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TodayisSaturday,September10,2016

RepublicofthePhilippines
SUPREMECOURT
Manila
FIRSTDIVISION
G.R.No.166018June4,2014
THEHONGKONGANDSHANGHAIBANKINGCORPORATIONLIMITEDPHILIPPINEBRANCHES,Petitioner,
vs.
COMMISSIONEROFINTERNALREVENUE,Respondent
xx
G.R.No.167728
THEHONGKONGANDSHANGHAIBANKINGCORPORATIONLIMITEDPHILIPPINEBRANCHES,Petitioner,
vs.
COMMISSIONEROFINTERNALREVENUE,Respondent.
DECISION
LEONARDODECASTRO,J.:
Thesepetitionsforreviewoncertiorari1assailtheDecision2 and Resolution dated July 8, 2004 and October 25,
2004, respectively, of the Court of Appeals in CAG.R. SP No. 77580, as well as the Decision3 and Resolution
datedSeptember2,2004andApril4,2005,respectively,oftheCourtofAppealsinCAG.R.SPNo.70814.The
respectiveDecisionsinthesaidcasessimilarlyreversedandsetasidethedecisionsoftheCourtofTaxAppeals
(CTA)inCTACaseNos.59514and6009,5 respectively, and dismissed the petitions of petitioner Hongkong and
ShanghaiBankingCorporationLimitedPhilippineBranches(HSBC).ThecorrespondingResolutions,ontheother
hand,deniedtherespectivemotionsforreconsiderationofthesaidDecisions.
HSBC performs, among others, custodial services on behalf of its investorclients, corporate and individual,
residentornonresidentofthePhilippines,withrespecttotheirpassiveinvestmentsinthePhilippines,particularly
investments in shares of stocks in domestic corporations. As a custodian bank, HSBC serves as the
collection/payment agent with respect to dividends and other income derived from its investorclients passive
investments.6
HSBCsinvestorclientsmaintainPhilippinepesoand/orforeigncurrencyaccounts,whicharemanagedbyHSBC
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 investorclients would send electronic messages from
abroadinstructingHSBCtodebittheirlocalorforeigncurrencyaccountsandtopaythepurchasepricetherefor
uponreceiptofthesecurities.7
Pursuant to the electronic messages of its investorclients, HSBC purchased and paid Documentary Stamp Tax
(DST)fromSeptembertoDecember1997andalsofromJanuarytoDecember1998amountingtoP19,572,992.10
andP32,904,437.30,respectively,brokendownasfollows:
A.SeptembertoDecember1997
September1997

P6,981,447.90

October1997

6,209,316.60

November1997

3,978,510.30

December1997

2,403,717.30

Total
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P19,572,992.10
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B.JanuarytoDecember1998
January1998

P3,328,305.60

February1998

4,566,924.90

March1998

5,371,797.30

April1998

4,197,235.50

May1998

2,519,587.20

June1998

2,301,333.00

July1998

1,586,404.50

August1998

1,787,359.50

September1998

1,231,828.20

October1998

1,303,184.40

November1998

2,026,379.70

December1998

2,684,097.50

Total

P32,904,437.30

OnAugust23,1999,theBureauofInternalRevenue(BIR),thruitsthenCommissioner,BeethovenRualo,issued
BIRRulingNo.13299totheeffectthatinstructionsoradvisesfromabroadonthemanagementoffundslocated
inthePhilippineswhichdonotinvolvetransferoffundsfromabroadarenotsubjecttoDST.BIRRulingNo.13299
reads:
Date:August23,1999
FERRYTOLEDOVICTORINOGONZAGA
&ASSOCIATES
G/FAFCBuilding,AlfaroSt.
SalcedoVillage,Makati
MetroManila
Attn:Atty.TomasC.Toledo
TaxCounsel
Gentlemen:
This refers to your letter dated July 26, 1999 requesting on behalf of your clients, the CITIBANK &
STANDARDCHARTEREDBANK,forarulingastowhetherornottheelectronicinstructionsinvolving
thefollowingtransactionsofresidentsandnonresidentsofthePhilippineswithrespecttotheirlocal
or foreign currency accounts are subject to documentary stamp tax under Section 181 of the 1997
TaxCode,viz:
A.Investmentpurchasetransactions:
AnoverseasclientsendsinstructiontoitsbankinthePhilippinestoeither:
(i)debititslocalorforeigncurrencyaccountandtopayanamedrecipientinthePhilippinesor
(ii)receivefundsfromanotherbankinthePhilippinesfordepositintoitsaccountandtopaya
namedrecipientinthePhilippines."
Theforegoingtransactionsarecarriedoutunderinstructionfromabroadand[do]notinvolveactual
fundtransfersincethefundsarealreadyinthePhilippineaccounts.Theinstructionsareintheform
ofelectronicmessages(i.e.,SWIFTMT100orMT202and/orMT521).Inbothcases,thepaymentis
against the delivery of investments purchased. The purchase of investments and the payment
comprise one single transaction. DST has already been paid under Section 176 for the investment
purchase.
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B.Othertransactions:
AnoverseasclientsendsaninstructiontoitsbankinthePhilippinestoeither:
(i) debit its local or foreign currency account and to pay a named recipient, who may be
anotherbank,acorporateentityoranindividualinthePhilippinesor
(ii) receive funds from another bank in the Philippines for deposit to its account and to pay a
named recipient, who may be another bank, a corporate entity or an individual in the
Philippines."
The above instruction is in the form of an electronic message (i.e., SWIFT MT 100 or MT 202) or
testedcable,andmaynotrefertoanyparticulartransaction.
Theopeningandmaintenancebyanonresidentoflocalorforeigncurrencyaccountswithabankin
thePhilippinesispermittedbytheBangkoSentralngPilipinas,subjecttocertainconditions.
Inreply,pleasebeinformedthatpursuanttoSection181ofthe1997TaxCode,whichprovidesthat
SEC.181.StampTaxUponAcceptanceofBillsofExchangeandOthers.Uponanyacceptanceor
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 (P200), or fractional part thereof, of the face
value of any such bill of exchange, or order, or Philippine equivalent of such value, if expressed in
foreigncurrency.(Underscoringsupplied.)
adocumentarystamptaxshallbeimposedonanybillofexchangeororderforpaymentpurportingto
bedrawninaforeigncountrybutpayableinthePhilippines.
Undertheforegoingprovision,thedocumentarystamptaxshallbeleviedontheinstrument,i.e.,abill
ofexchangeororderforthepaymentofmoney,whichpurportstodrawmoneyfromaforeigncountry
but payable in the Philippines. In the instant case, however, while the payor is residing outside the
Philippines, he maintains a local and foreign currency account in the Philippines from where he will
draw the money intended to pay a named recipient. The instruction or order to pay shall be made
throughanelectronicmessage,i.e.,SWIFTMT100orMT202and/orMT521.Consequently,thereis
nonegotiableinstrumenttobemade,signedorissuedbythepayee.Inthemeantime,suchelectronic
instructionsbythenonresidentpayorcannotbeconsideredasatransactionperseconsideringthat
the same do not involve any transfer of funds from abroad or from the place where the instruction
originates. Insofar as the local bank is concerned, such instruction could be considered only as a
memorandum and shall be entered as such in its books of accounts. The actual debiting of the
payors account, local or foreign currency account in the Philippines, is the actual transaction that
shouldbeproperlyenteredassuch.
UndertheDocumentaryStampTaxLaw,themerewithdrawalofmoneyfromabankdeposit,localor
foreign currency account, is not subject to DST, unless the account so maintained is a current or
checking account, in which case, the issuance of the check or bank drafts is subject to the
documentary stamp tax imposed under Section 179 of the 1997 Tax Code. In the instant case, and
subjecttothephysicalimpossibilityonthepartofthepayortobepresentandprepareandsignan
instrumentpurportingtopayacertainobligation,thewithdrawalandpaymentshallbemadeincash.
Inthislight,thewithdrawalshallnotbesubjecttodocumentarystamptax.Thecaseisparalleltoan
automaticbanktransferoflocalfundsfromasavingsaccounttoacheckingaccountmaintainedbya
depositorinonebank.
Likewise,thereceiptoffundsfromanotherbankinthePhilippinesfordeposittothepayeesaccount
andthereafteruponinstructionofthenonresidentdepositorpayor,throughanelectronicmessage,
the depository bank to debit his account and pay a named recipient shall not be subject to
documentarystamptax.
It should be noted that the receipt of funds from another local bank in the Philippines by a local
depositorybankfortheaccountofitsclientresidingabroadispartofitsregularbankingtransaction
whichisnotsubjecttodocumentarystamptax.Neitherdoesthereceiptoffundsmakestherecipient
subjecttothedocumentarystamptax.Thefundsaredeemedtobepartofthedepositsoftheclient
once credited to his account, and which, thereafter can be disposed in the manner he wants. The
payorclients further instruction to debit his account and pay a named recipient in the Philippines
does not involve transfer of funds from abroad. Likewise, as stated earlier, such debit of local or
foreign currency account in the Philippines is not subject to the documentary stamp tax under the
aforementionedSection181oftheTaxCode.
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Inthelightoftheforegoing,thisOfficeherebyholdsthattheinstructionmadethroughanelectronic
messagebynonresidentpayorclienttodebithislocalorforeigncurrencyaccountmaintainedinthe
PhilippinesandtopayacertainnamedrecipientalsoresidinginthePhilippinesisnotthetransaction
contemplated under Section 181 of the 1997 Tax Code. Such being the case, such electronic
instructionpurportingtodrawfundsfromalocalaccountintendedtobepaidtoanamedrecipientin
thePhilippinesisnotsubjecttodocumentarystamptaximposedundertheforegoingSection.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigationitshallbedisclosedthatthefactsaredifferent,thisrulingshallbeconsiderednulland
void.
Verytrulyyours,
(Sgd.)BEETHOVENL.RUALO
CommissionerofInternalRevenue8
WiththeaboveBIRRulingasitsbasis,HSBCfiledonOctober8,1999anadministrativeclaimfortherefundofthe
amount of P19,572,992.10 allegedly representing erroneously paid DST to the BIR for the period covering
SeptembertoDecember1997.
Subsequently, on January 31, 2000, HSBC filed another administrative claim for the refund of the amount of
P32,904,437.30 allegedly representing erroneously paid DST to the BIR for the period covering January to
December1998.
AsitsclaimsforrefundwerenotacteduponbytheBIR,HSBCsubsequentlybroughtthemattertotheCTAasCTA
CaseNos.5951and6009,respectively,inordertosuspendtherunningofthetwoyearprescriptiveperiod.
The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CTA Case No.
5951favoredHSBC.RespondentCommissionerofInternalRevenuewasorderedtorefundorissueataxcredit
certificateinfavorofHSBCinthereducedamountsofP30,360,570.75inCTACaseNo.6009andP16,436,395.83
in CTA Case No. 5951, representing erroneously paid DST that have been sufficiently substantiated with
documentary evidence. The CTA ruled that HSBC is entitled to a tax refund or tax credit because Sections 180
and181ofthe1997TaxCodedonotapplytoelectronicmessageinstructionstransmittedbyHSBCsnonresident
investorclients:
Theinstructionmadethroughanelectronicmessagebyanonresidentinvestorclient,whichistodebithislocalor
foreigncurrencyaccountinthePhilippinesandpayacertainnamedrecipientalsoresidinginthePhilippinesisnot
thetransactioncontemplatedinSection181oftheCode.Inthiscase,thewithdrawalandpaymentshallbemade
in cash. It is parallel to an automatic bank transfer of local funds from a savings account to a checking account
maintainedbyadepositorinonebank.Theactofdebitingtheaccountisnotsubjecttothedocumentarystamp
taxunderSection181.NeitheristhetransactionsubjecttothedocumentarystamptaxunderSection180ofthe
sameCode.Theseelectronicmessageinstructionscannotbeconsiderednegotiableinstrumentsastheylackthe
featureofnegotiability,which,istheabilitytobetransferred(WordsandPhrases).
Theseinstructionsareconsideredasmerememorandaandenteredassuchinthebooksofaccountofthelocal
bank, and the actual debiting of the payors local or foreign currency account in the Philippines is the actual
transactionthatshouldbeproperlyenteredassuch.9
The respective dispositive portions of the Decisions dated May 2, 2002 in CTA Case No. 6009 and dated
December18,2002inCTACaseNo.5951read:
II.CTACaseNo.6009
WHEREFORE, in the light of all the foregoing, the instant Petition for Review is PARTIALLY GRANTED.
Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner the
amount of P30,360,570.75 representing erroneous payment of documentary stamp tax for the taxable year
1998.10
II.CTACaseNo.5951
WHEREFORE,inthelightoftheforegoing,theinstantpetitionisherebypartiallygranted.Accordingly,respondent
is hereby ORDERED to REFUND, or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the
petitionerinthereducedamountofP16,436,395.83representingerroneouslypaiddocumentarystamptaxforthe
monthsofSeptember1997toDecember1997.11
However, the Court of Appeals reversed both decisions of the CTA and ruled that the electronic messages of
HSBCsinvestorclientsaresubjecttoDST.TheCourtofAppealsexplained:
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Atbar,[HSBC]performscustodialservicesinbehalfofitsinvestorclientsasregardstheirpassiveinvestmentsin
the Philippines mainly involving shares of stocks in domestic corporations. These investorclients maintain
Philippinepesoand/orforeigncurrencyaccountswith[HSBC].Shouldtheydesiretopurchasesharesofstockand
other investments securities in the Philippines, the investorclients send their instructions and advises via
electronicmessagesfromabroadto[HSBC]intheformofSWIFTMT100,MT202,orMT521directingthelatter
todebittheirlocalorforeigncurrencyaccountandtopaythepurchasepriceuponreceiptofthesecurities(CTA
Decision,pp.12Rollo,pp.4142).PursuanttoSection181oftheNIRC,[HSBC]wasthusrequiredtopay[DST]
basedonitsacceptanceoftheseelectronicmessageswhich,as[HSBC]readilyadmitsinitspetitionfiledbefore
the[CTA],wereessentiallyorderstopaythepurchasesofsecuritiesmadebyitsclientinvestors(Rollo,p.60).
Appositely,theBIRcorrectlyandlegallyassessedandcollectedthe[DST]from[HSBC]consideringthatthesaid
tax was levied against the acceptances and payments by [HSBC] of the subject electronic messages/orders for
payment. The issue of whether such electronic messages may be equated as a written document and thus be
subjecttotaxisbesidethepoint.AsWehavealreadystressed,Section181ofthelawcitedearlierimposesthe
[DST]notonthebillofexchangeororderforpaymentofmoneybutontheacceptanceorpaymentofthesaidbill
ororder.Theacceptanceofabillororderisthesignificationbythedraweeofitsassenttotheorderofthedrawer
to pay a given sum of money while payment implies not only the assent to the said order of the drawer and a
recognition of the drawers obligation to pay such aforesaid sum, but also a compliance with such obligation
(PhilippineNationalBankvs.CourtofAppeals,25SCRA693[1968]PrudentialBankvs.IntermediateAppellate
Court,216SCRA257[1992]).Whatisvitaltothevalidimpositionofthe[DST]underSection181istheexistence
of the requirement of acceptance or payment by the drawee (in this case, [HSBC]) of the order for payment of
money from its investorclients and that the said order was drawn from a foreign country and payable in the
Philippines.Theserequisitesaresurelypresenthere.
Itwouldservethepartieswelltounderstandthenatureofthetaxbeingimposedinthecaseatbar.InPhilippine
HomeAssuranceCorporationvs.CourtofAppeals(301SCRA443[1999]),theSupremeCourtruledthat[DSTis]
leviedontheexercisebypersonsofcertainprivilegesconferredbylawforthecreation,revision,orterminationof
specificlegalrelationshipsthroughtheexecutionofspecificinstruments,independentlyofthelegalstatusofthe
transactionsgivingrisethereto.Inthesamecase,theHighCourtalsodeclaredcitingDuPontvs.UnitedStates
(300U.S.150,153[1936])
Thetaxisnotuponthebusinesstransactedbutisanexciseupontheprivilege,opportunity,orfacilityofferedat
exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction of the
businessseparateandapartfromthebusinessitself.xxx.
Toreiterate,thesubject[DST]wasleviedontheacceptanceandpaymentmadeby[HSBC]pursuanttotheorder
made by its clientinvestors as embodied in the cited electronic messages, through which the herein parties
privilege and opportunity to transact business respectively as drawee and drawers was exercised, separate and
apartfromthecircumstancesandconditionsrelatedtosuchacceptanceandsubsequentpaymentofthesumof
moneyauthorizedbytheconcerneddrawers.Statedanotherway,the[DST]wasexactedon[HSBCs]exerciseof
its privilege under its draweedrawer relationship with its clientinvestor through the execution of a specific
instrumentwhich,inthecaseatbar,istheacceptanceoftheorderforpaymentofmoney.Theacceptanceofabill
ororderforpaymentmaybedoneinwritingbythedraweeinthebillororderitself,orinaseparateinstrument
(Prudential Bank vs. Intermediate Appellate Court, supra.)Here, [HSBC]s acceptance of the orders for the
paymentofmoneywasveritablydoneinwritinginaseparateinstrumenteachtimeitdebitedthelocalorforeign
currency accounts of its clientinvestors pursuant to the latters instructions and advises sent by electronic
messages to [HSBC]. The [DST] therefore must be paid upon the execution of the specified instruments or
facilitiescoveredbythetaxinthiscase,theacceptanceby[HSBC]oftheorderforpaymentofmoneysentby
theclientinvestorsthroughelectronicmessages.xxx.12
Hence,thesepetitions.
HSBC asserts that the Court of Appeals committed grave error when it disregarded the factual and legal
conclusions of the CTA. According to HSBC, in the absence of abuse or improvident exercise of authority, the
CTAs ruling should not have been disturbed as the CTA is a highly specialized court which performs judicial
functions,particularlyforthereviewoftaxcases.HSBCfurtherarguesthattheCommissionerofInternalRevenue
had already settled the issue on the taxability of electronic messages involved in these cases in BIR Ruling No.
13299andreiteratedinBIRRulingNo.DA2802004.13
TheCommissionerofInternalRevenue,ontheotherhand,claimsthatSection181ofthe1997TaxCodeimposes
DST on the acceptance or payment of a bill of exchange or order for the payment of money. The DST under
Section18ofthe1997TaxCodeisleviedonHSBCsexerciseofaprivilegewhichisspecificallytaxedbylaw.BIR
RulingNo.13299isinconsistentwithprevailinglawandlongstandingadministrativepractice,respondentisnot
barredfromquestioninghisownrevenueruling.Taxrefundsliketaxexemptionsarestrictlyconstruedagainstthe
taxpayer.14
TheCourtfindsforHSBC.
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TheCourtagreeswiththeCTAthattheDSTunderSection181oftheTaxCodeisleviedontheacceptanceor
paymentof"abillofexchangepurportingtobedrawninaforeigncountrybutpayableinthePhilippines"andthat
"abillofexchangeisanunconditionalorderinwritingaddressedbyonepersontoanother,signedbytheperson
givingit,requiringthepersontowhomitisaddressedtopayondemandoratafixedordeterminablefuturetimea
sum certain in money to order or to bearer." A bill of exchange is one of two general forms of negotiable
instrumentsundertheNegotiableInstrumentsLaw.15
The Court further agrees with the CTA that the electronic messages of HSBCs investorclients containing
instructionstodebittheirrespectivelocalorforeigncurrencyaccountsinthePhilippinesandpayacertainnamed
recipientalsoresidinginthePhilippinesisnotthetransactioncontemplatedunderSection181oftheTaxCodeas
suchinstructionsare"paralleltoanautomaticbanktransferoflocalfundsfromasavingsaccounttoachecking
account maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that the
electronicmessages"cannotbeconsiderednegotiableinstrumentsastheylackthefeatureofnegotiability,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 [investorclientpayors] local or foreign currency account in the
Philippines"and"enteredassuchinthebooksofaccountofthelocalbank,"HSBC.16
Morefundamentally,theinstructionsgiventhroughelectronicmessagesthataresubjectedtoDSTinthesecases
are not negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of the
NegotiableInstrumentsLaw,whichprovides:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements:
(a)Itmustbeinwritingandsignedbythemakerordrawer
(b)Mustcontainanunconditionalpromiseorordertopayasumcertaininmoney
(c)Mustbepayableondemand,oratafixedordeterminablefuturetime
(d)Mustbepayabletoorderortobearerand
(e)Wheretheinstrumentisaddressedtoadrawee,hemustbenamedorotherwiseindicatedthereinwith
reasonablecertainty.
Theelectronicmessagesarenotsignedbytheinvestorclientsassupposeddrawersofabillofexchangetheydo
not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a
specificfundoraccountoftheinvestorclientsand,theyarenotpayabletoorderorbearerbuttoaspecifically
designatedthirdparty.Thus,theelectronicmessagesarenotbillsofexchange.Astherewasnobillofexchange
or order for the payment drawn abroad and made payable here in the Philippines, there could have been no
acceptanceorpaymentthatwilltriggertheimpositionoftheDSTunderSection181oftheTaxCode.
Section 181 of the 1997 Tax Code, which governs HSBCs claim for tax refund for taxable year 1998 subject of
G.R.No.167728,provides:
SEC.181.StampTaxUponAcceptanceofBillsofExchangeandOthers.Uponanyacceptanceorpaymentof
anybillofexchangeororderforthepaymentofmoneypurportingtobedrawninaforeigncountrybutpayablein
thePhilippines,thereshallbecollectedadocumentarystamptaxofThirtycentavos(P0.30)oneachTwohundred
pesos(P200),orfractionalpartthereof,ofthefacevalueofanysuchbillofexchange,ororder,orthePhilippine
equivalentofsuchvalue,ifexpressedinforeigncurrency.(Emphasissupplied.)
Section230ofthe1977TaxCode,asamended,whichgovernsHSBCsclaimfortaxrefundforDSTpaidduring
the period September to December 1997 and subject of G.R. No. 166018, is worded exactly the same as its
counterpartprovisioninthe1997TaxCodequotedabove.
TheoriginoftheaboveprovisionisSection117oftheTaxCodeof1904,17whichprovided:SECTION117.The
acceptororacceptorsofanybillofexchangeororderforthepaymentofanysumofmoneydrawnorpurportingto
bedrawninanyforeigncountrybutpayableinthePhilippineIslands,shall,beforepayingoracceptingthesame,
placethereuponastampinpaymentofthetaxuponsuchdocumentinthesamemannerasisrequiredinthisAct
for the stamping of inland bills of exchange or promissory notes, and no bill of exchange shall be paid nor
negotiateduntilsuchstampshallhavebeenaffixedthereto.18(Emphasissupplied.)
ItthenbecameSection30(h)ofthe1914TaxCode19:
SEC. 30. Stamp tax upon documents and papers. Upon documents, instruments, and papers, and upon
acceptances,assignments,sales,andtransfersoftheobligation,right,orpropertyincidenttheretodocumentary
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taxesforandinrespectofthetransactionsohadoraccomplishedshallbepaidashereinafterprescribed,bythe
persons making, signing, issuing, accepting, or transferring the same, and at the time such act is done or
transactionhad:
xxxx
(h)Uponanyacceptanceorpaymentuponacceptanceofanybillofexchangeororderforthepaymentofmoney
purportingtobedrawninaforeigncountrybutpayableinthePhilippineIslands,oneachtwohundredpesos,or
fractionalpartthereof,ofthefacevalueofanysuchbillofexchangeororder,orthePhilippineequivalentofsuch
value,ifexpressedinforeigncurrency,twocentavos[.](Emphasissupplied.)
ItwasimplementedbySection46inrelationtoSection39ofRevenueRegulationsNo.26,20asamended:
SEC.39.ABillofExchangeisonethat"denoteschecks,drafts,andallotherkindsofordersforthepaymentof
money,payableatsightorondemand,orafteraspecificperiodaftersightorfromastateddate."
SEC.46.BillofExchange,etc.Whenanybillofexchangeororderforthepaymentofmoneydrawninaforeign
countrybutpayableinthiscountrywhetheratsightorondemandorafteraspecifiedperiodaftersightorfroma
stated date, is presented for acceptance or payment, there must be affixed upon acceptance or payment of
documentarystampequaltoP0.02foreachP200orfractionalpartthereof.(Emphasissupplied.)
IttookitspresentforminSection218oftheTaxCodeof1939,21whichprovided:
SEC.218.StampTaxUponAcceptanceofBillsofExchangeandOthers.Uponanyacceptanceorpaymentof
anybillofexchangeororderforthepaymentofmoneypurportingtobedrawninaforeigncountrybutpayablein
thePhilippines,thereshallbecollectedadocumentarystamptaxoffourcentavosoneachtwohundredpesos,or
fractionalpartthereof,ofthefacevalueofanysuchbillofexchangeororder,orthePhilippineequivalentofsuch
value,ifexpressedinforeigncurrency.(Emphasissupplied.)
It then became Section 230 of the 1977 Tax Code,22 as amended by Presidential Decree Nos. 1457 and
1959,which,asstatedearlier,waswordedexactlyasSection181ofthecurrentTaxCode:
SEC.230.Stamptaxuponacceptanceofbillsofexchangeandothers.Uponanyacceptanceorpaymentofany
billofexchangeororderforthepaymentofmoneypurportingtobedrawninaforeigncountrybutpayableinthe
Philippines, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or
fractionalpartthereof,ofthefacevalueofanysuchbillofexchange,ororder,orthePhilippineequivalentofsuch
value,ifexpressedinforeigncurrency.(Emphasissupplied.)
ThepertinentprovisionofthepresentTaxCodehasthereforeremainedsubstantiallythesameforthepastone
hundredyears. The identical text and common history of Section 230 of the 1977 Tax Code, as amended, and
the1997TaxCode,asamended,showthatthelawimposesDSToneither(a)theacceptanceor(b)thepayment
of a foreign bill of exchange or order for the payment of money that was drawn abroad but payable in the
Philippines.
1 w p h i1

DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident
thereto.23UnderSection173ofthe1997TaxCode,thepersonsprimarilyliableforthepaymentoftheDSTare
those(1)making,(2)signing,(3)issuing,(4)accepting,or(5)transferringthetaxabledocuments,instrumentsor
papers.24
In general, DST is levied on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of specific instruments. Examples of
suchprivileges,theexerciseofwhich,aseffectedthroughtheissuanceofparticulardocuments,aresubjecttothe
paymentofDSTareleasesoflands,mortgages,pledgesandtrusts,andconveyancesofrealproperty.25
Asstatedabove,Section230ofthe1977TaxCode,asamended,nowSection181ofthe1997TaxCode,levies
DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the payment of
moneythatwasdrawnabroadbutpayableinthePhilippines.Inotherwords,itleviesDSTasanexcisetaxonthe
privilege of the drawee to accept or pay a bill of exchange or order for the payment of money, which has been
drawnabroadbutpayableinthePhilippines,andonthecorrespondingprivilegeofthedrawertohaveacceptance
oforpaymentforthebillofexchangeororderforthepaymentofmoneywhichithasdrawnabroadbutpayablein
thePhilippines.
Acceptance applies only to bills of exchange.26 Acceptance of a bill of exchange has a very definite meaning in
law.27Inparticular,Section132oftheNegotiableInstrumentsLawprovides:
Sec.132.Acceptancehowmade,byandsoforth.Theacceptanceofabill[ofexchange28]isthesignificationby
thedraweeofhisassenttotheorderofthedrawer.Theacceptancemustbeinwritingandsignedbythedrawee.
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Itmustnotexpressthatthedraweewillperformhispromisebyanyothermeansthanthepaymentofmoney.
Underthelaw,therefore,whatisacceptedisabillofexchange,andtheacceptanceofabillofexchangeisboth
themanifestationofthedraweesconsenttothedrawersordertopaymoneyandtheexpressionofthedrawees
promisetopay.Itis"theactbywhichthedraweemanifestshisconsenttocomplywiththerequestcontainedinthe
bill of exchange directed to him and it contemplates an engagement or promise to pay."29 Once the drawee
accepts,hebecomesanacceptor.30Asacceptor,heengagestopaythebillofexchangeaccordingtothetenorof
hisacceptance.31
Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such presentment.32
Presentmentforacceptanceistheproductionorexhibitionofthebillofexchangetothedraweeforthepurposeof
obtaininghisacceptance.33
Presentmentforacceptanceisnecessaryonlyintheinstanceswherethelawrequiresit.34Intheinstanceswhere
presentment for acceptance is not necessary, the holder of the bill of exchange can proceed directly to
presentmentforpayment.
Presentment for payment is the presentation of the instrument to the person primarily liable for the purpose of
demandingandobtainingpaymentthereof.35
Thus,whetheritbepresentmentforacceptanceorpresentmentforpayment,thenegotiableinstrumenthastobe
producedandshowntothedraweeforacceptanceortotheacceptorforpayment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or orders for the
payment of money that have been drawn abroad but payable in the Philippines) that is subjected to DST under
Section 181 of the 1997 Tax Code is done after presentment for acceptance or presentment for payment,
respectively.Inotherwords,theacceptanceorpaymentofthesubjectbillofexchangeororderforthepaymentof
moneyisdonewhenthereispresentmenteitherforacceptanceorforpaymentofthebillofexchangeororderfor
thepaymentofmoney.
ApplyingtheaboveconceptstothemattersubjectedtoDSTinthesecases,theelectronicmessagesreceivedby
HSBC from its investorclients abroad instructing the former to debit the latter's local and foreign currency
accountsandtopaythepurchasepriceofsharesofstockorinvestmentinsecuritiesdonotproperlyqualifyas
eitherpresentmentforacceptanceorpresentmentforpayment.Therebeingneitherpresentmentforacceptance
norpresentmentforpayment,thentherewasnoacceptanceorpaymentthatcouldhavebeensubjectedtoDST
tospeakof.
Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on the part of
HSBC.Toreiterate,therewasnobillofexchangeororderforthepaymentdrawnabroadandmadepayablehere
in the Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and
signedmanifestationofHSBCtoadrawer'sordertopaymoney.AsHSBCcouldnothavebeenanacceptor,then
itcouldnothavemadeanypaymentofabillofexchangeororderforthepaymentofmoneydrawnabroadbut
payablehereinthePhilippines.Inotherwords,HSBCcouldnothavebeenheldliableforDSTunderSection230
ofthe1977TaxCode,asamended,andSection181ofthe1997TaxCodeasitisnot"apersonmaking,signing,
issuing, accepting, or, transferring" the taxable instruments under the said provision. Thus, HSBC erroneously
paidDSTonthesaidelectronicmessagesforwhichitisentitledtoataxrefund.
WHEREFORE,thepetitionsareherebyGRANTEDandtheDecisionsdatedMay2,2002inCTACaseNo.6009
anddatedDecember18,2002inCTACaseNo.5951oftheCourtofTaxAppealsareREINSTATED.
SOORDERED.
TERESITAJ.LEONARDODECASTRO
AssociateJustice
WECONCUR:
MARIALOURDESP.A.SERENO
ChiefJustice
Chairperson
LUCASP.BERSAMIN
AssociateJustice

MARTINS.VILLARAMA,JR.
AssociateJustice
BIENVENIDOL.REYES
AssociateJustice

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CERTIFICATION
PursuanttoSection13,ArticleVIIIoftheConstitution,IcertifythattheconclusionsintheaboveDecisionhadbeen
reachedinconsultationbeforethecasewasassignedtothewriteroftheopinionoftheCourt'sDivision.
MARIALOURDESP.A.SERENO
ChiefJustice

Footnotes
1

UnderRule45oftheRulesofCourt.

Rollo(G.R.No.166018),pp.2737pennedbyAssociateJusticeConradoM.Vasquez,Jr.withAssociate
JusticesJosefinaGuevaraSalongaandFernandaLampasPeralta,concurring.
3

Rollo(G.R.No.167728),pp.314lpennedbyAssociateJusticeMarinaL.BuzonwithAssociateJustices
MarioL.GuarialIIandHakimS.Abdulwahid,concurring.
4

Rollo(G.R.No.166018),pp.3948.

Rollo(G.R.No.167728),pp.4864.

Id.at32.

Id.

Id.at4447.

Id.at55.

10

Id.at63.

11

Rollo(G.R.No.166018),p.47.

12

Rollo(G.R.No.167728),pp.3739.

13

Id.at174187MemorandumforHSBC,pp.1326.14

14

MemorandumfortheCommissionerofInternalRevenue,Rollo(G.R.No.166018),pp.154161.

15

Theothertypeisthepromissorynote.SeeTitlesIIandIII,NegotiableInstrumentsLaw.

16

Rollo(G.R.No.167728),p.55.

17

ActNo.1189.

18

SECTION 116. There shall be levied, collected, and paid for and in respect to the several bonds,
debentures, or certificates of stock and of indebtedness, and other documents, instruments, matters, and
thingsmentionedanddescribedinthissection,orfororinrespecttothevellum,parchment,orpaperupon
which such instruments, matters, or things or any of them shall be written or printed by any person or
personswhoshallmake,sign,orissuethesame,onandafterJanuaryfirst,nineteenhundredandfive,the
severaltaxesfollowing:
xxxx
Second. x x x (b) on all bills of exchange (between points within the Philippine Islands), drafts and
certificatesofdepositdrawinginterest,ororderforthepaymentofanysumofmoneyotherwisethan
atsightorondemand,andonallpromissorynotes,exceptbanknotesissuedforcirculation,andon
each renewal of any such note, on each two hundred pesos or fractional part thereof, of the face
valueofanysuchbillofexchange,draft,certificateofdeposit,ornote,twocentavosxxx.
19

ActNo.2339,February27,1914.

20

DatedMarch26,1924.Entitled"RevisedDocumentaryStampTaxRegulations."

21

CommonwealthActNo.466,June151939.

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22

PresidentialDecreeNo.1158,June3,1977.

23

MichelJ.LhuillierPawnshop,Inc.v.CommissionerofInternalRevenue,522Phil.693,698(2006).

24

Philacor Credit Corporation v. Commissioner of Internal Revenue, G.R. No. 169899, February 6, 2013,
690SCRA28,37.
25

MichelJ.LhuillierPawnshop,Inc.v.CommissionerofInternalRevenue,supranote23at698699.

26

PhilacorCreditCorporationv.CommissionerofInternalRevenue,supranote24.
AbillofexchangeisdefinedunderSection126oftheNegotiableInstrumentsLawasfollows:
Sec.126.Billofexchange,defined.Abillofexchangeisanunconditionalorderinwritingaddressed
by one person to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time a sum certain in money to
orderortobearer.

27

Id.Inthiscase,theCourtstatedthat"acceptance"has"anarrowdefinition"withrespecttoforeignbillsof
exchange,anditisnotlimitedtothecommonusageoftheword"accepting"asinreceiving.
28

TherelevantportionofSection191oftheNegotiableInstrumentsLawprovidesthat"Bill""meansbillof
exchange."
29

Hunt v. Security State Bank, 179 Pac. 248 (1919), cited in De Leon, Hector, The Philippine Negotiable
InstrumentsLaw(andAlliedLaws)Annotated(2010edition),p.343.
30

DeLeon,id.at239.

31

SeeSection62,NegotiableInstrumentsLaw.

32

Sec. 136 of the Negotiable Instruments Law provides: Sec. 136. Time allowed drawee to accept. The
draweeisallowedtwentyfourhoursafterpresentmentinwhichtodecidewhetherornothewillacceptthe
billtheacceptance,ifgiven,datesasofthedayofpresentation.
33

Campos,JoseJr.,NotesandSelectedCasesonNegotiableInstrumentsLaw(5thEdition),pp.709710.

34

Section143oftheNegotiableInstrumentsLawenumeratesthecaseswherepresentmentforacceptance
isessential:
Sec.143.Whenpresentmentforacceptancemustbemade.Presentmentforacceptance
mustbemade:
(a) Where the bill is payable after sight, or in any other case, where presentment for
acceptanceisnecessaryinordertofixthematurityoftheinstrumentor
(b)Wherethebillexpresslystipulatesthatitshallbepresentedforacceptanceor
(c)Wherethebillisdrawnpayableelsewherethanattheresidenceorplaceofbusiness
ofthedrawee.
Innoothercaseispresentmentforacceptancenecessaryinordertorenderanypartytothe
billliable.
35

Campos,supranote33,p.715.

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