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  • 7 HSBC VS CIR Nego DIGEST

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    The Supreme Court ruled that electronic messages from foreign investor clients instructing HSBC to purchase securities are not negotiable instruments and therefore not subject to Documentary Stamp Tax (DST). [1] The electronic messages did not meet the requirements of negotiability under the Negotiable Instruments Law as they were not signed, did not contain an unconditional order to pay a sum certain, and were not payable to order or bearer. [2] As the messages were not considered bills of exchange, HSBC had erroneously paid DST on the transactions and was entitled to a tax refund. [3]

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    The Supreme Court ruled that electronic messages from foreign investor clients instructing HSBC to purchase securities are not negotiable instruments and therefore not subject to Documentary Stamp Tax (DST). [1] The electronic messages did not meet the requirements of negotiability under the Negotiable Instruments Law as they were not signed, did not contain an unconditional order to pay a sum certain, and were not payable to order or bearer. [2] As the messages were not considered bills of exchange, HSBC had erroneously paid DST on the transactions and was entitled to a tax refund. [3]

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    Download as docx, pdf, or txt
    194 views2 pages

    7 HSBC VS CIR Nego DIGEST

    Uploaded by

    ajdgafjsdga
    The Supreme Court ruled that electronic messages from foreign investor clients instructing HSBC to purchase securities are not negotiable instruments and therefore not subject to Documentary Stamp Tax (DST). [1] The electronic messages did not meet the requirements of negotiability under the Negotiable Instruments Law as they were not signed, did not contain an unconditional order to pay a sum certain, and were not payable to order or bearer. [2] As the messages were not considered bills of exchange, HSBC had erroneously paid DST on the transactions and was entitled to a tax refund. [3]

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    © All Rights Reserved
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    of 2

    THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE

    BRANCHES, Petitioner,
    vs.
    COMMISSIONER OF INTERNAL REVENUE, Respondent;

    FACTS:

    Hongkong and Shanghai Banking Corporation Limited-Philippine Branches (HSBC) performs


    custodial services on behalf of its investor-clients. The accounts of HSBC’s investor-clients are
    managed by HSBC through instructions given through electronic messages. The said instructions
    are standard forms known in the banking industry as SWIFT, or “Society for Worldwide Interbank
    Financial Telecommunication.” In purchasing shares of stock and other investment in securities, the
    investor-clients would send electronic messages from abroad instructing HSBC to debit their local or
    foreign currency accounts and to pay the purchase price therefore upon receipt of the securities.

    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 held in the negative.

    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:

    a. not signed by the investor-clients as supposed drawers of a bill of exchange;


    b. they do not contain an unconditional order to pay a sum certain in money as
    the payment is supposed to come from a specific fund or account of the investor-
    clients; and
    c. they are not payable to order or bearer but to a specifically designated third party.

    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.

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