Supreme Court stops BIR from taxing PEACe

THE Supreme Court (SC) has stopped the Bureau of Internal Revenue (BIR) from implementing a 20-percent final withholding tax (FWT) on P35-billion worth of Poverty Eradication and Alleviation Certificates (PEACe) bonds that matured on Tuesday.

In a resolution, the High Tribunal on Tuesday required to hold in escrow the 20-percent tax and release only the 80 percent to investors to protect the government, in case the court rules that these bonds are taxable.

It had issued a temporary restraining order against the BIR plan to collect the FWT.

The Internal Revenue bureau was required by the court to file its comment regarding the issue within 10 days.

Pushed by then-President Gloria Arroyo and her then-Social Welfare Secretary Corazon Soliman, the PEACe bonds were sold in 2001 and matured on October 18 this week.

Through a petition for certiorari and prohibition and/or mandamus, eight banks—Banco de Oro, Bank of Commerce, China Banking Corp., Metropolitan Bank and Trust Co., Philippine Bank of Communications, Philippine National Bank, Philippine Veterans Bank and Planters Development Bank— asked the Supreme Court to bar the BIR from collecting the 20-percent withholding tax.

The banks urged the SC to enjoin the government particularly the BIR and the Bureau of Treasury (BTr) from implementing BIR Ruling 370-2011, which imposed the FWT.

The 1997 Tax Code prohibits the BIR ruling that was retroactively applied to the government bonds sold in 2001.

Through the Treasury bureau, the government is set to pay bond holders P35 billion, including P24.3 billion in interest income or discount.

Code-NGO (Caucus of Development NGO Networks), through Rizal Commercial Banking Corp., bought the bonds on October 16, 2001 at a discounted rate of P10.17 billion and at 12.75-percent interest.

The government expects to collect about P4.83 billion in tax from the mature bonds.

The BTr offered government bonds to the government securities eligible dealers (GSED) through an auction upon assumption of the Arroyo administration in 2001.

After winning the bid, the Rizal Commercial Banking Corp. was awarded P35-billion worth of government bonds for only P10.17 billion at a yield to maturity rate of 12.75 percent.

In turn, the bank sold the bonds in the secondary markets for P11.9 billion.

President Benigno Aquino 3rd, apparently unaware that the Supreme Court has stopped the BIR from collecting the FWT, also on Tuesday said that he had ordered a review of the controversial PEACe bonds.

He, however, was silent on whether he had ordered suspension of the collection of the 20-percent withholding tax, pending results of his meeting with Finance Secretary Cesar Purisima and BIR chief Kim Henares.

“Ang pagkakaintindi ko po, ano, mayroong mga rulings ang BIR noong 2004, matagal bago tayo naupo, na nagsasabing(the PEACe bonds were) subject to the withholding tax (What I understand is that there were rulings made by the BIR in 2004, before I assumed the presidency, that said that the PEACe bonds were subject to the 20-percent withholding tax). I’ll be meeting both the Secretary of Finance and the Commissioner of the BIR … to discuss this particular issue (and then review the matter) specifically to address the complaints of those who undertook the (sale of the) PEACe bonds,” President Aquino told The Manila Times.

The President said that he was set to also meet with members of the non-government (NGO) community who benefited from the issuance of the bonds.

He added that he would not summon Soliman to shed light on the controversy.

His Social Welfare secretary was a former officer of Code-NGO.

Soliman, during an interview on Monday, said that she was not privy to transactions involving the PEACe bonds since she was no longer connected with the group when the deals with the Arroyo administration were sealed. –JOMAR CANLAS REPORTER WITH REPORT FROM JAIME PILAPIL, Manila Times