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7 HSBC VS CIR Nego DIGEST
7 HSBC VS CIR Nego DIGEST
BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent;
FACTS:
Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST). However, on August 1999, the Bureau of Internal Revenue (BIR)
issued a ruling to the effect that instructions or advises from abroad on the management of funds
located in the Philippines which do not involve transfer of funds from abroad are not subject to DST.
HSBC then filed administrative claims for the refund of the amounts they erroneously paid as DST to
the BIR. As the claims were not acted upon by the BIR, HSBC brought the matter to the Court of Tax
Appeals (CTA).
The CTA ruled in favor of the HSBC. However, such ruling was reversed by the Court of
Appeals (CA).
ISSUE:
Whether or not the electronic messages (received by HSBC from its investor-clients abroad
instructing the former to debit the latter’s accounts and to pay the purchase price of shares of stock
or investment in securities) are negotiable instruments
RULING:
The Court favorably adopts the finding of the CTA that the electronic messages "cannot be
considered negotiable instruments as they lack the feature of negotiability, which, is the ability to be
transferred" and that the said electronic messages are "mere memoranda" of the transaction
consisting of the "actual debiting of the [investor-client-payor’s] local or foreign currency account in
the Philippines" and "entered as such in the books of account of the local bank," HSBC.
More fundamentally, the instructions given through electronic messages that are subjected
to DST in these cases are not negotiable instruments as they do not comply with the requisites of
negotiability under Section 1 of the Negotiable Instruments Law. The electronic messages are:
Thus, the electronic messages are not bills of exchange. As there was no bill of exchange
or order for the payment drawn abroad and made payable here in the Philippines, there could have
been no acceptance or payment that will trigger the imposition of the DST under Section 181 of the
Tax Code.
Section 181 of the 1997 Tax Code, which governs HSBC’s claim for tax refund for
taxable year 1998 subject of G.R. No. 167728, provides:
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon
any acceptance or payment of any bill of exchange or order for the payment of money
purporting to be drawn in a foreign country but payable in the Philippines, there shall be
collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos
(₱200), or fractional part thereof, of the face value of any such bill of exchange, or order, or
the Philippine equivalent of such value, if expressed in foreign currency. (Emphasis
supplied.)
Since the electronic messages are not considered bills of exchange, HSBC erroneously paid
DST on the said electronic messages; therefore, it is entitled to a tax refund.