Metrobank told to pay P3.79B in taxes

BY PAUL C.H. HOW, Reporter/BusinessWorld The Court of Tax Appeals has ordered Metropolitan Bank and Trust Co. (Metrobank) to pay P3.79 billion in back taxes for the years 1995 to 1998, plus a 25% penalty and a 20% delinquency interest. Part of the back taxes is a P3.58-billion assessment by the Bureau of Internal Revenue (BIR) for documentary stamp tax (DST) on the bank’s universal special savings account (UNISA). The court’s First Division ruled that this account was a type of time deposit subject to stamp tax under Section 180 of the National Internal Revenue Code of 1993. The country’s largest lender earlier claimed the savings account, which pays a higher annual interest of 3% to 4% for a P100,000 deposit if not withdrawn for at least 30 days, is merely a special type of savings account. The account is automatically converted into a regular savings account with a 1% interest rate if a depositor goes below the P100,000 minimum balance requirement. The BIR had taxed Metrobank’s universal special savings account as a certificate of deposit subject to DST because of the fixed term and the higher interest rate. First Division Associate Justice Lovell R. Bautista, ruling in favor of the tax agency, said a certificate of deposit is any written acknowledgment by a bank of the receipt of a sum that it promises to pay later to the depositor. "The fact that the petitioner’s UNISA is evidenced by a passbook and not by a certificate is not an issue. In determining what instruments are subject to documentary stamp tax, substance would [prevail] over the form," he pointed out. Last Sept. 1, the tax court’s Second Division similarly ordered Metrobank to pay P477.6 million in DST for its special savings account, covering the year 1999. It likewise ruled that the UNISA passbook had the characteristics of a certificate of deposit. Metrobank Assistant Corporate Secretary Antonio V. Viray told BusinessWorld the bank would seek reconsideration of the tax court’s ruling. "This is an industry issue, and we believe we have good grounds to have it reversed. There’s a good The Court of Tax Appeals has ordered Metropolitan Bank and Trust Co. (Metrobank) to pay P3.79 billion in back taxes for the years 1995 to 1998, plus a 25% penalty and a 20% delinquency interest. Part of the back taxes is a P3.58-billion assessment by the Bureau of Internal Revenue (BIR) for documentary stamp tax (DST) on the bank’s universal special savings account (UNISA). The court’s First Division ruled that this account was a type of time deposit subject to stamp tax under Section 180 of the National Internal Revenue Code of 1993. The country’s largest lender earlier claimed the savings account, which pays a higher annual interest of 3% to 4% for a P100,000 deposit if not withdrawn for at least 30 days, is merely a special type of savings account. The account is automatically converted into a regular savings account with a 1% interest rate if a depositor goes below the P100,000 minimum balance requirement. The BIR had taxed Metrobank’s universal special savings account as a certificate of deposit subject to DST because of the fixed term and the higher interest rate. First Division Associate Justice Lovell R. Bautista, ruling in favor of the tax agency, said a certificate of deposit is any written acknowledgment by a bank of the receipt of a sum that it promises to pay later to the depositor. "The fact that the petitioner’s UNISA is evidenced by a passbook and not by a certificate is not an issue. In determining what instruments are subject to documentary stamp tax, substance would [prevail] over the form," he pointed out. Last Sept. 1, the tax court’s Second Division similarly ordered Metrobank to pay P477.6 million in DST for its special savings account, covering the year 1999. It likewise ruled that the UNISA passbook had the characteristics of a certificate of deposit. Metrobank Assistant Corporate Secretary Antonio V. Viray told BusinessWorld the bank would seek reconsideration of the tax court’s ruling. "This is an industry issue, and we believe we have good grounds to have it reversed. There’s a good chance the Supreme Court will see our point," he said. A dissenting opinion was issued by Associate Justice Caesar A. Casanova, who said the UNISA, unlike a time deposit, does not have a maturity date for which a depositer may avail himself of higher interest. It was only through Republic Act (RA) 9243, which rationalized the DST provisions of the Tax Code and was implemented in 1998, that accounts such as the UNISA had been subjected to stamp tax, the magistrate said. Under Section 5 of RA 9243, which amended Section 180 of the Tax Code, a debt instrument includes certificates of deposit that are either drawing interest significantly higher than the regular savings deposit, taking into account the size of the deposit and the risks involved. According to Mr. Casanova, there was no law before the passage of RA 9243 subjecting the UNISA to DST. "The fact that Congress amended Section 180 of the Tax Code shows that the old law was inapplicable to the instant case," he said in his dissent. The tax court, aside from ordering Metrobank to pay stamp tax, also directed it to pay P155.65 million in gross receipts tax on onshore income for 1998, pursuant to Section 25 of the Tax Code. The bank had claimed it was exempt from this tax, since it was paying a final tax on income derived from a foreign currency deposit unit. The tax court however said such exemption had been removed when the revised Tax Code took effect in 1998. However, the court did cancel an assessment of P1.09 billion in DST for the bank’s trust agreements covering 1995 to 1998, saying that while money or property had been transferred from a client to the bank for managing, ownership remained with the client. The BIR had taxed Metrobank for the assets it held in trust, saying money was being received by the bank. However, the tax court noted that no debtor-creditor relationship arises in such transaction. Also canceled was an assessment for P258.64 million in DST for interbank call loans for 1995 to 1997. The tax court said these transactions had not been subject to DST under the 1993 version of the Tax Code. Interbank call loans were specifically mentioned only in the revised Tax Code of 1997, the court said, only affirming the BIR’s P54.56-million assessment for 1998.