(Article published in the June 7, 2006
issue of Manila Standard Today)
Far East Bank and Trust Co. was the financial institution that led the
rest the way in trust investments.
To this day, even after the bank’s union with the Bank of the
Philippine Islands, Far East Bank somehow manifests a presence in the
field it pioneered in, i.e. investing the funds of qualified retirement
plans. Unfortunately, in the
case of FEBTC, as trustee of various
retirement funds vs. the Commissioner of Internal Revenue and the Court of
Appeals, GR 138919, promulgated on May 2, 2006, Far East Bank has left
a legacy to the trust industry consisting of lessons learned from its
Dante Tinga, writing for the Supreme Court, began his ponencia with a most heavy heart.
present petition evokes some degree of natural sympathy for the
petitioner, as it seeks the refund of taxes wrongfully paid on the income
earned by several retirement funds of private employees held by petitioner
in their behalf. The steps undertaken by petitioner to seek the refund
were woefully error-laden, yet their claims still received due
solicitation from this Court. But in the end, the errors committed are
just too multiple as well as consequential, and the claim for refund not
sufficiently proven. Impulses may suggest that we reverse and grant, but
logic and the law dictate that the Court affirm the assailed rulings of
the Court of Appeals and the Court of Tax Appeals.”
is the factual background of the good justice’s lamentations.
Far East Bank was trustee of various qualified retirement plans
established by several companies for its employees under Republic Act
4917, as amended. As trustee, the bank had the authority to hold, manage,
invest and reinvest the funds set up under those plans.
It accordingly invested in various money market placements, bank
deposits, deposit substitute instruments and government securities, all of
which necessarily earned interest income.
payors of the interest income, on the authority of what are now Section
24(B)(1) and Section 57(A) of the Tax Code,
withheld and paid to the Commissioner of Internal Revenue final
taxes for the four quarters of 1993. It appears that the total of said
final withholding taxes amounted to
As every trust investment officer who passed the basic trust course
being given out yearly by the Trust Institute of the Philippines
Foundation knows, RA 4917, as amended and now substantially found in
Section 32(B)(6)(a) together
with Section 34(J) and Section 60(B) of the present Tax Code provides a
system of tax incentives to the private sector to voluntarily provide for
the retirement of its employees by way of setting up retirement trusts for
them long before their actual retirement.
60(B), which originated from RA 1983, effective on June 22, 1957, in
particular, exempts retirement trusts from the income tax. This tax
exemption, which is special in nature, as consistently claimed by the
trust industry, prevails over the above-mentioned Section 24(B)(1) and
Section 57(A) of the present Tax Code which are of general application.
This was essentially the ruling of the Supreme Court in the case of
Commissioner of Internal Revenue vs.
Court of Appeals, GR 95022, promulgated on March 23, 1992.
on four dates, May 12, 1993, Aug. 16, 1993, Jan. 31, 1994, and April 29,
1994, Far East Bank filed its written claim for refund with the Bureau of
Internal Revenue for the first, second, third and fourth quarters of 1993,
respectively, as required by now Section 229 of the Tax Code. The BIR denied the claims for refund and the bank went to the
Court of Tax Appeals.
come it lost such an apparently open-and-shut case?
Because, as Justice Tinga, in that portion of his decision earlier
said, the route that Far East Bank took was “woefully error-laden.”
no. 1. Instead of bringing a
new a suit at the CTA to get a refund of the 1993 taxes, FEBTC sought to
piggy-back on the 1993 tax refund claim on an already pending suit with
the CTA case 4848, by filing instead a Motion to Admit Supplemental
Petition. But while the claims for 1993 involved the same issues that
were the subject of Case 4848, they nevertheless related to a different
CTA on Aug. 25, 1995 refused to admit the Supplemental Petition saying
that CTA Case 4848 had already been pending for more than two and a half
years and the admission of the supplemental petition, with a substantial
enlargement of Far East Bank’s original claim for refund, would further
delay the proceedings, causing as it would, an effective change in the
cause of action. The
CTA advised a separate petition for review.
bank, however, took the advice and filed the judicial claim for refund for
the 1993 taxes only on Oct. 9, 1995.
This case was docketed as CTA case 5292.
By this time, it is obvious that the two year period for bringing a
judicial action for refund has already lapsed for those taxes which were
collected on the first, second and third quarters of 1995.
Also lapsed are the claims for taxes paid in the fourth quarter,
prior to Oct. 9, 1995. This
was exactly the position taken by the CTA in its decision dated Sept. 11,
1998 dismissing case 5292. This
stance eventually found favor with the Supreme Court, which ruled that the
mere motion to admit supplemental petition is not the same as filing a
suit in court.
how about those taxes paid from Oct. 9, 1993 till the end of the year?
Surely, FEBTC, as trustee, was entitled to a refund of those taxes.
but then, Error no. 2 kicked in. To
prove its right (or more precisely the right of the retirement trust
plans’ right) to refund, the bank limited its evidence to the following:
the list of the various funds; the schedule of taxes withheld on a
quarterly basis in 1993; the written claims for refund; the BIR Rulings on
the various retirement plans; the trust agreements of the various
retirement plans; and certifications of the accounting department of
petitioner, Citibank, and the Bangko Sentral ng Pilipinas as to the taxes
that they respectively withheld.
proof was presented to establish the specific transactions of the various
funds, which gave rise to the payment of interest, such as confirmation
receipts and purchase orders. Moreover,
the certifications of Citibank, BSP and Far East Bank’s own accounting
department totaled to the aggregate amount of P40,000,000 in final
withholding taxes; but the claim for refund amounted to only around
P6,000,000.00. Thus, the
total may have included nonexempt interest paid to Far East Bank. In
short, there was no sufficient showing which of those interests were
earned by which of the tax-exempt retirement funds.
In fairness to the trustee bank, it gallantly appealed the decision of the
CTA to the Court of Appeals. But
whatever chance there was to ease the impact of its errors was snuffed out
by Error no. 3. The trustee bank failed to accompany its petition for
review with, as required by Section 6 of Rule 43 of the Rules of Court,
certified true copies of such material portions of the record referred to
in its petition and other supporting papers.
This failure deprived the Court of Appeals of the opportunity to
ascertain the veracity of its submissions for purpose of determining the
threshold issue of whether or not to give the petition due course.
Thus, the Court of Appeals was considered by the Supreme Court to
have rightfully dismissed the petition under the authority of Section 7 of
The ponente’s rue that attended his beginning was still there when he
ended. He wrote:
“It is tragic that the ultimate loss to be borne by the tardy claim for
the refund would be not by the petitioner-bank, but the hundreds of
private employees whose retirement funds were reposed in petitioner’s
trust. However, the damage was sustained due to multiple levels of
incompetence on the part of the petitioner which this Court cannot simply
give sanction to. Many of the so-called procedural hurdles could have been
overlooked, even by this Court, but in the end, the claim for tax refund
was simply not proven with the particularity demanded of an action seeking
to siphon off the nation’s ‘lifeblood’.”