The Supreme Court (SC) has nullified three circulars and regulations issued in 2014 by the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC) which required businesses dealing with the Philippine Stock Exchange (PSE) and the banks to disclose the names, addresses, tax identification number (TIN) and the amount of income and withholding taxes of their investors.
In a full court decision written by Associate Justice Ramon Paul L. Hernando and made public last Feb. 17, the SC ruled that the BIR and SEC circulars and regulations violate the right to privacy and due process of the PSE, the banks, and business owners and investors, and thus, unconstitutional.
Nullified by the SC were BIR Revenue Regulations No. 1-2014, Revenue Memorandum Circular No. 5-2014, and SEC Memorandum Circular No. 10, Series of 2014.
The SC granted the petition filed by, aside from the PSE, Bankers Association of the Philippines (BAP), Philippine Association of Securities Brokers and Dealers, Inc. (PASBDI), Fund Managers Association of the Philippines (FMAP), Trust Officers Association of the Philippines (TOAP), and Marmon Holdings, Inc. (MHI).
In 2014, the SC issued a temporary restraining order (TRO) that stopped the BIR and the SEC from implementing the regulations.
BIR RR 1-14 requires businesses to submit an alphabetical list of payees, and prohibits the lumping into one single amount and account various income payments and taxes withheld such as “PCD nominee,” “Various Payees,” or “Others.”
BIR RR 5-15, on the other hand, requires withholding agents to indicate in the alphalist the tax identification numbers, complete names, income amount, and tax withheld from the payees.
SEC MC 10-14 supplements the provisions of RR 01-14 by directing Philippine Depository and Trust Corporation (PDTC), broker dealers, and other depository participants to provide listed companies with the information needed to enable the latter to comply with RR 01-14.
The petitioners told the SC that their right to privacy over their personal information protected by Republic Act No. 10173 of the Data Privacy Act, is violated with the issuance of the regulations.
They said that by requiring broker dealers to divulge personal information of their clients such as TIN, birthdate, and address, the questioned regulations would expose them to criminal penalties under the Data Privacy Act.
They also said their right to due process was violated because the BIR and the SEC – including the Department of Finance (DOF) -- failed to notify them and conduct hearings to iron out the provisions and requirements of the regulations.
Upholding the points raised by the petitioners, the SC said: “The Court sees that the enforcement of the questioned regulations puts the right to privacy of the investors in peril. For this, the questioned regulations must be struck down.”
“There is no assurance that the information gathered and submitted by the listed companies pursuant to the questioned regulations will be protected, and not be used for any other purposes outside the stated purpose,” the SC stressed.
“The investors provided their information to the brokers presumably without the intention of sharing such with any other entity, including the investee companies and the BIR,” it said.
At the same time, the SC said the DOF, the BIR and the SEC failed to prove that the issuance of the said regulations would prevent abuses in the payment and collection of taxes.
It said the three agencies did not claim or show that taxes were improperly collected or there was collection deficit due to lack of certain details like those sought by the assailed regulations.
It pointed out that the BIR and the SEC should have conducted public hearings since the regulations are not mere “interpretative issuances” but “legislative in nature that change, if not increase, the burden of those governed.”
The SEC had no authority to issue SEC MC 10- 2014 and that the DOF and the BIR -- in including the prohibition on lumping of accounts -- acted outside of their scope of authority, the SC said.
It said the SEC cannot enforce tax laws and regulations and “in issuing SEC MC 10-2014, it delved into matters that are outside its authority.”
The SC also said:
“The Court understands that the emerging trend now leans toward disclosure of beneficial ownership information.
“However, policy and legislation on taxation, specifically on withholding of taxes, in place at the time of issuance of the questioned regulations are yet to lean toward disclosure of beneficial ownership information.
“Surely, the administrative agencies concerned may set their sights on that trend --as what respondents have done in issuing the questioned regulations; however, they should have done so in compliance with the Constitution, laws, and jurisprudence.
“With regard to the economic repercussions, the Court cannot inquire into the wisdom of the policies adopted by the DOF, BIR, and the SEC. The most that it can do is to make inquiries on the State actions pursuant to the strict scrutiny test.
“Indeed, taxes are the lifeblood of the State. Despite being one of the inherent powers of the State, the power to tax is not plenary; it is circumscribed by constitutional limitations.
“Thus, the State, in exercising this power, shall observe the constitutionally guaranteed rights of those governed. Otherwise, the Court, when called upon, will not hesitate to perform its duty despite the good intentions and objectives pushed by the agencies.
“WHEREFORE, the Petition for Certiorari and Prohibition is GRANTED. Revenue Regulations No. 1-2014, Revenue Memorandum Circular No. 5-2014, and Securities and Exchange Commission Memorandum Circular No. 10-14 are STRUCK DOWN for being UNCONSTITUTIONAL. The Temporary Restraining Order issued by this Court on September 9, 2014 is MADE PERMANENT. SO ORDERED.”
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