Court tells BIR to stop issuing assessment notices

THE Makati City Regional Trial Court Branch 57 told the Bureau of Internal Revenue (BIR) that it is prohibited not only from issuing preliminary and final assessment notices but also all other administrative matters related to Revenue Regulations No. 4-2011 that imposes restrictions on bank tax deductions.

In an order dated June 10, Makati RTC Judge Honorio E. Guano Jr. said that the injunction is necessary so as not to render moot once the court has ruled on the case.

Last April, the Makati court issued an injunction against the BIR following the petition filed by the Bankers Association of the Philippines (BAP).

In its April ruling, the Makati court said it was convinced that if no injunction was issued, the BIR would proceed in issuing PANs and FANs which, the petitioners said, could lead to a distraint and levy of their properties.

“Should there be distraint and levy, the banks will be deprived possession of their properties, effectively crippling their business operations,” BAP said in their petition.

The court has said petitioner banks are able to prove that implementation of the questioned revenue regulation “violates the petitioners’ rights insofar as it imposes a manner of allocation of deductible expense which is, as argued by the petitioners, contrary to settled practice and provisions of the tax code; that such implementation will require petitioners to dispute the tax assessments every time it is issued.”

The objective of RR 4-2011 is to set the rules on income and expenses allocations of banks among their various operations, which are governed by different income tax rules.

RR 4-2011 provides that a bank may deduct only those costs and expenses attributable to the operation of the regular banking unit (RBU) to arrive at its taxable income. Any cost or expense related to or incurred in the operation of the foreign currency deposit unit (FCDU)/expanded FCDU or offshore banking unit is not allowed as deduction from the RBU’s taxable income.

Failure to comply with the revenue regulation will subject officers of the banks and other financial institutions to criminal liability.

The banks filed a petition before the court to nullify RR 4-2011 after the BIR started issuing PANs on several banks.

In their petition, the banks said issuing the regulation is not among the instances that the National Internal Revenue Code (NIRC) allowed the delegation of power to issue financial related policies to the Department of Finance (DOF) and the BIR.

Petitioner banks include Asia United Bank; BDO Unibank Inc.; Bank of America; Bank of Commerce; BDO Private Bank Inc.; Citibank, N.A., Philippine branch; China Banking Corp.; Chinatrust (Phils.) Commercial Bank Corp.; Deutsche Bank AG, Manila Branch; East West Banking Corp.; ING Bank N.V., Manila branch; Philippine Bank of Communications; Philippine National Bank; Philippine Veterans Bank; PNB Savings Bank; Rizal Commercial Banking Corp.; Security Bank Corp.; Standard Chartered Bank, Philippine branch, and United Coconut Planters Bank.