Supreme Court sides with banks, rules against BIR on PEACe bonds tax

InterAksyon.com

MANILA – The Supreme Court has ruled against the Aquino administration’s imposition of a withholding tax on debt papers the previous government sold, the proceeds of which were used to finance anti-poverty programs.

In a disclosure to the Philippine Stock Exchange, Metropolitan Bank and Trust Company said it received yesterday the High Tribunal’s January 23 ruling, which granted a temporary restraining order (TRO) or preliminary injunction, and nullified the Bureau of Internal Revenue (BIR) Ruling No. 37-2011, which slapped the 20-percent tax on the so-called PEACe Bonds.

The SC also reprimanded the Bureau of Treasury for retaining the tax despite the court’s stay order, and ordered the agency to reimburse affected banks the amount withheld on October 18, 2011.
Metrobank was part of a consortium of eight banks that sought court intervention after the BIR slapped the final withholding tax when the bonds matured. The other lenders were BDO, Bank of Commerce, China Bank, Philippine Bank of Communications, Philippine National Bank, Philippine Veterans Bank and Planters Development Bank.

Other petitioners were Rizal Commercial Banking Corporation -- whose investment banking unit, RCBC Capital Corporation underwrote the PEACe Bonds -- and its client, CODE-NGO, which was the non-government organization that won in the Treasury’s auction and subsequently sold the debt papers to the above banks.

The PEACe Bonds are shorthand for the Poverty Eradication and Alleviation Certificates, which were the Treasury’s maiden issuance of 10-year zero-coupon bonds. As zeroes, the PEACe bonds, which were sold in October 16, 2001, were priced at a deep discount, paid no interest, but were bought back at their face value.

The PEACe bonds qualified as secondary reserves.