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China Banking Corporation (Chinabank) was ordered by the Supreme Court (SC) to pay the Bureau of Internal Revenues (BIR) its deficiency documentary stamp taxes worth around P11.3 million. The taxes were for the special savings deposits (SSDs) which were made to appear like tax-exempt regular savings accounts.

The bank previously raised the issue before the Court of Tax Appeals. It said that SSDs, being payable on sight or demand, are excluded from the payment of documentary stamp taxes (DST). Adding that they are just like regular savings account and not time deposits which are subject to taxes.

But in a decision penned by Associated Justice Diosdado M. Peralta of the third division of the high court, it said, “contrary to the claim of petitioner, the accounts are in fact ‘certificates of deposits drawing interest’ subject to documentary stamp tax as provided for in Section 180 of the 1997 National Internal Revenue Code.”

The BIR assessed the bank some P12.56 million for deficiency taxes covering the years 1994 to 1997.

In a final en banc decision by the tax court in 2004 which favored the BIR said that the SSDs and time deposit are similar because funds could not be withdrawn before maturity. In case of early withdrawals, penalties are usually imposed.

The features of SSDs, per assessment of the tax court, is that money could be withdrawn from the bank’s questioned accounts anytime, however, the high interest rates would be forfeited if the account holder does so before the expiration of the holding period.

The assessment of the tax court was however reduced to P11.3 million.

The SC agreed with CTA. It said that similar cases have already been passed upon by the high court in 2007 which involved Banco De Oro Universal Bank and International Exchange Bank. The two banks said that SSDs were represented by passbooks like those used in regular savings accounts instead of certificates of deposits like those used on TDs.

The high court however ruled that “what is important and controlling is the nature or meaning conveyed by the passbook and not the particular label or nomenclature attached to it.”