HSBC vs. CIR (Tax 2)

G.R. No. 166018               June 4, 2014

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent;

x - - - - - - - - - - - - - - - - - - - - - - - x

G.R. No. 167728

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS:

Petitioner HSBC received emails from its foreign clientele to debit funds from their accounts for the payment of shares and securities in the Philippines. After debiting the appropriate taxes to the BIR, HSBC then requested that the latter rule on whether or not such email transactions were negotiable instruments subject to documentary stamp tax (DST). The BIR responded in the negative, holding that such emails were not transactions contemplated in Sec. 181 of the 1997 Tax Code. On the strength of this response, HSBC proceeded to demand the return of their tax payments advanced on the presumption that DST was applicable. However, as BIR did not heed HSBC’s requests for the return of the payments, HSBC filed with the Court of Tax Appeals. CTA ruled in their favor. CA reversed, holding that Sec. 181 does not apply to the instrument or bill of exchange per se, but on the acceptance or payment of said order. Hence this petition for review on certiorari before the SC.

ISSUE:

Whether or not the emails are subject to DST.

RULING:

No. The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but payable in the Philippines" and that "a bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer." A bill of exchange is one of two general forms of negotiable instruments under the Negotiable Instruments Law.

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients containing instructions to debit their respective local or foreign currency accounts in the Philippines and pay a certain named recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel to an automatic bank transfer of local funds from a savings account to a checking account maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that the electronic messages "cannot be considered negotiable instruments as they lack the feature of negotiability, which, is the ability to be transferred" and that the said electronic messages are "mere memoranda" of the transaction consisting of the "actual debiting of the [investor-client-payor’s] local or foreign currency account in the Philippines" and "entered as such in the books of account of the local bank," HSBC.