BIR Ruling [DA-230-99]

April 14, 1999 BIR RULING [DA-230-99] MEMORANDUM FOR: The Commissioner RE : Request by DBP for Abatement of Surcharges, Interest and Penalties for Taxable Year 1996 This refers to your hand-written query questioning the waiver of delinquency interest in connection with the attached docket on DBP's request for ruling for the waiver of the said surcharges and interest. prcd Pursuant to its original charter, DBP has been operating as a Thrift Bank, hence it has been invoking the tax exemption incentives granted to thrift banks under R.A. 7906, which includes exemption from the payment of Gross Receipts Tax and DST. However, when it applied for a license to operate as an Expanded Foreign Currency Deposit Unit sometime in September 1996, the Bangko Sentral ng Pilipinas (BSP) required DBP to amend its charter for the purpose of removing its function as a thrift bank, probably as a condition to the grant of the license applied for. DBP did just that, but in so doing, it was confronted by a legal dilemma on whether to still invoke its tax exemption for the year 1996 since it was technically entitled to the exemption privileges as a thrift bank until the amendment of its charter, or to consider itself already of such tax exemption by virtue of the change in its charter. In the end, DBP opted to pay the GRT and DST on its banking operations for the period in question, hence the voluntarily payment of GRT in the amount of P72,015,126.20 and DST for P2,190,710.40 covering the said taxable period. Having abruptly considered itself to be so liable only during the latter part of 1996, DBP is necessarily delayed in the payment thereof so that it technically became further liable to the following penalties and interest: GRT Surcharges/Penalties P18,003,780 Interest 14,503,024 DST Surcharges/Penalties P547,677 Interest 438,142 This is now the crux of the issue. Opting to pay the taxes due instead of invoking its exemption, DBP now comes to us for the waiver of the above penalties and interest. Pursuant to Section 204 of the Tax Code, the Commissioner has the exclusive power to abate a tax liability subject to the existence of the statutory conditions therefor, namely a) the tax or any portion thereof appears to be unjustly or excessively assessed; or b) the administration and collection costs involved do not justify the collection of the amount due. Clearly, interest and penalties are but additions to the tax which likewise fall within the purview of a tax liability and which can be subject of abatement. And it is indubitable that the circumstances narrated above demonstrate that the assessment for penalties and interest would be unjust under the premises. For these reasons, the undersigned recommends that the request by DBP for the abatement of the penalties and interest be granted by giving due course to the proposed ruling. (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group