A question on the PEACe bonds case

The January 2017 resolution of the Supreme Court (SC) settled the controversy involving the PEACe (Poverty Eradication and Alleviation Certificates) bonds and resolved the propriety of subjecting the P24.3-billion discount to 20-percent final withholding tax of around P4.9 billion.

The Bureau of Internal Revenue issued two rulings a few days prior to the bonds’ maturity in 2011, asserting that the discount was subject to withholding tax. This was a surprise reversal of its original position when it enticed investors in 2001 by promising tax-free returns. Worse, when the high court ordered to hold in escrow the P4.9 billion while the case was pending, the Bureau of the Treasury (BTr) defied the order.

The SC ruled that the PEACe bonds were not subject to the tax. The high court likewise directed the BTr to pay 6-percent interest per annum on the P4.9 billion from October 19, 2011 until the same is paid.

The decision is now final and executory.

Interestingly, not all of the banks who hold the PEACe bonds participated in the case. The question now is whether these investors may ask the SC to compel the government to pay them their share of the P4.9-billion withholding tax and interest.

One view is that they cannot. In legal parlance, the petition is an action in personam, which means it is binding only upon the parties to the case. Under our rules of procedure, only the parties (or their successors in interest) can ask for a writ of execution from the court.

In layman’s terms, non-parties do not have the personality to ask for favors from the court.

Proponents of this view add that the law aids the vigilant, not those who slumber on their rights. Vigilantibus, sed non dormientibus jura subveniunt.

What aggravates the situation is that the last SC resolution expressly states that “[n]o further pleadings or motions will be entertained.” This bars the non-petitioning banks from clarifying whether they can directly benefit from the decision.

This is not to say that non-petitioning banks are without any remedy.

What the ruling definitively establishes is that the PEACe bonds are not subject to the withholding tax. Equally important for the government to consider is that the 6-percent interest per annum will continue to accrue from October 19, 2011 until full payment of the withholding tax. Definitely, non-petitioning banks have a more solid cause of action than what the petitioning banks had when they filed the petition.

As to how these investor banks can actually recover their share in the P4.9-billion withholding tax and interest depends on how creative and resourceful their lawyers are.

I have my own ideas on the matter, but as a student of the law and a legal practitioner, it will be interesting to see how these lawyers will solve the problem.

The author can be contacted at [email protected].