High court’s tax order came too late, says DOF

The Department of Finance withheld P4.8-billion worth of taxes from the poverty eradication and alleviation certificates, or PEACe bonds, contrary to a Supreme Court decision because the high tribunal’s order was received a day late, the agency yesterday said in a statement.

The DOF, in a comment submitted through the Office of the Solicitor General, said the 20-percent tax had been withheld because the agency received the high court’s temporary restraining order (TRO) only on October 19, or a day after the PEACe bonds matured.

The DOF said the Bureau of the Treasury (BTr), the authorized withholding agent, was required under the Tax Code to withhold the taxes; otherwise, its officers would be held liable for estafa.

Also, the DOF said that under the same law and before the TRO was received, collecting officers of the Bureau of Internal Revenue (BIR) were the only authorized agents to receive the tax withheld.

“Considering the criminal and civil penalties for failure to withhold a tax, [concerned] government officials waited until the very last minute [on October 18] for the reported TRO,” the DOF said. “Unfortunately, no TRO arrived in time.”

In a telephone interview, Internal Revenue Commissioner Kim S. Henares confirmed that the tax liabilities for the PEACe bonds worth P35 billion had already been withheld.

Issued in 2001, the zero coupon bonds were sold at a discounted price worth around P10.7 billion.

While bondholders did not earn interest every quarter until the PEACe bonds had matured, unlike regular bonds, the certificates earned a total of P24.3 billion equivalent to the discount. The 20-percent final withholding tax was culled from this amount, the BIR said.

“Contrary to some news reports, the agencies concerned did not ‘defy’ [the Supreme Court’s] order,” the DOF statement said. “The agencies simply did not receive the TRO before they were required by law to withhold the tax.

Moreover, the DOF said, the BIR and the BTr—both of which are part of the department—“had absolutely no discretion to defer the withholding of the tax.”

Citing Sections 251 and 255 of the Tax Code, the DOF said failure by a withholding agent to withhold a tax could result in jail time of up to 10 years, a fine of at least P10,000, and a penalty equal to the amount of the tax in question.

“Had the agencies received the TRO before the close of business on Oct. 18, 2011, compliance would not have been a problem,” the department said.  “However, since the TRO was received only on the day after the tax had been withheld, compliance with the TRO was no longer possible.”

The DOF added that the government agencies involved specifically waited for the official delivery of a copy of the TRO, which came neither by messenger nor by mail that day.

The TRO was issued as requested by eight banks who have invested in the bonds, including Banco de Oro Unibank, Metropolitan Bank and Trust Co., Bank of Commerce, China Banking Corp., Philippine Bank of Communications, Philippine National Bank, Philippine Veterans Bank and Planters Development Bank.

In the TRO, the high court ordered the banks to put in escrow the amount corresponding to the disputed tax.

Also, yesterday, the DOF reiterated calls for interested parties “to refrain from issuing misleading and inflammatory statements to the media and to allow the courts to resolve the issues surrounding the tax treatment of the PEACe Bonds.”