BIR to appeal decision halting rule on banks’ tax deductions

THE BUREAU of Internal Revenue (BIR) is set to ask a Makati City court to reconsider a decision that indefinitely halted its new rule on banks’ tax deductions last week, even as it did not recognize its jurisdiction on the case.

In an interview last week, Commissioner Kim S. JacintoHenares said the revenue body planned to exhaust all available remedies against the bankers’ case contesting Revenue Regulation ( RR) No. 4- 2011, which restricted what they could claim as tax deductions from their income.

Twenty-four banks have earlier secured a reprieve from being assessed under the new regulation, after Makati City Regional Trial Court Branch 57 Judge Honorio E. Guanlao, Jr., issued a writ of preliminary injunction on April 27, which halted RR 4-2011 pending the case’s resolution.

However, the commissioner said that the agency would “file a motion for reconsideration… on the order of the judge, to show to him that he does not have a legal basis to issue that injunction.”

“Then depending on what the decision is, there are other legal remedies,” she said.

Bankers may have to expect a good fight from BIR, as Ms. Jacinto-Henares said the case may reach all the way to the Supreme Court.

“The policy of the Bureau of Internal Revenue is to bring the case all the way to the higher courts,” she said.

In a memorandum submitted on the case, BIR argued that Section 218 of the National Internal Revenue Code stripped courts of authority to grant an injunction against tax collection. The agency added that the Court of Tax Appeals had the jurisdiction to decide on the validity of the revenue order.

The revenue order disallows banks from deducting costs and expenses incurred by their foreign currency deposit unit ( FCDU), expanded FCDU and offshore banking unit. What was allowed as income tax deductions were costs and expenses by their regular banking units, the unit of a local bank or local branch of a foreign bank authorized by the Bangko Sentral ng Pilipinas to engage in regular banking activities.

The BIR directive had the effect of increasing the portion of banks’ income deemed taxable, although there was no estimate yet of the tax liabilities banks have been assessed under the regulation.

The April 27 injunction only covered the regulation’s implementation so far as it concerned the petitioners: 23 members of the Bankers’ Association of the Philippines and the Bank of the Philippine Islands, Inc., whose two separate petitions were consolidated. —