MANILA, Philippines—Government lawyers on Wednesday asked the Supreme Court to lift the restraining order it issued on the Bureau of Internal Revenue’s regulations requiring business, banking and financial sectors to submit an alphabetical list (alpha list) of portfolio investors receiving income payments and dividends.
Last Sept. 9, the high court issued the RTO against the implementation of Revenue Regulation 01-14 and Revenue Memorandum Circular 05-14 which prohibits the naming of an entity called the Philippine Central Depository (PCD) Nominee, or any securities intermediaries representing the beneficial owner, as the payee for dividend payments made by listed companies.
The restraining order also prevented in its entirety the implementation of the SEC Memorandum Circular No. 10, Series of 2014, which required the submission of an alphabetical list (alpha list) of recipients of dividend income, a move seen to bolster the long overdue improvement of transparency and tax efficiency in the Philippine markets.
Bureau of Internal Revenue building. AFP FILE PHOTO
In a 39-page comment, government lawyers led by Solicitor General Florin Hilbay said the BIR was merely exercising the power granted under the National Internal Revenue Code (NIRC) when BIR chief Kim Jacinto-Henares issued the questioned regulations.
“RR No. 01-14 and RMC No. 05-14 were issued pursuant to respondents Secretary of Finance (Cesar Purisima) and CIR’s (Henares) powers and functions under the NIRC. Section 244 of the NIRC grants the Secretary of Finance, upon recommendation of the CIR, the power to promulgate rules and regulations which are needed for the effective enforcement of the provisions of the NIRC,” the comment stated.
Hilbay added that submission of the alpha list of PCD nominee has been a requirement under the NIRC since the time of manual alphabetical listing.
“Under Section 245 of the NIRC, which specifically mandates the CIR to specify, prescribe or define ‘the manner in which tax returns, information and reports shall be prepared and reported and the tax collected and paid, as well as the conditions under which evidence of payment shall be furnished the taxpayer, and the preparation and publication of tax statistics,” the comment stated.
The questioned regulation, Hilbay said, was not the first issuances on how tax returns, information and reports are to be prepared and submitted to the BIR.
“These are mere amendments to Revenue Regulation No. 2-98, as amended by RR 10-2008, both of which are interpretative of and based on Sec. 245 (i) of the NIRC. Both also require the submission of an alphabetical list of employees and list of payees on income payments subject to creditable and final withholding taxes which are required to be attached as integral part of the annual information returns and monthly remittance returns,” the comment added.
Petitioners Philippine Stock Exchange, Inc. (PSE), the Bankers Association of the Philippines, the Philippine Association of Securities Brokers and Dealers, Inc., the Fund Management Association of the Philippines, the Trust Officers Association of the Philippines and Marmon Holdings, Inc., told the high court that either way, they will face sanctions–noncompliance, the SEC will impose criminal and administrative penalties on them. If they will comply, they would also face the risk of being held criminally and civilly liable for violating the Data Privacy Act.
But Hilbay said other entities such as the Philippine Dealing Holding Corporation & Subsidiaries (PDS) and the brokers of Pacific Online Systems Corporation (POSC) were able to comply with the regulations.
“That companies were already complying with the said regulations prior to the issuance of the TRO shows that the petitioners’ concerns were unwarranted and even unrepresentative of the majority of the actors in the market,” Hilbay said in the comment.
Petitioners, in their July, 2014 letter to Finance Secretary Cesar Purisima and BIR chief Kim Henares, explained that the new requirement increased the cost of doing business, particularly for non-resident portfolio investors who are now forced to hire accredited tax lawyers to process their TIN applications.
Such measure, according to the position paper, “discourages portfolio inflow and is likely to bring a setback to the Philippine capital market’s growth trajectory.”
In fact, during the first half of 2014, the country experienced a decline of preferred shares traded, an early indication of capital flight where investors move to a country with investor friendly policies.
But the government said the regulations are preparations for the on-going Asia Pacific Economic Cooperation (Apec) Asia Region Funds Passport (ARFP), which will be launched in 2015, with more and more jurisdictions implementing stricter rules on disclosure to ensure transparency on the heels of the financial crisis half a decade ago.
The regulations are also the government’s response to corporate governance advocates espousing disclosure of shareholdings as key to preventing future financial crises and as part of a global trend towards transparency and good corporate governance.
The government lawyers also dispelled fears of the petitioners about disclosure of personal information of investors.
“The questioned regulations do not allow unregulated processing and disclosure of personal information of investors. Rather, they allow for transparency and provide a mechanism for check and balance with the use of technology.”
In fact, the Solicitor General said “compliance with the questioned regulations will benefit the issuer company in terms of having the information as to who are its stockholders as of a given date…On the part of the investor, his ownership of the stocks as of a given date will be validated. That is transparency congruent with the declared policy of the State to establish a socially conscious, free market that regulates itself, encourages the widest participation of ownership in enterprises…”
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