dollars still flew away even if there was income tax exemption
on FCDs because of the economic weakness of the country;
hence, the manifest repeal of FCDs' tax exemption by RA No.
8242.

To interpret RA No. 6426 as an all-encompassing tax

exemption of FCDs will set a dangerous precedent that would
also defeat its legislative intent. As an example, a resident
taxpayer in contemplation of his death will convert his peso
savings account to dollars to exempt the same from estate tax.
As the Supreme Court validly posed in People v. Pu.risima, 23

20
~
SEC. 24. Income Tax Rates.
(A) Rates oflncome Tax on Individual Citizen and Individual Resident Alien of the Philippines.
(I) An income tax is hereby imposed:
(B) Rate of Tax on Certain Passive Income.
(I) Interests, Royalties, Prizes, and Other Winnings. - . Provided, however, That interest income received by an
individual taxpayer (except a nonresident individual) from a depository bank under the expanded foreign currency deposit
system shall be subject to a final income tax at the rate of seven and one-half percent (7 1/2%) of such interest income:

21 People v. Purisima, G.R. No. L-42050-66, November 20, 1978.

22 /d.
23 /d.
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 9 of 12
X-------------------------------------------- --------------------X
could the law have been conceived to produce such
unreasonable and insensible results?

Foremost, tax exemptions are to be construed strictly

against the taxpayer and liberally in favor of the State. A
taxpayer's claim for exemption must be justified by showing
that the Legislature intended to exempt him by words too plain
to be mistaken. 24 It cannot be made out of inference or
implication. 25 At the same time, if the intention of the legislature
is open to doubt, then the intention of the legislature must be
resolved in favor of the State.26

As it is, there is no estate tax exemption on foreign

currency deposits of an individual resident, like Mr. Charles
Marvin Romig. The provisions on estate tax expressly provide
that the resident decedent's gross estate shall include all
properties wherever situated as provided under Sections 8427
and 85 28 of the 1997 NIRC, as amended. Hence, the amount of
foreign currency deposits sho:1ld be included in the gross
estate.

Also, the FCDs of a resident decedent are not among those

that can be deducted or exempted from the gross estate.
Sections 86 29 and 8730 ofthe 1997 NIRC, as amended, expressly~

24
Commissioner of Internal Revenue v. A. D. Guerrero, Special Administrator, in Substitution of Nathaniel I. Gunn, as
Administrator of the Estate of the Late Paull. Gunn, G.R. No. L-20942, September 22, 1967.
25
Quezon City and the City Treasurer ofQuezon City v. ABS-CBN Broadcasting Corporation, G.R. No. 166408, October
6, 2008.
26
Smart Communications, Inc v. The City of Davao, represented herein by its Mayor Hon. Rodrigo R. Duterte, G.R. No.
155491, September 16, 2008.
27 SEC. 84. Rates ofEstate Tax-There shall be levied, assessed, collected and paid upon the transfer of the net estate

as determined in accordance with Sections 85 and 86 of every decedent, whether resident or nonresident of the
Philippines, a tax based on the value of such net estate ....
28
SEC. 85. Gross Estate. -The value of the gross estate of the decedent shall be determined by including the value
at the time of his death of!!.! property, real or personal, tangible or intangible, wherever situated: ...
29 SEC. 86. Computation of Net Estate.- For the purpose of the tax imposed in this Chapter, the value of the net estate

shall be determined:
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or resident of the
Philippines, by deducting from the value ofthe gross estate-
(I) Expenses, Losses, Indebtedness, and taxes. - Such amounts- ...
(2) Property Previously Taxed. - ...
(3) Transfers for Public Use.- ...
(4) The Family Home. - .. .
(5) Standard Deduction.- .. .
(6) Medical Expenses.- ...
(7) Amount Received by Heirs Under Republic Act No. 4917.- ...
30 SEC. 87. Exemption of Certain Acquisitions and Transmissions.- The following shall not be taxed:

(A) The merger of usufruct in the owner of the naked title;

(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the
desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no part of the
net income of which insures to the benefit of any individual: Provided, however, That not more than thirty percent
(30%) of the said bequests, devises, legacies or transfers shall be used by such institutions for administration
purposes.
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 10 of 12
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provide the deductions and exemptions allowed from gross

estate. FCD is not one of them.

Further, Section 97 of the 1997 NIRC, as amended,

prohibits any withdrawal from the decedent's bank deposit
account unless the estate taxes have been paid thereon. Thus:

SEC. 97. Payment of Tax Antecedent to the Transfer of

Shares, Bonds or Rights. -

If a bank has knowledge of the death of a person, who

maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been paid:
Provided, however, That the administrator of the estate or any
one (1) of the heirs of the decedent may, upon authorization by
the Commissioner, withdraw an amount not exceeding Twenty
thousand pesos (P20,000) without the said certification. For
this purpose, all withdrawal slips shall contain a statement to
the effect that all of the joint depositors are still living at the
time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors.31

The "bank deposit account" spoken of in Section 97

obviously includes all kinds of deposit accounts, whether in
local or foreign currency. Where the laws do not distinguish, we
should also not distinguish.

From the foregoing, there is no doubt that a decedent's

foreign currency bank deposit is subject to the payment of
estate tax at the rate of 5% to 20% on net estate graduated scale
(now fixed at 6% under the TRAIN Law).

At this juncture, it bears to emphasize that even if the tax

exemption under RA No. 6426 was not repealed by RA No. 8424,
respondent's HSBC USD Saving,3 Account is still subject to the
payment of estate tax.

To reiterate, the tax exemption under RA No. 6426

pertains to any and all taxes on foreign currency deposits,
including interest and other income or earnings of such
deposits, which is different and distinct from estate tax as found
by Justice Catherine Manahan in her Decision:

~
31This must be contrasted with the amendment of the same provision under the TRAIN Law which allows for the
withdrawal of decedent's bank deposit account only upon payment of final withholding tax (FWT) of6%.
DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 11 of 12
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Respondent's claim for estate tax refund [under RA
6426] is misplaced. It is anchored on an alleged tax
exemption law that pertains to income tax which is
separate and distinct from estate tax.

In assessing respondent for estate tax, petitioner is not

taxing respondent's foreign currency deposits with HSBC, nor
its interest and earnings per se, but the right or privilege of Mr.
Charles Marvin Romig, the decedent, to transfer his estate to
his lawful heirs.

Estate tax is the tax on the privilege to transmit property

at death and on certain transfers which are made the equivalent
of testamentary dispositions by the statute. 32 In addition, it is
laid neither on the property nor on the transferor or the
transferee. It is an excise tax or privilege tax and its object is to
tax the shifting of economic benefits and enjoyment of property
from the dead to the living. 33

The Court should not indulge in expansive construction

and write into the law an exemption not expressly set forth
therein. 34 Instead, it must go by the reasonable assumption that
where the State has granted in express terms certain
exemptions, those are the exemptions to be considered, and
nothing more.35

In this case, no such grant of estate tax exemption could

be implied from the history and legislative intent ofRA No. 6426.
The scope of RA No. 6426 should not be enlarged and extended
as to run counter to the controlling rule that "tax exemption is
not to be presumed and that if granted, it is to be most strictly
construed against the taxpayer."36

The following guiding principle of taxation as pointed out

by Senator Enrile during his Sponsorship Speech of RA No.
8242 especially rings true in this case:

J
32
Reviewer on Taxation, Mamalateo, Third Ed., 2014, p. 350.
33 !d.. p. 352.
34 Commissioner of Internal Revenue v. A. D. Guerrero, Special Administrator, in Substitution of Nathaniel I. Gunn, as

Administrator of the Estate of the Late Paul I. Gunn, G.R. No. L-20942, September 22, 1967.
35 !d.
36 Smart Communications, Inc v. The City of Davao, represented herein by its Mayor Han. Rodrigo R. Duterte, G.R. No.

155491, September 16,2008.

DISSENTING OPINION
CTA EB No. 2214 (CTA Case No. 9626)
Page 12 of 12
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We should not follow blindly the policy of sparing as many of
our people as possible from paying taxes. We should rather strive
for an equitable sharing of the tax burden among our people
while we ensure that truly low-income families are spared. True
citizenship is enhanced in this manner.37(Emphasis supplied)

Considering the absence of prevailing laws and

amendments of the 1997 NIRC, as amended, expressly
providing that the foreign currency deposit of a decedent
resident should not form part of his gross estate, I vote to deny
respondent's claim for refund in the amount of'P4,565,349.07.

LANIJ!rf.~VID
Associate Justice

37
Supra, note 6 at 146.