HERNANDO, J.:
RR 2-1998Under RR 2-1998, all withholding agents are required to submit a manual alphabetical list (alphalist). RR 2-1998 was amended by RR 10-2008, which provides the general rule that all withholding agents are required to submit manual and digital alphalists. The exception is if the withholding agent has less than 10 employees, in which case, a manual alphalist is then required.
Section 2.83.3. Requirement for income payees list. - In lieu of the manually prepared alphabetical list of employees and list of payee's and income payments subject to creditable and final withholding taxes which are required to be attached as integral part of the Annual Return (Form No. 1604), the Withholding Agent may, at its option, submit computer-processed tapes or cassettes or diskettes, provided that the said list has been encoded in accordance with the formats prescribed by Form 1604.
RR 10-2008
Section 2.83.3. Requirement for list of payees. - In addition to the manually prepared alphabetical list of employees and list of payees and income payments subject to creditable and final withholding taxes which are required to be attached as integral part of the Annual Information Returns (BIR Form No. 1604CF/1604E), Monthly Remittance Returns (BIR Form No. 1601C etc.), the withholding agent may submit soft copy in 3.5-inch floppy diskettes/CD or email: esubmission@bir.gov.ph, containing the said alphalists.
However, taxpayers, whose number of employees or income payees are ten (10) or more, are mandatorily required to submit the said lists in 3.5-inch floppy diskettes/CD or email: esubmission@bir.gov.ph, using the existing CSV data file format, together with the manually prepared alphabetical list. In order to comply with this format, the withholding agents shall have the option to use any of the following:
1. Excel format provided under the Revenue Regulations No. 7-2000, as amended, following the technical specifications required by the BIR;
2. Their own extract program that shall meet the technical specifications required by the BIR; or
3. Data Entry Module using Visual FoxPro that will be available upon request or by downloading from the BIR's website http://www.bir.gov.ph with the corresponding job aid.
For those who would choose either option 1 or 2, such taxpayers shall use a validation module developed by the BIR, which can be downloaded from the BIR website.
In any case, the withholding agents are required to save the same to a secondary storage as back up for a period of three (3) years from submission of the diskette, as aforementioned, for future reference.
For withholding agents classified as large taxpayers and excise taxpayers falling within the jurisdiction of the Large Taxpayers Service and/or Large Taxpayers District Office, the Annual Information Return of Income Taxes Withheld on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF) and the Annual Information Return of Creditable Income Taxes Withheld (Expanded)/ Income Payments Exempt from Withholding Tax (BIR Form No. 1604-E) shall be submitted to the Large Taxpayers Assistance Division, Large Taxpayers District Offices or Excise Taxpayers Assistance Division, as the case may be. For other withholding agents, the aforesaid annual returns shall be submitted to their respective Revenue District Offices. BIR Form No. 1604-CF shall be submitted on or before January 31 of the succeeding year while BIR Form No. 1604-E shall be filed on or before March 1 of the following year. Only diskettes/CD/email: esubmission@bir.gov.ph readable and virus free files upon submission shall be considered as duly filed "Alphabetical List of Employees/Payees" by the employer. Violation hereof, shall be a ground for the mandatory audit of violator's income tax liabilities (including withholding tax). Diskettes/CDs must be uploaded by the abovementioned offices within fifteen (15) days from receipt.
The manually prepared (hard copy for below 10 employees/payees) alphabetical list of employee shall be filed in triplicate copies (two copies for the BIR) to be stamped "received" by the BIR-Large Taxpayers Assistance Division, Large Taxpayers District Office of the Excise Taxpayers Assistance Division, or the Revenue District Office where the payor/employer is registered as Withholding Agent. Manually filed alphalists must be encoded and uploaded by the abovementioned offices within thirty (30) days from receipt. (Underline & emphasis in original)
Section 2.83.3 Requirement for list of payees. – All withholding agents shall, regardless of the number of employees and payees, whether the employees/payees are exempt or not, submit 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 (BIR Form No. 1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601C, etc.), under the following modes:To reiterate, the rule under RR 1-2014 is that all withholding agents are required to submit only a digital alphalist. By the express provision of RR 1- 2014, the submission of alphalist where the income payments and taxes withheld are lumped into one single amount (e.g., "various employees," "various payees," "PCD nominees," "others," etc.) is not allowed.(1) As attachment in the Electronic Filing and Payment System (eFPS);In cases where any withholding agent does not have its own internet facility or unavailability of commercial establishments with internet connection within the location of the withholding agent, the alphalist prescribed herein may be electronically mailed (e-mail) thru the e-lounge facility of the nearest revenue district office or revenue region of the BIR.
(2) Through Electronic Submission using the BIR's website address at esubmission@bir.gov.ph; and
(3) Through Electronic Mail (email) at dedicated BIR addresses using the prescribed CSV data file format, the details of which shall be issued in a separate revenue issuance.
The submission of the herein prescribed alphalist where the income payments and taxes withheld are lumped into one single amount (e.g. "Various employees, "Various payees", "PCD nominees", "Others", etc.) shall not be allowed. The submission thereof, including any alphalist that does not conform with the prescribed format thereby resulting to the unsuccessful upload into the BIR system shall be deemed as not received and shall not qualify as deductible expense for income tax purposes.
Accordingly, the manual submission of the alphabetical lists containing less than ten (10) employees/payees by withholding agents under Annual Information Returns BIR Form No. 1604CF and BIR No. 1604E shall be immediately discontinued begi1ming January 31, 2014 and March 1, 2014, respectively, and every year thereafter. (Underline & emphasis in original)
Section 2. List of PDTC Accounts and [C]orresponding Shareholdings. —Failure to comply with these issuances will result to imposition of administrative and penal sanctions.[8]
The Philippine Depository and Trust Corporation (PDTC) shall prepare an alphalist of all depository account holders and the total shareholdings in each of the accounts and sub-accounts as of Record Date upon receiving information on a dividend declaration.
PDTC shall provide the Issuer or its authorized Transfer Agent with the alphalist and all the depository account holders with their respective shareholdings as reflected in their depository accounts and sub-accounts, if any, not later than 12:00 noon of the day following such Record Date.
Section 3. List of Payees and [C]orresponding Shareholdings. —
All depository account holders which are registered broker dealers and which hold shares, for the account of their clients or for their own account, and which are payees of dividend declared by the Issuer/Paying Company shall prepare an alphalist showing the total shareholding of each account and subaccount belonging to these payees and the dealer account as of Record Date. In determining the alphalist, the broker dealers shall take into account the Philippine Stock Exchange's (PSE) conventions on transactions effected during cum and ex-dates.
The broker dealers shall also ensure that the account balances are consistent with the respective balances as reflected in the PDTC alphalist of depository account holders and corresponding total shareholdings.
The broker dealer alphalist shall provide the following information. (Please refer to the attached format — Annex A):
1. Name of Client/Payee (Last Name, First Name, Middle Name for Individuals, complete name for non-individuals)
2. Tax Identification Number (TIN)
3. Address of Payee
4. Status (Residence/Nationality)
5. Total Shareholding
6. Birth date (for Individuals)/Registration Number (for non-individuals)
The broker dealers shall submit the alphalist certified true and correct by their President and the Head of Settlement Unit in soft and hard copies to the Issuer or its authorized Transfer Agent not later than three (3) days from the Record Date. (Emphasis in original)
On September 9, 2014, this Court issued a Temporary Restraining Order (TRO) prohibiting respondents from enforcing the questioned regulations.A.
RESPONDENTS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN THEY ISSUED THE QUESTIONED REGULATIONS WHICH VIOLATE THE CONSTITUTIONAL RIGHT TO DUE PROCESS OF PETITIONERS AND THEIR CUSTOMERS.1.
The requirement under the Questioned Regulations for listed companies and broker dealers to disclose the payee of dividend payments is vague, and therefore void, due to the prohibition on the identification of PCD Nominee as the payee.2.
The requirement under RR 01-14 and RMC 05-14 for listed companies to disclose the payee of dividend payments and the prohibition on the identification of the PCD Nominee as the payee is unreasonable since listed companies, by themselves are not capable of accurately providing the required information.3.
Respondents Secretary of Finance and Commissioner of Internal Revenue failed to comply with the requirements of notice and hearing prior to the issuance of RR 01-14 and RMC 05-14.B.
RESPONDENTS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN THEY ISSUED THE QUESTIONED REGULATIONS IN VIOLATION OF THE PETITIONERS' RIGHT TO PRIVACY.1.
The Questioned Regulations require the disclosure of sensitive personal information regarding an investor to a private third party, not to a government or public authority.2.
The Questioned Regulations do not provide a mechanism to protect sensitive personal information relating to each disclosed investor.3.
The Questioned Regulations violate the express provisions of banking laws and regulations.C.
THE SEC CHAIRPERSON ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN SHE ISSUED SEC MC 10-14, WHICH VIOLATES THE CONSTITUTIONAL PRINCIPLE ON NON-IMPAIRMENT OF CONTRACTS.D.
RESPONDENTS ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN THEY ISSUED THE QUESTIONED REGULATIONS WHICH ARE CONTRARY TO THE STATE POLICIES UNDER THE SRC, THE TAX CODE, AND THE DATA PRIVACY ACT.E.
THE SEC CHAIRPERSON ACTED WITHOUT JURISDICTION WHEN SHE ISSUED SEC MC 10-14 TO SUPPLEMENT THE PROVISIONS OF RR 01-14.F.
RESPONDENTS ACTED WITHOUT JURISDICTION WHEN THEY ISSUED THE QUESTIONED REGULATIONS TO AMEND SECTION 43.1 OF THE SRC AND PROHIBIT THE USE OF "PCD NOMINEE" AS THE PAYEE OF THE DIVIDEND PAYMENTS AND SHAREHOLDER OF SCRIPLESS SHARES IN LISTED COMPANIES IN VIOLATION OF THE CONSTITUTIONAL PRINCIPLES OF SEPARATION OF POWERS.[9]
Standing is a special concern in constitutional law because in some cases suits are brought not by parties who have been personally injured by the operation of law or by official action taken, but by concerned citizens, taxpayers or voters who actually sue in the public interest. Hence the question in standing is whether such parties have alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions.[11]Further:
Legal standing or locus standi is a party's personal and substantial interest in a case such that he has sustained or will sustain direct injury as a result of the governmental act being challenged. It calls for more than just a generalized grievance. The term interest means a material interest, an interest in issue affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest. Unless a person's constitutional rights are adversely affected by the statute or ordinance, he has no legal standing.[12]In particular, petitioners argue that the right to privacy of the dividend payees would be violated when their name and Tax Identification Numbers (TIN) are disclosed in the alphalist. Thus, the question is whether petitioners have the requisite standing to plead for the protection of the right to privacy of their clients.
Standing or locus standi is the ability of a party to demonstrate to the court sufficient connection to and harm from the law or action challenged to support that party's participation in the case. More importantly, the doctrine of standing is built on the principle of separation of powers, sparing as it does unnecessary interference or invalidation by the judicial branch of the actions rendered by its co-equal branches of government.Clearly, petitioners have the third-party standing to pursue this suit. PSE is a duly licensed stock exchange with 260 listed companies and 133 active trading participants.[15] The questioned regulations require PSE, as a listed company, to provide information on the payees of its dividend payments.[16] The BAP is composed of banking institutions, which provide services as broker dealers, fund managers and trustees to manage investments made by their clients under the scripless trading structure. The PASBDI is an association of broker dealers. The FMAP is an association of fund managers. The TOAP is an association of trust officers. MHI is a corporation primarily engaged in the business of investing, purchase or otherwise acquiring, owning, holding, using, selling real and personal property, including shares of stocks, bonds, debentures, notes, evidences of indebtedness and other securities.[17] PASBDI, FMAP, TOAP, and MHI claim to be obligated to disclose to the SEC various information pertaining to their clients. Moreover, their members are either subjects or sources of information required under the questioned regulations.
The requirement of standing is a core component of the judicial system derived directly from the Constitution. The constitutional component of standing doctrine incorporates concepts which concededly are not susceptible of precise definition. In this jurisdiction, the extancy of "a direct and personal interest" presents the most obvious cause, as well as the standard test for a petitioner's standing. In a similar vein, the United States Supreme Court reviewed and elaborated on the meaning of the three constitutional standing requirements of injury, causation, and redressability in Allen v. Wright.
Nonetheless, the general rules on standing admit of several exceptions such as the overbreadth doctrine, taxpayer suits, third party standing and, especially in the Philippines, the doctrine of transcendental importance.
For this particular set of facts, the concept of third party standing as an exception and the overbreadth doctrine are appropriate. In Powers v. Ohio, the United States Supreme Court wrote that: "We have recognized the right of litigants to bring actions on behalf of third parties, provided three important criteria are satisfied: the litigant must have suffered an "injury-in-fact", thus giving him or her a "sufficiently concrete interest" in the outcome of the issue in dispute; the litigant must have a close relation to the third party; and there must exist some hindrance to the third party's ability to protect his or her own interests." Herein, it is clear that the business interests of the petitioners are likewise injured by the Ordinance. They rely on the patronage of their customers for their continued viability which appears to be threatened by the enforcement of the Ordinance. The relative silence in constitutional litigation of such special interest groups in our nation such as the American Civil Liberties Union in the United States may also be construed as a hindrance for customers to bring suit.
American jurisprudence is replete with examples where parties-in-interest were allowed standing to advocate or invoke the fundamental due process or equal protection claims of other persons or classes of persons injured by state action. In Griswold v. Connecticut, the United States Supreme Court held that physicians had standing to challenge a reproductive health statute that would penalize them as accessories as well as to plead the constitutional protections available to their patients. The Court held that:The rights of husband and wife, pressed here, are likely to be diluted or adversely affected unless those rights are considered in a suit involving those who have this kind of confidential relation to them."An even more analogous example may be found in Craig v. Boren, wherein the United States Supreme Court held that a licensed beverage vendor has standing to raise the equal protection claim of a male customer challenging a statutory scheme prohibiting the sale of beer to males under the age of 21 and to females under the age of 18. The United States High Court explained that the vendors had standing "by acting as advocates of the rights of third parties who seek access to their market or function."[14]
Stock market transactions and scripless trading |
Stock market transactions affect the general public and the national economy. The rise and fall of stock market indices reflect to a considerable degree the state of the economy. Trends in stock prices tend to herald changes in business conditions. Consequently, securities transactions are impressed with public interest, and are thus subject to public regulation. x x x[21]Given this consequential importance, the State is empowered to regulate stock market transactions. As mentioned by Chief Justice Alexander G. Gesmundo (Chief Justice Gesmundo ), an absolutely unrestricted market could be potentially harmful as fraudulent transactions may be perpetrated; on the other hand, too much regulation may discourage investors, including foreign investors, to enter the market due to high costs and burdens of doing business.[22] The Chief Justice noted that "whenever there is a regulation imposed by the State in the commercial aspect of the stock market, the Court should not simply brush aside the issue; rather, such issue must be meticulously examined to determine whether it is in line with the Constitutional principle to recognize the indispensable role of the private sector, encourage private enterprise, and provide incentives to needed investments."[23]
Prior to the scripless or uncertificated trading system, a stockholder who wishes to sell his shares of stock covered by a certificate is obliged to physically deliver his stock certificate to his broker, who in turn would deliver the stock certificate and other transfer papers to another broker (representing the buyer of the shares of stock). After the payment is made through the brokers, the buyer would then get the stock certificate, go to the issuing corporation, have the stock certificate cancelled, and get a new stock certificate issued in his name. This process had proven to be cumbersome and not conducive to trade in the United States, resulting in the "Paper Crisis of 1968," where trade was backlogged for months because of the volume of stock certificates that had to be processed.Notably, the Court mentioned in Commissioner of Internal Revenue v. Ocier[28] that:
Clearing and settlement practices in trading securities have developed since then.
In accordance with international best practices in trading securities, the Philippines instituted a clearing and settlement system to make trading in securities more efficient. This is done through a depository system, which facilitates trading through book-entry (as opposed to actual paper) transfers otherwise known as scripless and uncertificated system.
In the current market set-up in the country, an owner of certificates of stocks of listed companies who wishes to participate in the trade market delivers his stock certificate to a broker who enters the details of transfer into the system. The shares are electronically recorded (lodgement) into the broker's account under the name "PCD Nominee." Thereby, the scrip is forwarded to the Registry (transfer agent) where the certificate is cancelled and issued under "PCD Nominee." The deposit of shares is then confirmed in the book of entry of Philippine Depository & Trust Corporation (PDTC) and may now be traded in the market. Considering that shares may be traded (buy and sell) several times in a given day, the Philippine Stock Exchange (PSE) matches the trade such that at the end of a given trade day, a broker may either be a net selling broker or a net buying broker. Once the trade is matched, shares are delivered from the account of the net selling broker to the account of the net buying broker. Thereby, shares are electronically transferred to the buying broker's account at the PDTC. The buying client can then uplift the shares and register it under his name in the shares registry. Payment can now be made by net buyer and net sellers can now receive payments.[27]
In scripless trading, settlement is carried out via BES. Book-entry system or (BES) is a system used to record the ownership of shares. When a trade is done at the PSE, securities are moved via electronic debit and credit of Participant's securities accounts to effect settlement. There will be no need for the physical movement of stock certificate (scrip) between buyer or seller.[29]The scripless or uncertificated system of trading is an international best practice adopted by the Philippine capital market. The PSE, through its central depository, the PDTC,[30] uses the computerized book-entry system to transfer ownership of securities from one account to another, thus eliminating the need for physical exchange of scrip between buyer and seller.[31] Under the scripless trading system, the securities intermediary, a PCD Nominee, is considered by the listed company as the registered stockholder for the shares of stocks lodged by the brokers and dealers with the PDTC. Consequently, the PCD nominee is the payee of the dividends payment and is the entity listed in the alphalist. As noted by Senior Associate Justice Marvic M.V.F. Leonen (Senior Associate Justice Leonen), the PCD Nominee then forwards the net dividend payments to the brokers, who then distributes them accordingly to their individual investor clients.[32]
Sec. 57. Withholding of Tax at Source. -There are two kinds of withholding taxes under Section 57: (1) final withholding taxes under paragraph (a), and (2) creditable withholding taxes under paragraph (b). Under both kinds, the payor, acting as a withholding agent, retains a portion of the amount paid to and received by the income payee.[39] In withholding of final taxes, the amount withheld is already the entire tax to be paid for the particular source of income.[40] The tax due therein is already paid, and the income recipient is cleared of tax liability for that payment upon withholding. Examples of income subject to final tax would be certain passive income such as interest, royalties, prizes, as well as cash and property dividends.[41] In withholding of creditable taxes, the amount withheld by the payor can be credited against the income tax liability of the income recipient for the taxable year.[42] Examples would be professional fees, rentals, contractors' fees, as provided in RR 2-1998, and the expanded withholding tax of 1% on goods and 2% on services required to be withheld by top withholding agents as required by RR 11-2018[43] as amended by RR 31-2020,[44] but originally imposed by RR 12-1994.[45]
(A) Withholding of Final Tax on Certain Incomes. - Subject to rules and regulations the Secretary of Finance may promulgate, upon the recommendation of the Commissioner, requiring the filing of income tax return by certain income payees, the tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1); 25(A)(2), 25(A)(3), 25(8), 25(C), 25(D), 25(E), 27(D)(1), 27(D)(2), 27(D)(3), 27(D)(5), 28 (A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2), 28(B)(3), 28(B)(4), 28(8)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this Code on specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 58 of this Code.
(B) Withholding of Creditable Tax at Source. - The Secretary of Finance may, upon the recommendation of the Commissioner, require the withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by payor-corporation/persons as provided for by law, at the rate of not less than one percent (1%) but not more than thirty-two percent (32%) thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year: Provided, That, beginning January 1, 2019, the rate of withholding shall not be less than one percent (1%) but not more than fifteen percent (15%) of the income payment.
x x x x
Purpose of RR 1-2014 and the other questioned regulations |
The issuance of the questioned regulations violated due process |
An administrative regulation may be classified as a legislative rule, an interpretative rule, or a contingent rule. Legislative rules are in the nature of subordinate legislation and designed to implement a primary legislation by providing the details thereof. They usually implement existing law, imposing general, extra-statutory obligations pursuant to authority properly delegated by Congress and effect a change in existing law or policy which affects individual rights and obligations. Meanwhile, interpretative rules are intended to interpret, clarify or explain existing statutory regulations under which the administrative body operates. Their purpose or objective is merely to construe the statute being administered and purport to do no more than interpret the statute. Simply, they try to say what the statute means and refer to no single person or party in particular but concern all those belonging to the same class which may be covered by the said rules. Finally, contingent rules are those issued by an administrative authority based on the existence of certain facts or things upon which the enforcement of the law depends.[63]Legislative rules are a form of subordinate legislation where the agency is acting in a legislative capacity, supplementing the statute, filling in the details, pursuant to a specific delegation of legislative power.[64] They implement a primary legislation by providing the details thereof.[65] They impose additional obligations pursuant to authority from Congress and affect individual rights and obligations.[66] Interpretative rules, on the other hand, are intended to interpret, clarify, or explain existing statutory regulations under which the administrative body operates.[67] Their purpose or objective is merely to construe the statute being administered and purport to do no more than interpret the statute.[68]
Section 9. Public Participation. — (1) If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.Interpretative rules, however, are an exception from the requirement of public participation, or prior notice and hearing. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance, for it gives no real consequence more than what the law itself has already prescribed.[71] But surely, if the interpretative regulation substantially increases the burden of those governed, public participation and publication are a must, thus:
x x x x
Accordingly, an administrative regulation can be construed as simply interpretative or internal in nature, dispensing with the requirement of publication, when its applicability needs nothing further than its bare issuance, for it gives no real consequence more than what the law itself has already prescribed. When, however, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter, to be duly informed, before that new issuance is given the force and effect of law.[72]In fine, the gauge on determining if a regulation requires prior notice and hearing is its substance or content. Prior notice and hearing are required if the regulation substantially increases the burden of those governed, notwithstanding its nomenclature—despite the regulation being called or designated as interpretative.
The questioned regulations violate the right to privacy |
4. The due process question touching on an alleged deprivation of liberty as thus resolved goes a long way in disposing of the objections raised by plaintiff that the provision on the periodical submission of a sworn statement of assets and liabilities is violative of the constitutional right to privacy. There is much to be said for this view of Justice Douglas: "Liberty in the constitutional sense must mean more than freedom from unlawful governmental restraint; it must include privacy as well, if it is to be a repository of freedom. The right to be let alone is indeed the beginning of all freedom." As a matter of fact, this right to be let alone is, to quote from Mr. Justice Brandeis "the most comprehensive of rights and the right most valued by civilized men."The right to privacy or the right to be let alone, in Philippine jurisdiction, is accorded recognition independent from the right to liberty. Thus, it likewise deserves in itself full constitutional protection. Further, at least two more provisions in the Bill of Rights afford protection to the right to privacy: Section 2 on unreasonable searches and seizures, and Section 3 on privacy of communication and correspondence.[81]
The concept of liberty would be emasculated if it does not likewise compel respect for his personality as a unique individual whose claim to privacy and interference demands respect. As Laski so very aptly stated: "Man is one among many, obstinately refusing reduction to unity. His separateness, his isolation, are indefeasible; indeed, they are so fundamental that they are the basis on which his civic obligations are built. He cannot abandon the consequences of his isolation, which are, broadly speaking, that his experience is private, and the will built out of that experience personal to himself. If he surrenders his will to others, he surrenders his personality. If his will is set by the will of others, he ceases to be master of himself. I cannot believe that a man no longer master of himself is in any real sense free."[80]
And we now hold that when the integrity of a fundamental right is at stake, this [C]ourt will give the challenged law, administrative order, rule or regulation a stricter scrutiny. It will not do for the authorities to invoke the presumption of regularity in the performance of official duties. Nor is it enough for the authorities to prove that their act is not irrational for a basic right can be diminished, if not defeated, even when the government does not act irrationally. They must satisfactorily show the presence of compelling state interests and that the law, rule, or regulation is narrowly drawn to preclude abuses. This approach is demanded by the 1987 Constitution whose entire matrix is designed to protect human rights and to prevent authoritarianism. In case of doubt, the least we can do is to lean towards the stance that will not put in danger the rights protected by the Constitution.[84]On the right to privacy, the case adds:
In no uncertain terms, we also underscore that the right to privacy does not bar all incursions into individual privacy. The right is not intended to stifle scientific and technological advancements that enhance public service and the common good. It merely requires that the law be narrowly focused and a compelling interest justify such intrusions. Intrusions into the right must be accompanied by proper safeguards and well-defined standards to prevent unconstitutional invasions. We reiterate that any law or order that invades individual privacy will be subjected by this Court to strict scrutiny.[85]Ople mandates the application of the strict scrutiny test in approaching government actions that are alleged to be violative of a fundamental right, including the right to privacy. Government bears the burden to show and prove that its action serves a compelling state interest and is narrowly drawn to prevent abuses.
Section 4. Scope. — This Act applies to the processing of all types of personal information and to any natural and juridical person involved in personal information processing including those personal information controllers and processors who, although not found or established in the Philippines, use equipment that are located in the Philippines, or those who maintain an office, branch or agency in the Philippines subject to the immediately succeeding paragraph: Provided, That the requirements of Section 5 are complied with.The creation of a taxpayer database for "establishing simulation model, formulating analytical framework for policy analysis, and institutionalizing appropriate enforcement activities" is purportedly to ensure the effective assessment and collection of national taxes.
This Act does not apply to the following:
x x x x
(e) Information necessary in order to carry out the functions of public authority which includes the processing of personal data for the performance by the independent central monetary authority and law enforcement and regulatory agencies of their constitutionally and statutorily mandated functions. Nothing in this Act shall be construed as to have amended or repealed Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act; Republic Act. No 6426, otherwise known as the Foreign Currency Deposit Act; and Republic Act No. 9510, otherwise known as the Credit Information System Act (CISA);
x x x x
Section 13. Sensitive Personal Information and Privileged Information. — The processing of sensitive personal information and privileged information shall be prohibited, except in the following cases:The information, particularly the TINs of the investors, sought to be collected and provided to the listed companies and eventually the BIR, are without a doubt sensitive personal information. Sensitive personal information includes personal information "[i]ssued by government agencies peculiar to an individual which includes, but is not limited to, social security numbers, previous or current health records, licenses or its denials, suspension or revocation, and tax returns."[98] TINs are issued by the BIR for the facilitation of filing of tax returns and payment of taxes.[99]
x x x x
(b) The processing of the same is provided for by existing laws and regulations: Provided, That such regulatory enactments guarantee the protection of the sensitive personal information and the privileged information: Provided, further, That the consent of the data subjects are not required by law or regulation permitting the processing of the sensitive personal information or the privileged information;
x x x x
The SEC Chairperson had no authority to issue SEC MC 10-2014 |
The Secretary of Finance and the Commissioner of Internal Revenue, in including the prohibition on the use of "PCD Nominee" in RR 1-2014 and RMC 5-2014, acted outside their scope of authority |
WHEREAS, to assist and ensure that the issuers of registered securities and other market participants concerned comply with the requirements of BIR Revenue Regulation No. 1-2014, the Commission deems it necessary to issue guidelines and directives which would direct the depository, the broker dealers and other depository participants to provide the issuers with the data required by the BIR regulation;According to the same Whereas Clauses, the SEC derives authority from Rule 30.2 paragraph 9 of the Amended Implementing Rules and Regulations[112] (IRR) of the SRC and Section 5(h) of the SRC in issuing SEC MC 10-2014.[113]
As can be gleaned, Rule 30.2, paragraph 9 empowers the SEC to order entities (i.e., exchange, clearing agency, broker dealer, transfer agent, registered persons) to report information (as enumerated therein) "in pursuance of an investigation, examination, official inquiry or as part of a surveillance procedures, and/or in compliance with other pertinent laws." And by virtue of Section 5(h)[114] of the SRC, the SEC authorized the listed corporations or their transfer agents to receive the information, which is to be indicated in the alphalist to be filed with the BIR.SRC RULE 30.2
Transactions and Responsibilities of Brokers and Dealers
[formerly, SRC Rules 30.2-1, 2, 3, 4, 5, 6, 7, 8, and 9]
x x x x
9. Submission of Names of Stockholders, Members, Participants, Clients and Related Information
Every Exchange, clearing agency, Broker Dealer, transfer agent, other selfregulatory organization, and every other person required to register under the Code (hereinafter "registered person") shall immediately report to the Commission and any person deputized and/or duly authorized by the Commission pursuant to Section 5(h) of the Code, the names of their owners/stockholders, members, participants, and clients, and other related information in its or his possession, upon order of the Commission, or as required by the rules of a self-regulatory organization in which he is a member or participant, in pursuance of an investigation, examination, official inquiry or as part of a surveillance procedures, and/or in compliance with other pertinent laws.
Section 5. Powers and Functions of the Commission. — 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among others, the following powers and functions:Section 5 does not state any reference to enforcing compliance with tax laws and regulations; the law does not authorize the SEC to enforce tax laws and regulations. The Legislature, in enacting the SRC, envisioned having a free, self-regulating market, as well as protecting investors and regulation of securities.[118] For these purposes, Congress designated the SEC in carrying out these policies. The same goes for the other laws that relate to corporation law, securities, and finance such as the Corporation Code (already superseded by the Revised Corporation Code), the Investment Houses Law, the Financing Company Act, among others (as mentioned in Section 5 of SRC). Congress, in enacting these laws, likewise designated SEC in carrying out the policies therein. Nowhere in these laws is it stated that the SEC can enforce tax laws and regulations. Therefore, the SEC cannot do so — it cannot and it has no authority to enforce tax laws and regulations. SEC thus cannot promulgate rules and regulations for the enforcement of tax laws and regulations.
(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications;
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders;
(h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.
Section 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.The Tax Code vested separate and distinct powers on the DOF and the BIR.[119] To carry out their powers under this law, they promulgate various issuances such as revenue regulations, revenue memorandum orders, revenue memorandum rulings, revenue memorandum circulars, and BIR rulings.[120] In any event, these two agencies are the primary agencies for the enforcement of tax laws.
x x x x
Section 244. Authority of Secretary of Finance to Promulgate Rules and Regulations. - The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code.
Section 43. Uncertificated Securities. — Notwithstanding Section 63 of the Corporation Code of the Philippines:The SRC does not particularly provide that the designation of securities intermediaries and PCD Nominees is not allowed for tax purposes. Hence, the DOF in effect prohibited (albeit for tax purposes) the use of something that is allowed by law. Evidently then, RR 1-2014 and the companion RMC 5-2014 contravened an existing law. Jurisprudence states that administrative rules and regulations must not contravene the Constitution and other laws.[123]
43.1 A corporation whose securities are registered pursuant to this Code or listed on a securities Exchange may:
(a) If so resolved by its Board of Directors and agreed by a shareholder, investor or securities intermediary, issue shares to, or record the transfer of some or all of its shares into the name of said shareholders, investors or, securities intermediary in the form of uncertificated securities. The use of uncertificated securities in these circumstances shall be without prejudice to the rights of the securities intermediary subsequently to require the corporation to issue a certificate in respect of any shares recorded in its name; and
(b) If so provided in its articles of incorporation and by-laws, issue all of the shares of a particular class in the form of uncertificated securities and subject to a condition that investors may not require the corporation to issue a ce11ificate in respect of any shares recorded in their name.
43.2 The Commission by rule may allow other corporations to provide in their articles of incorporation and by-laws for the use of uncertificated securities.
43.3. Transfers of securities, including an uncertificated securities, may be validly made and consummated by appropriate book-entries in the securities accounts maintained by securities intermediaries, or in the stock and transfer book held by the corporation or the stock transfer agent and such bookkeeping entries shall be binding on the parties to the transfer. A transfer under this subsection has the effect of the delivery of a security in bearer form or duly indorsed in blank representing the quantity or amount of security or right transferred, including the unrestricted negotiability of that security by reason of such delivery. However, transfer of uncertificated shares shall only be valid, so far as the corporation is concerned, when a transfer is recorded in the books of the corporation so as to show the names of the parties to the transfer and the number of shares transferred.
The requirement for the disclosure of payees of dividend payments is clear and unequivocal |
The submission of the herein prescribed alphalist where the income payments and taxes withheld are lumped into one single amount (e.g. "Various employees", "Various payees", "PCD nominees", "Others", etc.) shall not be allowed.The provision is clear and unequivocal. The use of PCD Nominees will no longer be allowed. Conversely, the payee of the dividend payments or the beneficial owners should be disclosed. The Court applies the cardinal rule in statutory construction that when the law is clear, there is no room for interpretation, only application.
No violation of the Bank Secrecy Law, including the Foreign Currency Deposit Act; no undue expansion of the powers of the Commissioner of Internal Revenue to inquire on bank accounts |
SECTION 7. Section 4 of the same Act is accordingly renumbered as Section 5, and is hereby amended to read as follows:Thus, investments in securities covered by scripless trading are not covered by the confidentiality rule under the Bank Secrecy Law.
DEFINITION OF TERMS
SEC. 5. As used in this Act. —
x x x x
(g) The term deposit means the unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account, evidenced by a passbook, certificate of deposit, or other evidence of deposit issued in accordance with Bangko Sentral ng Pilipinas rules and regulations and other applicable laws, together with such other obligations of a bank, which, consistent with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the bank: Provided, That any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not be a deposit for any of the purposes of this Act or included as part of the total deposits or of insured deposit: Provided, further, That subject to the approval of the Board of Directors, any insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the Philippines may elect to include for insurance its deposit obligations payable only at such branch.
The Corporation shall not pay deposit insurance for the following accounts or transactions:
(1) Investment products such as bonds and securities, trust accounts, and other similar instruments;
x x x x
262 DISCLOSURE OF EFFECTIVE RATES OF INTERESTSBanks determine the features of the deposit products they offer provided there is full disclosure to the depositors. It is safe to state that banks differ on the features they incorporate on their deposit products as part of competition. This differentiation already complicates the process of deriving the amount of deposit from the information in the alphalist.
Banks are required to disclose to depositors the following information on interest computation and payments:
a. Type/kind of deposit;
b. Nominal rate of interest and period covered;
c. Manner of interest payment, i.e., whether credited in advance or otherwise;
d. Basis of interest payment, i.e., whether based on average daily balance compounded quarterly or otherwise;
e. Effective rate of interest expressed as a simple annual rate, on the basis of the information above given and indicating the formula used to arrive at the effective rate of interest; and
f. Illustration of basis of computing interest on a hypothetical deposit account.[135]
The purpose of the non-impairment clause of the Constitution is to safeguard the integrity of contracts against unwarranted interference by the State. As a rule, contracts should not be tampered with by subsequent laws that would change or modify the rights and obligations of the parties. Impairment is anything that diminishes the efficacy of the contract. There is an impairment if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of parties.[138]Aside from the reality that petitioners failed to cite which contracts are potentially impaired by the questioned regulations, the submission of the alphalist, and the prohibition on the lumping under one account the various payees do not divest petitioners of their rights under their supposed existing contracts. The questioned regulations implement the existing provisions of the Tax Code on withholding taxes, such as Section 58(c)[139] which deals with the filing of the annual information return. The submission of the alphalist had long been inscribed in various issuances of the BIR. Hence, the non-impairment clause does not apply to laws or rules which are already existing.
WHEREAS, Article XV paragraph 11 of the Implementing Guidelines of the PSE Revised Trading Rules provides that trading participants must maintain a record of names of all its clients and their corresponding trading account codes. The record shall be kept current, and shall be maintained in the principal office of the TP and when so required by the Capital Markets Integrity Corporation (CMIC) or its successor, the Commission, any judicial, administrative or regulatory body or any person deputized or duly authorized by the Commission in connection with an investigation, examination, inquiry or part of surveillance procedures or in compliance with other pertinent laws and regulations, be made available to CMIC or its successor, SEC, any judicial, administrative or regulatory body or any person duly deputized or authorized by the Commission within the next trading day, unless the period is specified by the requiring authority.[76] Separate Concurring Opinion of Senior Associate Justice Marvic M.V.F. Leonen, p. 9.
Section 2. The right of the people to be secure in their persons, houses papers, and effects against unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized.Section 3 of the Bill of Rights reads:
Section 3. (1) The privacy of communication and correspondence shall be inviolable except upon lawful order of the court, or when public safety or order requires otherwise as prescribed by law.[82] Ople v. Torres, 354 Phil. 948 (1998).
(2) Any evidence obtained in violation of this or the preceding section shall be inadmissible for any purpose in any proceeding.
The DOJ is confined to filling in the gaps and the necessary details in carrying into effect the law as enacted. Without a clear mandate of an existing law, an administrative issuance is ultra vires.[107] 557 Phil. 121 (2007).
Consistent with the foregoing, there must be an enabling law from which DOJ Circular No. 41 must derive its life. Unfortunately, all of the supposed statutory authorities relied upon by the DOJ did not pass the completeness test and sufficient standard test. The DOJ miserably failed to establish the existence of the enabling law that will justify the issuance of the questioned circular.
That DOJ Circular No. 41 was intended to aid the department in realizing its mandate only begs the question. The purpose, no matter how commendable, will not obliterate the lack of authority of the DOJ to issue the said issuance. Surely, the DOJ must have the best intentions in promulgating DOJ Circular No. 41, but the end will not justify the means. x x x
Section 244 of the NIRC authorizes the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the Code. Meanwhile, Section 4 of the NIRC grants the Commissioner of Internal Revenue the exclusive and original power to interpret its provisions. The exercise of these functions may come in the form of Revenue Regulations, Revenue Memorandum Orders, Revenue Memorandum Rulings, Revenue Memorandum Circulars, and BIR Rulings, viz.:[121] NATIONAL INTERNAL REVENUE CODE OF 1997, SEC. 4 AND 244.Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes.
Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.
Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio.
Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
BIR Rulings are the official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.
Section 2. All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office, except upon written permission of the depositor, or in cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or invested is the subject matter of the litigation.[128] Entitled "AN ACT ESTABLISHING THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, DEFINING ITS POWERS AND DUTIES AND FOR OTHER PURPOSES." Enacted: June 22, 1963.
REVENUE REGULATIONS NO. 1-2014Thus, the BIR is willing to set aside the expectation of privacy of the stockholders whenever dividends are declared for the purpose of establishing a simulation model, formulating analytical framework for policy analysis, and institutionalizing appropriate enforcement activities. These end objectives are vague and highly subjective. It was not established by the BIR that the disclosure of the personal information of the stockholders under RR 1-2014 are indispensable to attain such subjective purposes. It was not even determined whether there are other alternative ways to achieve the same. Rather, the BIR is eager to risk increasing the cost of doing business and discouraging portfolio inflow, including the possibility of capital flight, for the sake of merely setting up some future and contingent policy studies for the agency.
SUBJECT: Amending the Provisions of Revenue Regulations (RR) No. 2-98, as Further Amended by RR No. 10-2008, Specifically on the Submission of Alphabetical List of Employees/Payees of Income Payments
TO: All Internal Revenue Officials and Others Concerned
BACKGROUND
These Regulations are hereby issued for purposes of ensuring that information on all income payments paid by employers/payors, whether or not subject to the withholding tax except on cases prescribed under existing international agreements, treaties, laws and revenue regulations, regardless on the number of employees and/or payees, are monitored by and captured in the taxpayer database of the Bureau of Internal Revenue (BIR), with the end in view of establishing simulation model, formulating analytical framework for policy analysis, and institutionalizing appropriate enforcement activities.[16] (emphasis supplied)
Section 4. Scope. - x x x xWhen the information sought to be disclosed is necessary in order to carry out the functions of public authority, which includes the processing of personal data for the performance by the independent central monetary authority and law enforcement and regulatory agencies, then the Data Privacy Act shall not be applied. The key word here is "necessary." Thus, if the information to be disclosed by the government agency concerned is unnecessary, then the exception under the law shall not be effective. In this case, the information sought to be disclosed by the BIR through RR 1-2014 from the brokers would be the personal information of the principal stockholders, including the sensitive personal information, such as the TIN.
This Act does not apply to the following:
x x x x
(e) Information necessary in order to carry out the functions of public authority which includes the processing of personal data for the performance by the independent, central monetary authority and law enforcement and regulatory agencies of their constitutionally and statutorily mandated functions. Nothing in this Act shall be construed as to have amended or repealed Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act; Republic Act. No 6426, otherwise known as the Foreign Currency Deposit Act; and Republic Act No. 9510, otherwise known as the Credit Information System Act (CISA)[.] (emphasis supplied)
(b) The processing of the same is provided for by existing laws and regulations: Provided, That such regulatory enactments guarantee the protection of the sensitive personal information and the privileged information: Provided, further, That the consent of the data subjects are not required by law or regulation permitting the processing of the sensitive personal information or the privileged information[.][20] (emphasis supplied)Verily, the law does not simply allow the disclosure of sensitive personal information simply because an existing regulation requires it. Rather, there must also be regulatory enactment that must guarantee the protection of such sensitive personal information. The assailed provision under RR 1-2014, particularly, Sec. 2.83.3 regarding the list of payees,[21] shows that there is nothing therein that demonstrates how the regulatory agency, the BIR, will guarantee the protection of the sensitive personal information gathered regarding the principal stockholders from the brokers. There is no mechanism stated therein on how to ensure that the sensitive personal information shall be protected and safeguarded.
SECTION 2.57.1. Income Payments Subject to Final Withholding Tax. — The following forms of income shall be subject to final withholding tax at the rates herein specified:On the other hand, nonresident aliens engaged in trade or business in the Philippines were subjected to a final withholding tax of 20% on passive income received from all sources, including cash and property dividends,[5] while nonresident aliens not engaged in trade or business were subjected to a final withholding tax of 25%.[6](A) Income payments to a citizen or to a resident alien individual;
....
(5) Cash and/or property dividends actually or constructively received from a domestic corporation, joint stock company, insurance or mutual fund companies or on the share of an individual partner in the distributable net income after tax of a partnership (except general professional partnership) or on the share of an individual in the net income after tax of an association, a joint account or a joint venture or consortium of which he is a member or a co-venturer.
6% - beginning January 1, 1998
8% - beginning January 1, 1999 and
10% - beginning January 1, 2000 and thereafter
The tax on cash and property dividends shall only be imposed on dividends which are declared from profits of corporations made after December 31, 1997.
Following international best practices in trading securities, the Philippine capital market utilizes the scripless or uncertificated system for an efficient trading process. Public respondents described the trading process in the capital market as follows:
(1) Name, address and taxpayer's identification number (TlN); and (2) Nature of income payments, gross amount and tax withheld from each payee and such other information as may be required by the Commissioner.[10]
In the current market set-up in the country, an owner of certificates of stocks of listed companies who wishes to participate in the trade market delivers [their] stock certificated to a broker who enters the details of transfer into the system. The shares are electronically recorded (lodgement) into the broker's account under the name "PCD Nominee." Thereby, the scrip is forwarded to the Registry (transfer agent) where the certificate is cancelled and issued under "PCD Nominee." The deposit of shares is then confirmed in the book of entry of Philippine Depositary & Trust Corporation (PTDC) and may now be traded in the market. Considering that shares may be traded (buy and sell) several times in a given day, the Philippine Stock Exchange (PSE) matches the trade such that at the end of a given trade day, a broker may either be a net selling broker or a net buying broker. Once the trade is matched, shares are delivered from the account of the net selling broker to the account of the net buying broker. Thereby, shares are electronically transferred to the buying broker's account at the PDTC. The buying client can then uplift the shares and register it under [their] name in the shares registry. Payment can now be made by net buyers and net sellers can now receive payments.[11]Due to the current model of our capital market structure, there is no direct connection between the listed companies and the individual investor, not only for the efficiency of transactions but also for the protection of the individual investor or the beneficial owner.
SEC. 2. AMENDATORY PROVISIONS. – The pertinent provisions of Section 2.83.3 of Revenue Regulations No. 10-2008 is hereby further amended and shall be read as follows:As a result, listed companies as withholding agents could no longer list down PCD Nominee Corporation as payee of their issued dividends.
....
Section 2.83.3 Requirement for list of payees – All withholding agents shall, regardless of the number of employees and payees, whether the employees/payees are exempt or not, submit 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 (BIR Form No. 1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601C etc.), under the following modes:
(1) As attachment in the Electronic Filing and Payment System (eFPS); (2) Through Electronic Submission using the BIR's website address at esubmission@bir.gov.ph; and (3) Through Electronic Mail (email) at dedicated BIR addresses using the prescribed CSV data file format, the details of which shall be issued in a separate revenue issuance.
In cases where any withholding agent does not have its own internet facility or unavailability or commercial establishments with internet connection within the location of the withholding agent, the alphalist prescribed herein may be electronically mailed (e-mail) thru the e-lounge facility of the nearest revenue district office or revenue region of the BIR.
The submission of the herein prescribed alphalist where the income payments and taxes withheld are lumped into one single amount (e.g. "Various employees", "Various payees", "PCD nominees", "Others", etc.) shall not be allowed. The submission thereof, including any alphalist that does not conform with the prescribed format thereby resulting to the unsuccessful uploading into the BIR system shall be deemed not as received and shall not qualify as a deductible expense for income tax purposes.
Accordingly, the manual submission of the alphabetical lists containing less than ten (10) employees/payees by withholding agents under Annual Information Returns BIR Form No. 1604CF and BIR No. 1604E shall be immediately discontinued beginning January 31, 2014 and March 1, 2014, respectively, and every year thereafter. (Emphasis supplied)
What then is the standard of due process which must exist both as a procedural and as substantive requisite to free the challenged ordinance, or any government action for that matter, from the imputation of legal infirmity; sufficient to spell its doom? It is responsiveness to the supremacy of reason, obedience to the dictates of justice. Negatively put, arbitrariness is ruled out and unfairness avoided. To satisfy the due process requirement, official action, to paraphrase Cardozo, must not outrun the bounds of reasons and result in sheer oppression. Due process is thus hostile to any official action marred by lack of reasonableness. Correctly has it been identified as freedom from arbitrariness. It is the embodiment of the sporting idea of fair play. It exacts fealty "to those strivings for justice" and judges the act of officialdom of whatever branch "in the light of reason drawn from considerations of fairness that reflect [democratic] traditions of legal and political thought." It is not a narrow or "technical conception with fixed content unrelated to time, place and circumstances," decisions based on such a clause requiring a "close and perceptive inquiry into fundamental principles of our society." Questions of due process are not to be treated narrowly or pedantically in slavery to form or phrases.[19] (Citations omitted)Due process encompasses both substantive due process and procedural due process. Substantive due process embodies the "sporting idea of fair play"[20] and "inquires whether the government has sufficient justification for depriving a person of life, liberty, or property."[21] On the other hand, procedural due process concerns government processes when they intrude "into the private sphere"[22] and generally pertains to the requirement of notice and hearing. Medenilla v. Civil Service Commission[23] summarizes procedural due process as
the right of the person affected thereby to be present before the tribunal which pronounces judgment upon the question of life, liberty, and property in its most comprehensive sense; to be heard, by testimony or otherwise, and to have the right of controverting, by proof, every material fact which bears on the question of the right in the matter involved.[24] (Citation omitted)I concur with the ponencia that the issuances are covered by the notice and hearing requirement for their validity because they are not merely internal issuances.[25]
Section 2. List of PDTC Accounts and corresponding Shareholdings.The issuances also saddled the listed companies with the new tasks of safeguarding the personal details of individual investors and forwarding these to the Bureau of Internal Revenue for its "taxpayer database."[28] This is even if those details were entrusted by the individual investors only to their broker dealers. No concomitant safeguards were also introduced by public respondents to ensure that the personal details divulged to the listed companies would only be used for their intended purpose.
The Philippine Depository and Trust Corporation (PDTC) shall prepare an alphalist of all depository account holders and the total shareholdings in each of the accounts and sub-accounts as of Record Date upon receiving information on a dividend declaration.
PDTC shall provide the issuer or its authorized Transfer Agent with the alphalist and all the depository account holders with their respective shareholdings as reflected in their depository accounts and sub-accounts, if any, not later than 12:00 noon of the day following such Record Date.
Section 3. List of Payees and corresponding Shareholdings.
All depository account holders which are registered broker dealers and which hold shares, for the account of their clients or for their own account, and which are payees of dividend declared by the Issuer/ Paying Company shall prepare an alphalist showing the total shareholding of each account and sub-account belonging to these payees and the dealer account as of Record Date. In determining the alphalist, the broker dealers shall take into account the Philippine Stock Exchange's (PSE) conventions on transactions effected during cum and ex-dates.
The broker dealers shall also ensure that the account balances are consistent with the respective balances as reflected in the PDTC alphalist of depository account holders and corresponding total shareholdings.
The broker dealer alphalist shall provide the following information. (Please refer to the attached format – Annex A):The broker dealers shall submit the alphalist certified true and correct by their President and the Head of the Settlement Unit in soft and hard copies to the Issuer or its authorized Transfer Agent not later than three (3) days from the Record Date.[27]
- Name of Client/Payee (Last Name, First Name, Middle Name for Individuals, complete name for non-individuals)
- Tax Identification Number (TIN)
- Address of Payee
- Status (Residence/Nationality)
- Total Shareholding
- Birth date (for individuals)/ Registration Number (for nonindividuals)
No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.[33]In Morfe v. Mutuc,[34] this Court recognized the fundamental right to privacy, or the "right to be let alone,"[35] to be independent from the right to libe1iy and, "in itself, ... is fully deserving of constitutional protection:"[36]
There is much to be said for this view of Justice Douglas: "Liberty in the constitutional sense must mean more than freedom from unlawful governmental restraint; it must include privacy as well, if it is to be a repository of freedom. The right to be let alone is indeed the beginning of all freedom." As a matter of fact, this right to be let alone is, to quote from Mr. Justice Brandeis "the most comprehensive of rights and the right most valued by civilized [individuals]."[37]The right to privacy and its other facets[38] are also expressly protected in various provisions of the Bill of Rights:
Section 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.As the right to privacy is a fundamental right guaranteed by the Constitution, the State has the burden of proving that its intrusion into the zones of privacy is "justified by some compelling state interest and that it is narrowly drawn."[40]
Section 2. The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized.
Section 3. (1) The privacy of communication and correspondence shall be inviolable except upon lawful order of the court, or when public safety or order requires otherwise as prescribed by law.
....
Section 6. The liberty of abode and of changing the same within the limits prescribed by law shall not be impaired except upon lawful order of the court. Neither shall the right to travel be impaired except in the interest of national security, public safety, or public health, as may be provided by law.
....
Section 8. The right of the people, including those employed in the public and private sectors, to form unions, associations, or societies for purposes not contrary to law shall not be abridged.
....
Section 17. No person shall be compelled to be a witness against himself.[39]
Zones of privacy are recognized and protected in our laws. Within these zones, any form of intrusion is impermissible unless excused by law and in accordance with customary legal process. The meticulous regard we accord to these zones arises not only from our conviction that the right to privacy is a "constitutional right" and "the right most valued by civilized [individuals]," but also from our adherence to the Universal Declaration of Human Rights which mandates that, "no one shall be subjected to arbitrary interference with his privacy" and "everyone has the right to the protection of the law against such interference or attacks."To determine if the right to privacy has been violated, courts must assess if there was a reasonable expectation of privacy and if there was a violation of this expectation.
Our Bill of Rights, enshrined in Article III of the Constitution, provides at least two guarantees that explicitly create zones of privacy. It highlights a person's "right to be let alone" or the "right to determine what, how much, to whom and when information about [themselves] shall be disclosed." Section 2 guarantees "the right of the people to be secure in their persons, houses, papers and effects against unreasonable searches and seizures of whatever nature and for any purpose." Section 3 renders inviolable the "privacy of communication and correspondence" and further cautions that "any evidence obtained in violation of this or the preceding section shall be inadmissible for any purpose in any proceeding."[42]
(a) Information about any individual who is or was an officer or employee of a government institution that relates to the position or functions of the individual, including:The personal information sought from petitioners are not for purposes of tax administration or tax collection. Instead, they will be collected for the Bureau of Internal Revenue to create a taxpayer database to "[establish] simulation model, [formulate] analytical framework for policy analysis, and [institutionalize] appropriate enforcement activities."[48](1) The fact that the individual is or was an officer or employee of the government institution;(b) Information about an individual who is or was performing service under contract for a government institution that relates to the services performed, including the terms of the contract, and the name of the individual given in the course of the performance of those services;
(2) The title, business address and office telephone number of the individual;
(3) The classification, salary range and responsibilities of the position held by the individual; and
(4) The name of the individual on a document prepared by the individual in the course of employment with the government;
(c) Information relating to any discretionary benefit of a financial nature such as the granting of a license or permit given by the government to an individual, including the name of the individual and the exact nature of the benefit;
(d) Personal information processed for journalistic, artistic, literary or research purposes;
(e) Information necessary in order to carry out the functions of public authority which includes the processing of personal data for the performance by the independent, central monetary authority and law enforcement and regulatory agencies of their constitutionally and statutorily mandated functions. Nothing in this Act shall be construed as to have amended or repealed Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act; Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act; and Republic Act No. 9510, otherwise known as the Credit Information System Act (CISA);
(f) Information necessary for banks and other financial institutions under the jurisdiction of the independent, central monetary authority or Bangko Sentral ng Pilipinas to comply with Republic Act No. 9510, and Republic Act No. 9160, as amended, otherwise known as the Anti-Money Laundering Act and other applicable laws; and
(g) Personal information originally collected from residents of foreign jurisdictions in accordance with the laws of those foreign jurisdictions, including any applicable data privacy laws, which is being processed in the Philippines.[47]
It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard-earned income to the taxing authorities, every person who is able to must contribute [their] share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.[59]Commissioner of Internal Revenue v. Central Luzon Drug Corporation[60] describes the power to tax as the "most effective tool to realize social justice, public welfare, and the equitable distribution of wealth."[61] This leaning toward social justice and redistribution of wealth finds its mooring in the Constitution. The fundamental law emphasizes "the requirements of social justice and the necessity for a redistribution of the national wealth and economic opportunity"[62] with the goal of a national economy that has an "equitable distribution of opportunities, income, and wealth."[63] This thrust toward social justice is further highlighted in Article XIII:
Section 1. The Congress shall give highest priority to the enactment of measures that protect and enhance the right of all the people to human dignity, reduce social, economic, and political inequalities, and remove cultural inequities by equitably diffusing wealth and political power for the common good.The power to tax vis-à-vis social justice is seen in acts of Congress that accord preferential treatment to specific groups that contribute to the economic development of marginalized sectors of society, thereby bringing a positive effect to the real economy.[64] In direct contrast, the financial sector, with its primary focus on internal trading, is of little benefit to anyone except for the bankers themselves.
To this end, the State shall regulate the acquisition, ownership, use, and disposition of property and its increments.
Notice, hearing, registration, and publication requirements for legislative rules |
(i) | Justice Brion categorically defined legislative rule as inclusive of interpretative rules, that is, the latter being a mere subset of the former; and |
(ii) | Justice Brion clearly identified the circumstances that triggered the requirements of prior registration, publication, notice and hearing. |
There is something basically wrong with that manner of explaining changes in administrative rules. For one, it does not really provide a good basis for change. For another, those affected by such rules must be given a better explanation why the previous rules are no longer good enough. As the Court has said in one case:Justice Brion's Separate Concurring Opinion astutely observed, correcting in large measure the ponencia's understanding of the applicable precedents, that regardless of whether an administrative rule imposes a heavy or substantial burden, Book VII, Chapter 2, Sections 3, 4, and 9 of the Administrative Code of 1987 requires not only prior notice and hearing but also filing or registration and publication:
While stability in the law, particularly in the business field, is desirable, there is no demand that the NTC slavishly follow precedent. However, we think it essential, for the sake of clarity and intellectual honesty, that if an administrative agency decides inconsistently with previous action, that it explain[s] thoroughly why a different result is warranted, or if need be, why the previous standards should no longer apply or should be overturned. Such explanation is warranted in order to sufficiently establish a decision as having rational basis. Any inconsistent decision lacking thorough ratiocination in support may be struck down as being arbitrary. And any decision with absolutely nothing to support it is a nullity.
What the COMELEC came up with does not measure up to that level of requirement and accountability which elevates administrative rules to the level of respectability and acceptability. Those governed by administrative regulations are entitled to a reasonable and rational basis for any changes in those rules by which they are supposed to live by, especially if there is a radical departure from the previous ones.x x x x
While it is true that the COMELEC is an independent office and not a mere administrative agency under the Executive Department, rules which apply to the latter must also be deemed to similarly apply to the former, not as a matter of administrative convenience but as a dictate of due process. And this assumes greater significance considering the important and pivotal role that the COMELEC plays in the life of the nation. Thus, whatever might have been said in Commissioner of Internal Revenue v. Court of Appeals, should also apply mutatis mutandis to the COMELEC when it comes to promulgating rules and regulations which adversely affect, or impose a heavy and substantial burden on, the citizenry in a matter that implicates the very nature of government we have adopted. (Emphases supplied)
SECTION 3. Filing. – (1) Every agency shall file with the University of the Philippines Law Center three (3) certified copies of every rule adopted by it. Rules in force on the date of effectivity of this Code which are not filed within three (3) months from that date shall not thereafter be the basis of any sanction against any party or persons.For purposes of these provisions, Book VII, Chapter 1, Section 2(2) defines a rule as being inclusive of interpretative rules:
(2) The records officer of the agency, or his equivalent functionary, shall carry out the requirements of this section under pain of disciplinary action.
(3) A permanent register of all rules shall be kept by the issuing agency and shall be open to public inspection.
SECTION 4. Effectivity. – In addition to other rule-making requirements provided by law not inconsistent with this Book, each rule shall become effective fifteen (15) days from the date of filing as above provided unless a different date is fixed by law, or specified in the rule in cases of imminent danger to public health, safety and welfare, the existence of which must be expressed in a statement accompanying the rule. The agency shall take appropriate measures to make emergency rules known to persons who may be affected by them.x x x x
SECTION 9. Public Participation. – (1) If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.
(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon.
(3) In case of opposition, the rules on contested cases shall be observed. (Emphases supplied)
(2) "Rule" means any agency statement of general applicability that implements or interprets a law, fixes and describes the procedures in, or practice requirements of, an agency, including its regulations. The term includes memoranda or statements concerning the internal administration or management of an agency not affecting the rights of, or procedure available to, the public. (Emphasis supplied)According to Justice Brion, Sections 3, 4, and 9 are triggered –
x x x when an agency issues a legislative rule [which includes interpretative rules], the issue of whether compliance with the notice and hearing requirement was 'practicable' under the circumstances might depend on the extent of the burden or the adverse effect that the new legislative rule imposes on those who were not previously heard. Effectively, this is the rule that assumes materiality in the case x x x (Emphasis supplied)This case law embodies the principles of the spectrum or sliding scale approach I have mentioned above.
If notice, hearing, and publication are required, the reviewing court moves on to the next step of determining the precise content of the required notice, hearing, and publication.
- The nature of the rule to be made by the administrative body, i.e., whether a purely legislative or interpretative rule or somewhere between them;
- The relationship existing between that administrative body and the individual or individuals affected, i.e., has there been ample representation of the latter in the discharge of the former's mandate, have these individuals impacted by the rule been historically marginalized or underrepresented, among others; and
- The effect of that rule on the individual's rights, i.e., were their legitimate expectations of the individuals that have been overturned by the rule, have the affected individual's rights, privileges or interests been further curtailed or marginalized, has the individual been oppressed to a greater degree, among others.
Applying the spectrum or sliding scale approach to the issuances in question. |
SECTION 4. Scope. – This Act applies to the processing of all types of personal information and to any natural and juridical person involved in personal information processing including those personal information controllers and processors who, although not found or established in the Philippines, use equipment that are located in the Philippines, or those who maintain an office, branch or agency in the Philippines subject to the immediately succeeding paragraph: Provided, That the requirements of Section 5 are complied with.While the personal information sought to be collected and processed are not directly necessary for the assessment and collection of withholding taxes on the income on dividend payments, they are nonetheless relevant to the creation of an expanded and effective tax database for the Bureau of Internal Revenue's purposes.
This Act does not apply to the following:x x x x
(e) Information necessary in order to carry out the functions of public authority which includes the processing of personal data for the performance by the independent central monetary authority and law enforcement and regulatory agencies of their constitutionally and statutorily mandated functions. Nothing in this Act shall be construed as to have amended or repealed Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act; Republic Act. No 6426, otherwise known as the Foreign Currency Deposit Act; and Republic Act No. 9510, otherwise known as the Credit Information System Act (CISA) x x x (Emphasis supplied)