Tax court orders Metrobank to pay P478M in back taxes

BY PAUL C.H. HOW, Reporter/BusinessWorld The Court of Tax Appeals has ordered Metropolitan Bank and Trust Co. (Metrobank) to pay P477.6 million, plus a 20% delinquency interest from April 26, 2004 until full payment, in documentary stamp taxes (DST) for the year 1999. The bank earlier claimed that its universal special savings account (UNISA), which makes use of a passbook, was exempted from DST under Section 180 of the National Internal Revenue Code. The Bureau of Internal Revenue (BIR) taxed the special savings account as a certificate of deposit since the account had a fixed term and earned a higher rate of interest that makes it similar to a time deposit account, which is subject to DST. Associate Justice Erlinda P. Uy agreed with the tax agency, noting that the fact that Metrobank’s UNISA uses passbook and not a certificate of deposit was irrelevant. "What is important and controlling is the nature and meaning conveyed by the passbook. The passbooks that the petitioner issues to its depositors or holders of a UNISA are certificates of deposits that are subject to documentary stamp tax," the tax court said. Sought for comment, Metrobank’s counsel said they had yet to receive a copy of the decision. But one of the bank’s lawyers said they would likely appeal the ruling, and, if necessary, go up to the Supreme Court. The tax bureau had issued a formal letter of demand on Metrobank on Jan. 7, 2003 for payment of the tax. The UNISA’s gross amount of P170.98 billion was subject to a 0.15% tax, or P256.5 million. A surcharge of P64.1 million and interest of P157 million from January 2000 to January 2003 raised the total deficiency tax to P477.6 million. Metrobank protested the assessment on Jan. 17, 2003. On March 2, 2004, the BIR denied the bank’s protest, prompting the bank to file a case before the tax appeals court. In its petition, Metrobank said its universal savings account is merely a savings account with special features. For one, a depositor earns a higher annual interest of 3% to 4% for a P100,000 deposit if not withdrawn for at least 30 days. A passbook is issued to each depositor, and withdrawals from the account may be done anytime through withdrawal slips. If a depositor goes below the P100,000 maintaining balance, this will result in the conversion of the account into a regular savings account with a 1% interest rate. The bank said it was able to offer higher rates at par with time deposit rates. The difference with a time deposit, the bank said, was that during the fixed term of at least a month, an account holder may make additional deposits as well as withdrawals, as long as the account balance does not go below P100,000. But the BIR said the UNISA passbooks could be considered as certificates of deposits. It said the certificate of deposit stated under Section 180 of the Tax Code does not prescribe any particular form. The fact that Metrobank’s universal savings account uses a passbook does not alter its substance. The tax court, in favoring the BIR, said both the UNISA and a regular time deposit account are alike in that the bank acknowledges the receipt of the deposit and promises to pay with interest on a specified period of time. "In both cases too, the bank allows the withdrawal of the funds on deposit prior to the expiry of the predetermined time, but the rate of interest is lowered from the agreed interest," the court said.