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KONG v. CIR

FACTS:

The case involves petitions for review on certiorari regarding decisions and resolutions of the Court of Appeals in two separate cases. The petitioner, Hongkong and Shanghai Banking Corporation Limited-Philippine Branches (HSBC), provides custodial services and manages accounts of investor-clients through electronic messages known as SWIFT. In accordance with instructions from its investor-clients, HSBC purchased shares of stock and paid Documentary Stamp Tax (DST) from September to December 1997 and from January to December 1998. The Bureau of Internal Revenue (BIR) issued a ruling stating that instructions from abroad on the management of funds located in the Philippines are not subject to DST. HSBC filed administrative claims for the refund of the DST it paid, but the claims were not acted upon. HSBC brought the matter to the Court of Tax Appeals (CTA), which ruled in favor of HSBC and ordered the Commissioner of Internal Revenue to refund the DST. However, the Court of Appeals ruled that the electronic messages received by HSBC are subject to DST and upheld the assessment and collection of the tax by the BIR.

ISSUES:

  1. Whether the electronic messages of HSBC's investor-clients are subject to documentary stamp tax (DST).

  2. Whether the Court of Appeals erred in reversing the decisions of the Court of Tax Appeals (CTA).

  3. Whether the electronic messages of HSBC's investor-clients constitute a bill of exchange under Section 181 of the Tax Code.

  4. Whether HSBC is entitled to a refund of the Documentary Stamp Tax (DST) paid.

  5. Whether the documentary stamp tax (DST) is applicable to the acceptance or payment of a foreign bill of exchange or order for the payment of money drawn abroad but payable in the Philippines.

  6. Whether the DST is an excise tax on the privilege of the drawee to accept or pay a bill of exchange or order for the payment of money, and on the corresponding privilege of the drawer to have acceptance of or payment for the bill of exchange or order for the payment of money which it has drawn abroad but payable in the Philippines.

  7. Whether the electronic messages received by HSBC can be considered as presentment for acceptance or presentment for payment.

  8. Whether HSBC should be held liable for Documentary Stamp Tax (DST) under Section 230 of the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code.

RULING:

  1. Yes, the electronic messages of HSBC's investor-clients are subject to DST. The Court of Appeals ruled that the DST is imposed not on the bill of exchange or order for payment of money, but on the acceptance or payment of such bill or order. The acceptance and payment of the electronic messages/orders for payment made by HSBC's investor-clients fall within the requisites for the imposition of DST, particularly since the orders were drawn from a foreign country and payable in the Philippines.

  2. No, the Court of Appeals did not err in reversing the decisions of the CTA. The CTA's ruling should not have been given undue weight as the Court of Appeals has the authority to review tax cases. The Commissioner of Internal Revenue correctly and legally assessed and collected the DST from HSBC.

  3. The electronic messages of HSBC's investor-clients do not constitute a bill of exchange under Section 181 of the Tax Code. The messages lack the requisites of negotiability under Section 1 of the Negotiable Instruments Law.

  4. HSBC is entitled to a refund of the DST paid as the transactions involving the electronic messages are not subject to the DST under Section 181 of the Tax Code.

  5. Yes, the DST is applicable to the acceptance or payment of a foreign bill of exchange or order for the payment of money drawn abroad but payable in the Philippines. The law imposes DST on either the acceptance or the payment of such bills or orders.

  6. Yes, the DST is an excise tax on the privilege of the drawee to accept or pay a bill of exchange or order for the payment of money, and on the corresponding privilege of the drawer to have acceptance of or payment for the bill of exchange or order for the payment of money which it has drawn abroad but payable in the Philippines.

  7. The electronic messages received by HSBC cannot be considered as presentment for acceptance or presentment for payment.

  8. HSBC should not be held liable for DST under Section 230 of the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code.

PRINCIPLES:

  • Section 181 of the 1997 Tax Code imposes DST on the acceptance or payment of a bill of exchange or order for the payment of money.

  • DST is levied on the exercise of privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments, independently of the legal status of the transactions giving rise thereto.

  • DST is an excise upon the facilities used in the transaction of business separate and apart from the business itself.

  • The acceptance of a bill or order for payment may be done in writing in the bill or order itself, or in a separate instrument.

  • Tax refunds like tax exemptions are strictly construed against the taxpayer.

  • Bills of exchange are one of two general forms of negotiable instruments under the Negotiable Instruments Law.

  • Electronic messages lacking the requisites of negotiability are not considered bills of exchange.

  • The DST under Section 181 of the Tax Code is levied on the acceptance or payment of bills of exchange drawn in a foreign country but payable in the Philippines.

  • BIR Rulings inconsistent with prevailing law and long-standing administrative practice may be questioned.

  • Instruments subject to the DST under Section 181 of the Tax Code must comply with the requisites of negotiability under Section 1 of the Negotiable Instruments Law.

  • The DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights, or properties incident thereto.

  • Persons primarily liable for the payment of DST are those making, signing, issuing, accepting, or transferring the taxable documents, instruments, or papers.

  • DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.

  • Acceptance of a bill of exchange is the signification by the drawee of his assent to the order of the drawer and is both the manifestation of the drawee's consent to the drawer's order to pay money and the expression of the drawee's promise to pay.

  • Once the drawee accepts, he becomes an acceptor and engages to pay the bill of exchange according to the tenor of his acceptance.

  • Presentment for acceptance is necessary only in instances where the law requires it. In instances where presentment for acceptance is not necessary, the holder of the bill of exchange can proceed directly to presentment for payment.

  • Presentment for payment is the presentation of the instrument to the person primarily liable for the purpose of demanding and obtaining payment thereof.

  • For acceptance or payment to occur, a negotiable instrument needs to be presented to the drawee for acceptance or to the acceptor for payment.

  • Revenue Regulations No. 26 recognizes that acceptance or payment of bills of exchange or orders for the payment of money drawn abroad but payable in the Philippines is done after presentment for acceptance or presentment for payment, respectively.

  • An electronic message does not qualify as presentment for acceptance or presentment for payment, as there is no physical instrument being produced and shown.

  • There can be no acceptance or payment if there is no bill of exchange or order for payment drawn abroad and made payable in the Philippines.

  • HSBC cannot be held liable for DST as it is not "a person making, signing, issuing, accepting, or, transferring" the taxable instruments under the relevant provisions of the tax code.