Petition For Review On Certiorari

REPUBLIC OF THE PHILIPPINES
SUPREME COURT
Manila
SECOND DIVISION
DEPARTMENT OF FINANCE
(OOF), represented by its
SECRETARY AN·D THE
BUREAU OF INTERNAL
REVENUE (BIR)
represented by its
COMMISSIONER,
Petitioners,
- versus - G.R. No. 240163

(~ivil Case Nos. 15-287, 15-291 & 15-411)
ASIA UNITED BANK, BOO

UNIBAN.K, INC., BANK OF
AMERICA, BANK' OF
COMMERCE, BOO PRIVATE
BANK, 'INC., CITIBANK,
N.A., PHILIPPINE CHINA
BANKING CORPORATION,
CHINATRUST (PHILS.)
COMMERCIAL BANK
CORPORATION, DUETSCHE
BANK AG, MANILA
BRANC~, EASTWEST
BANKING CORPORATION ,
ING BANK N.V., MANILA
BRANCH, PHILIPPINE
BANK OF
COMMUNICATIONS,.
PHILIPPINE NATIONAL
BANK, PHILIPPINE
VETERANS BANK, PNB
SAVINGS BANK, RIZAL
COMMERCIAL BANKING
CORPORATION, SECURITY
BANK CORPORATION,
8,80:0
5,5332-
5r83G)
, \
~. Petition for Review

DOF & BIRvs. AUB, et al.,
G.R.240163
(Civil Case Nos. 15-287, 15-291 and 15-411)
x------------------------------------------------------x
STANDARD CHARTERED
BANK, PHILIPPINE
BRANCH, UNITED
COCONUTPLANTERSBAN~
HONGKONG SHANGHAI
BANKING CORPORATION
LIMITED-PHILIPPINE
BRANCHES, HSBC SAVINGS
BANK (PHILIPPINES),
INC., KOREA EXCHANGE
BANK, MANILA BRANCH,
lPMORGAN CHASE BANK,
N.A., PHILIPPINE BRANCH,
BANK OF AMERICA, UNITED.
OVERSEAS BANK
PHILIPPINES, LAND BANK
OF THE PHILIPPINES,
DEVELOPMENT BANK OF
THE PHILIPPINES, BANK
OF THE PHILIPPINE
ISLANDS, BPI DIRECT
SAVINGS BANK, .
METROPOLITAN BANK &
TRUST COMPAN~
UNION BANK OF THE
PHILIPPINES, AND BOO
CAPITAL AND INVESTMENT
CORPORATION,
Respondents ..
x------------------------------x .
PETITION FOR REVIEW

ON CERTIORARI
PETITIONERS THE DEPARTMENT OF FINANCE

(DOF),represented by its SECRETARY AND THE BUREAU
OF INTERNAL REVENUE (BIR), represented by its
Page 2
'. Petition for Review
DOP & BIRvs. AUB, et at.,
G.R.240163
x------------------------------------------------------x
COMMISSIONER, through the Office of the Solicitor General

(OSG), unto the Honorable Court, respectfully state:
NATURE OF THE PETITION
1. This is a Petition for Review on Certiorari under Rule

45 of the Rules of Court, raising pure questions of law, which
seeks to annul, reverse and/or set aside the Order dated May
25, 2018 1 of Branch 57, Regional Trial Court in Makati City.
2.
The subject order' granted the· petition for
declaratory relief filed by respondents, and declared null and
void Revenue Regulation eRR) No. 4-2011 2 for being issued
beyond the authority of the Secretary of Finance and
Commissioner of Internal Revenue. The order likewise made
permanent the Writs of Preliminary Injunction issued on April
25, 2015 and February 28, 2018 ..
3. Briefly, RR No. 4-2011·' established rules on the

allocation of cost and expenses between the Regular Banking
Unit (RBU) or Foreign Currency Deposit Unit/Expanded
Foreign Currency Deposit Unit (FCDU/EFCDU) or Offshore
Banking Unit (OSU) Operations of depository banks. RR No.
4-2011 prescribed that all costs and expenses should be
allocated between the RBU and FCDU/EFCDU or OBU either
by specific identification or by allocation of common expenses
based on the percentage share'of gross income earning of a
unit to the total gross income earnings subject to regular
income tax and final tax, including those exempt from income
tax.
STATEMENT OF MATERIAL DATES
4. On June 25, 2018, petitioners, through the OSG,

received the Order dated May 25, 2018 of Judge Honorio E.
Guanlao, Jr., Presiding Judge of Branch 57, Regional Trial
1A duplicate original of the Order dated May 25, 2018 is hereto attached as ANNEX A.
2 Proper Allocation of Costs and Expenses Amongst Income Earnings of Banks and Other Financial
Institutions for Income Tax Reporting Purposes; a copy of which is hereto attached as ANNEX B.
Page 3
G.R.240163
x ------------------------------------------------------X
Court in Makati City, in Civil Case Nos. 15-287, 15-291 and

15-411.
5. Under Section 2, Rule 45 of the Rules of Court,

petitioners had fifteen (15) days from June 25, 2018 or until
July 10, 2018 within which to appeal before this Honorable
Court via a Petition for Review on Certiorari the Order'dated
May 25, 2018 of the Branch 57, Regional Trial Court in Makati
City.
6. Due to the heavy pressure of work in other equally

urgent cases, as well as the needed coordination with the DOF
and BIR, the undersigned were constrained to file a Motion for
Additional Time to file Petition for Review on Certiorari on July
10, 2018, praying for an additional period of thirty (30) days
from said date, or until 'August 9, 2018, within which to file
the Petition for Review on Certiorari
7. Accordingly, this Petition for Review on Certiorari is

being filed within the extended period prayed for, or until
August 9, 2018.
PARTIES
8. Petitioner DOF is the government agency

responsible for the formulation, institutionalization and
administration of fiscal poliCies in coordination ,with other
concerned subdivisions, agencies and instrumentalities of
government. It has the responsibility of generating and
managing the financial resources of government, ensuring
that said resources are generated and managed judiciously
and in a manner supportive of development objectives. 3
9. Petitioner SIR is vested with the assessment and

collection of all national internal revenue taxes, fees,' and'
charges, and the enforcement of all forfeitures, penalties, and
fines connected therewith.4
3Executive Order No. 292 or the Administrative Code of 1987 -Section 2, Chapter 1, Title II of Book IV. '
4ExeCl~tive Order No. 292 or the Administrative Code of 1987 -Section 18, Chapter 4, Title II of Book IV;
Repubbc Act No. 8424 or the National Internal Revenue Code of 1987 - Section 2 of Title 1.
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'~ Petition for Review

DOF & BIRvs. A UB, et al.,
G.R.240163
x-------------------"'----------------------------------X
10. The DOF and the SIR may be served with

appearances, pleadings, motions, notices, resolutions and
other judicial processes through the Office of the Solicitor
General (OSG) at 134 Amorsolo. St., Legaspi Village, Makati
City.
11. Respondent Asia United Bank (AUB) is a local

banking institution incorporated and organized under
Philippine laws. It may be served with notices and judicial
processes through its counsel of record, Defante and Pacis
Law Office, at 32 nd Floor, Joy-Nolstag Center, 17 ADB Avenue,
Ortigas Center, Pasig City.
12. Respondents BDO Unibank, Inc. (BDO Unibank),.

Bank of Commerce (BoC), BDO Private Bank, Inc. (BOO
Private), Respondent BDO Capital and Investment
Corporation (BDO Capital),China Banking Corporation (China
Sank), Chinatrust (Phils.) Commercial Bank Corporation
(Chinatrust), East West Banking Corporation (East West),
Philippine Bank of Communications (PBCom), Philippine
National Bank (PNB), Philippine Veterans Bank (Veterans
Bank), PNB Savings Bank (PNB Savings), Rizal Commercial
Banking Corporation (RCBC), Security Bank Corporation
(Security Bank), Metropolitan Bank & Trust Company
(Metrobank), UnionBank of the Philippines (UnionBank), and
United Coconut Planters Bank (UCPB) are local banking
institutions incorporated and organized under Philippine laws.
13. Respondent Citibank Philippines, is the duly

registered Philippine branch of Citibank N.A., a foreign
banking institution incorporated under the laws of the United
States of America (U.S.A.)
14. Respondent Deutsche Manila is the duly registered

Philippine branch of Deutsche Bank AG, a foreign banking
institution incorporated under the laws of Germany ..
15. Respondent ING Manila· is the duly registered

Philippine branch of ING· Bank N.V., a foreign banking
PageS
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Petition for Review

G.R.240163
x------------------------------------------------------x
institution duly organized and existing under the laws of the

Netherlands.
16. Respondent Standard Chartered Bank, Philippines

(SCB) is the duly registered Phil'ippine branch of Standard
Chartered Bank, a foreign banking institution duly organized
and existing under the laws of England.
17. Respondent Hongkong Shanghai Banking

Corporation Limited - Philippine Branches (HSBC Ltd.) is a
banking corporation organized and existing under the laws of
Hongkong and licensed to do business in the Philippines.
18. Respondent HSBC Savings Bank, Philippines, Inc.

(HSBC Savings) is a local banking institution incorporated and
organized in the Philippines.
19. Respondent Korea Exchange Bank, Manila Branch

(KBank) is a banking corporation organized and existing
under the laws of the Republic of Korea and licensed to do
business in the Philippines.
20. Respondent JPMorgan Chase Bank, N.A., Philippine

Branch (JPCMB) is a national banking association organized
and existing under the laws of the U.S.A., and licensed to do
business in the Philippines.
21. The above respondents may be served with notices

and judicial processes through counsel of record, the Angara
Abello Concepcion Regala and Cruz Law (ACCRA LAW) Offices,
at 22 nd Floor, AC,CRALAW Tower, 2nd Avenue corner 30 th
Street, Crescent Park West, Bonifacio Global City, Taguig City.
22. Respondent Bank of America (BofA) Philippines is

the duly registered Philippine branch of the Bank of America,
a foreign banking institution incorporated under the laws of
Delaware, U.S.A. It may be served with notices and judicial
processes at 27th Floor, Philamlife Tower, 8767 Paseo de
Roxas, Makati City.
Page 6
· II
c'( lletition for Review

DOF & BIRvs. A UB, et af.,
G.R.240163
x-------------'------------------------------------------x
23. Respondent United Overseas Bank Philippines

(UOBP), now UOBP Collections, Inc. was a local banking
institution incorporated and organized under the laws of the
Philippines prior to the transfer of its banking license to UOB
Manila in 2015. It may be served with notices and judicial
processes through its counsel of record, Tan Concepcion and
Que at Suites 1501-1502, The Orient Square Building F.
Ortigas Jr. Road, (formerly Emerald Avenue) Ortigas Center,
Pasig City.
24. Respondent Land Bank of the Philippines (LBP) is a

body corporate and a government banking and financial
institution created and existing under and by virtue of
Republic Act No. 3844, as amended. It may be served with
notices and judicial processes through its Legal Services
Group-Litigation Department at 31 st Floor, Landbank Plaza,
1598 M.H. Del Pilar cor. Dr. J. Quintos Sts., Malate, Manila.
25. Respondent Development Bank of the Philippines

(DBP) is a government financial institution operating pursuant
to Executive Order No. 81, as amended, (The Revised Charter
of the DBP), It may be served with notices and judicial
processes through its Legal Services Group at 10th Floor, DBP
Building, Sen. Gil J. Puyat Avenue, Makati City.
26. Respondent Bank of the Philippine Islands (BPI) is

a corporation organized and existing under and by virtue of
the laws of the Republic of the Ph'ilippines while respondent
BPI Direct Savings Bank (BPI Direct) is a corporation wholly-
owned subsidiary of the BPI and likewise existing under and
by virtue of the laws of the Republic of the Philippines. They
may be served with notices and judicial processes through
counsel -of record, BPI Legal Affairs and Dispute Resolution
Division, at 14th Floor, BPI Building, Ayala Avenue corner
Paseo de Roxas, Makati City.
27. The above respondents are banks or financial

institutions with retail banking units (RBU) and foreign
currency deposit units (FCDU) that are covered by the subject
RR No. 4-2011.
Page 7
'~ Petition for Review
DOF & BIRvs. AUB, et ai.,
G.R: 240163
x------------------------------------------------------x
STATEMENT OF THE FACTS

AND PROCEEDINGS
28. On March 15, 2011, respondent Secretary of the

Department of Finance upon the recommendation of
respondent Commissioner of the Bureau of Internal Revenue
promulgated Revenue Regulations (RR) No. 4-2011 5 with the
subject "Proper Allocation of Costs and Expenses Amongst
Income Earnings of Banks and Other Finan cia I Institutions for
Income Tax Reporting Purposes. "
29. RR No. 4-2011 aims to set the rules on the

,allocation of cost and expenses between the Regular Banking
Unit (RBU) or Foreign Curr~ncy Deposit. Unit/Expanded
Foreign Currency Deposit Unit (FCDU/EFCDU) or Offshore
Banking Unit (OBU) Operations of a depository bank in view
of the fact that the RBU. and FCDU/EFCDU or OBU are
governed by a different income taxation regime under the
National Internal Revenue Code.
30. RR No. 4-2011 requires that all costs and expenses

should be allocated between the RBU and FCDU/EFCDU or
OBU either by specific identification or by allocation of
common expenses based on the percentage share of gross
income earning of a unit to the total gross income earnings
subject to regular income tax and final tax, including those
exempt from income tax.
31. In February and March 2015, petitioner SIR sent

Letter Notices, Preliminary Assessment Notices and Final
Assessment Notices to respondent banks for deficiency
income taxes during the taxable year 2011 arising from the
failure to allocate costs and expenses pursuant to RR 4-2011.6
32. Despite the issuance of these notices, respondent

banks filed the subject petitions directly before the Regional
5Annex B.
6P. 11, Almex A.
PageS
Petition for Review
G.R.240163
x------------------------------------------------------ x
Trial Court, alleging that RR No. 4-2011 is unconstitutional

and/or invalid. 7
33. After notice and hearing, the RTC issued an order

dated April 8, 2015, enjoining the enforcement or
implementation of RR No. 4-2011 on the ground that the
same may violate the rights of 'respondent banks and affect
the entire banking industry, as well as the failure of RR No. 4-
2011 itself to supply the basis for its issuance. s
34. On April 27, 2015, the RTC issued an order granting

the application for the issuance of a writ of preliminary
injunction. 9
35. During pre-trial, the parties agreed that the issue

involved in this action is purely legal, involving the validity of
RR No. 4-2011. Thus, the parties moved for the submission
of their respective memoranda in lieu of trial. 10
36. After the submission of the respective memoranda,

the RTC eventually issued the assailed order declaring RR No.
4-2011 as null and void for being issued beyond the authority
of petitioners Secretary of Finance and Commissioner of
Internal Revenue. The dispositive portion of the order reads:
WHEREFORE, in view of the foregoing premises, the

Petition for Declaratory Relief in Spa Civil Action No. 15-287
and the Petition in Civil Case No. 15-291 are GRANTED.
Revenue Regulation No. 4-2011 is hereby declared NULL
AND VOID for being issued beyond the authority of the
Secretary of Finance arid Commissioner of Internal
Revenue. The Writs of Preliminary Injunction issued qn
April 25, 2015 and February 28, 2018, respectively, are
hereby MADE PERMANENT.
SO ORDERED.
7P.l,id.
8 P. 3, id.
9Id.
10 P. 5, id.
Page 9
"
DOF & BIRvs. AUB, et af.,
G.R.240163
x-------------------'-----------------------------------x
37. Hence, this petition for review on certiorari raising

pure questions of law on the ground that the RTC has decided
a question of substance not in accordance with law or with the
applicable decisions of the Honorable Court.,
GROUNDS FOR ALLOWANCE OF THE PETITION
THE RTC ERRED IN RULING THAT IT HAD

JURISDICTION OVER THE ,PETITIONS
ASSAILING THE VALIDITY OF RR NO. 4-2011,
SINCE UNDER REPUBLIC ACT NO. 1125, AS
AMENDED, THE CTA HAS EXCLUSIVE
JURISDICTION TO DETERMINE THE
CONSTITUTIONALITY OR VALIDITY OF TAX
LAWS, RULES AND . REGULATIONS, AND
OTHER ADMINISTRATIVE ISSUANCES Of THE
COMMISSIONER OF INTERNAL REVENUE.
II
RR NO. 4-2011' IS A VALID REGULATION

ISSUED BY THE DOF AND BIR, CONSISTENT
WITH THEIR MANDATE TO ISSUE RULES AND
REGULATIONS INT'ERPRETING AND
IMPLEMENTING THE NATIONAL INTERNAL
REVENUE CODE.
DISCUSSION
I. The RTC had no

jurisdiction to take
cognizance over the
petitions assailing the
Page 10
Petition for Review
G.R.240163
x ------------------------------------------------------x
validity of RR No. 4-
2011.
38. The petitions assailing the validity of RR No. 4-2011

should have been dismissed by the RTC on the ground of lack
of jurisdiction.
39. Section 7 of Republic Act (RIA.) No. 1125,11 as

amended, explicitly vests upon the eTA exclusive appellate
jurisdiction to review other matters arising under the National
Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue:
Section 7. Jurisdiction. - the eTA shall exercise:
(a) Exclusive appellate jurisdiction to review. by

appeal, as herein provided:
1) Decisions of the Commissioner of Internal

Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue;
2) Inaction by the Commissioner of Internal

Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties
in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered
by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action,
in which case the inaction shalf be deemed a denial;
3) DeCiSions, orders or resolutions of the Regional

Trial Courts in local tax cases originally decided or resolved
by them in' the exercise of their original 'or appellate
jurisdiction;
4) Decisions of the Commissioner of Customs in

cases involving liability for customs duties, fees or other
llAn Act Creating the Court of Tax Appeals.
Page 11
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" Petition for Review
G.R.240163
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money charges, seizure, detention or release of property

affected, fines, forfeitures or other penalties in relation
thereto, or other matters arising under the Customs Law or
other laws administered by the Bureau of Customs;
5) Decisions of the Central Board of Assessment

Appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and tax,ation of real property
originally decided by the provincia~l or city board of
assessment appeals; l
il3'
6) Decisions of the Secret~ry 'of Finance on

customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are
adverse to the Government under Section 2315 of the Tariff
and Customs Code;
7) Decisions of the Secretary of Trade and

Industry, in the case of nonagricultural:· product, commodity
or article, and the Secretary of Agriculture in the case of
agricultural product, commodity or article, involving
dumping and countervailing duties under Section 301 and
302, respectively, of the Tariff and Customs Code, and
safeguard measures under Republic Act No. 8800, where
either party may appeal the decision to impose or not to
impose said duties.
40. In Banco De Oro vs. Republic,12 the Honorable

Court has categorically declared that the Court of Tax Appeals
(CTA) has llexclusive jurisdiction to determine the
constitutionality or validity of tax laws, rules and
regulations, and other administrative issuances of the
Commissioner of Internal Revenue. "Thus:
We revert to the earlier rulings in Rodriguez, Leal, and

Asia International Auctioneers, Inc. The Court of Tax
Appeals has exclusive jurisdiction to determine the
Commissioner of Internal Revenue.
12 G.R. No. 198756, August 16,2016,800 SCRA 392 ..
Page 12
Petition for Review
DOP & BIRvs. AUB, et ai.,
G.R.240163
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The' Court of Tax Appeals has undoubted jurisdiction

to pass upon the constitutionality or validity of a tax law or
regulation when raised by the taxpayer as a defense in
disputing or contesting an assessment or claiming a refund.
It is only in the lawful exercise 'of its power to pass upon all
matters brought before it, as sanctioned by Section 7 of
Republic Act No. 1125, as amended.
This Court, however, declares that the Court of Tax

Appeals may likewise take cognizance of cases
directly challenging the constitutionality or validity of
a tax law or regulation or administrative issuance
(revenue orders, revenue memorandum circulars,
rulings).
Republic Act No. 9282, a special and later law

than Batas Pambansa Big. 129 provides an exception
to the original jurisdiction of the Regional Trial Courts
over actions Questioning the constitutionality or
validity of tax laws or regulations. Except for loc,al tax
cases, actions directly challenging the
constitutionality or validity of ~ tax law or regulation
or administrative issuance may be filed directly
before the Court of Tax Appeals.
Furthermore, with respect to administrative issuances

(revenue orders, revenue memorandum circulars, or
rulings), these are issued by the Commissioner under its
power to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws.
Tax rulings, on the other hand, are official positions of the
Bureau on inquiries of taxpayers who request clarification
on certain provisions of the National Internal Revenue Code,
other tax Jaws, or their implementing regulations. Hence,
the determination of the validity of these issuances'
clear'ly falls within the exclusive appellate jurisdiction
of the Court of Tax Appeals under Section 7 (1) of
Republic Act No. 1125, as amended, subject to prior
review by the Secretary of Finance, as required under
Republic Act No. 8424.13
13 Emphasis and' underscoring supplied.
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Petition for Review
DOF & BIRvs. A UB, et af.,
G.R.240163
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41. Indeed, as clearly expounded in the above decision,

the CTA has "exclusive jurisdiction to determine the
Commissioner of Internal Revenue".
42. Further reading of Banco De Oro vs. Repub lic 14 ii
reveals that the same did not limit the jurisdiction of the eTA
to quasi-judicial cases only. The above discussion in Banco
De Oro vs. Republic 15 clearly refers to tax laws, rules .and
regulations, and other administrative" issuances of the
Commissioner of Internal Revenue being subject to the
exclusive appellate jurisdiction of the CTA. Banco De Oro vs.
Republic even declared that the jurisdiction conferred by
R.A. No. 9282 upon the eTA is "an exception to the origrjrial
jurisdiction of the Regional Trial Courts over actions
questioning the constitutionality or validity of tax laws
or regulations"- thereby recognizing the jurisdiction of the
CTA even over petitions for declaratory relief.
43. Thus, following the principles laid down in Banco

De Oro vs. Republic{ R.A. No. 1125, as arnended{ vests
upon the eTA exclusive appellate jurisdiction over both quasi-
legislative issuances and quasi-judicial cases under existing
tax laws, rules and regulations.
44. In the case at barf the subject matter, RR No. 4-

2011, is an administrative issuance by the Secretary of
Finance and Commissioner of Internal Revenue which relates
to the implementation of the provisions of the National
Internal Revenue Code on the allocation of cost and expenses
between the Regular Banking Unit (RBU) or Foreign Currency
Deposit Unit/Expanded Foreign Currency Deposit Unit
(FCDU/EFCDU) or Offshore Banking Unit (OBU) Operations of
a depository bank. Simply putt RR No. 4-2011 is a tax
regulation. \
14 G.R. No. 198756, August 16,2016, 800 SCRA 392.

15 G.R. No. 198756, August 16,2016,800 SCRA 392.
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Petition for Review
G.R.240163
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45. Inasmuch as the subJect consolidated cases assail

the validity or constitutionality of RR No. 4-2011, a tax
regulation, petitioners respectfully maintain that the same
falls within the exclusive appellate jurisdiction of the eTA
under Section 7 (1) of Republic Act No. 1125, as amended.
46. Alternatively, the cases filed before the RTC are not
proper for a petition for declaratory relief in view of the
previous issuance of PANs finding deficiency income taxes for
the taxable year 2011 arising from the failure to allocate costs
and expenses pursuant to RR No. 4-2011.
47. Declaratory relief is defined as an action by any

person interested in a deed, will, contract or other written
instrument, executive order or resolution, to determine any
question of construction or validity arising from the
instrument, executive order or regulation, or statute, and for
a declaration of his rights and duties thereunder. The only
issue that may be raised in such a petition is the question of
construction or validity of the provisions in an instrument or
statute. 16
48. It is settled that the requisites of an action for

declaratory relief are: 1) the subject matter of the controversy
must be a deed, will, contract or other written instrument,
statute, executive order or regulation, or ordinance; 2) the
terms of said documents and the validity thereof are doubtful
and require judicial construction; 3) there must have been no
breach of the documents in question; 4) there must be an
actual justiciable controversy or the "ripening seeds" of one
between persons whose interests are adverse; 5) the issue
must be ripe for judicial determination; and 6) adequate relief
is not available through other means or other forms of action
or proceeding.!7
49. The purpose of a petition for declaratory relief is to

secure an authoritative statement of the rights and
obligations of the parties under a statute, deed, contract, etc.,
16 Honesto R. Ferrer, Jr., et al. vs. Mayor Sulplcio S. Roco, G.R. No. 174129, July 5,2010 623 SeRA
313 (2010). '
17Id. .
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G.R.240163
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for their guidance in its enforcement or compliance and not to

settle issues arising from its alleged breach. It may be
entertained only before the breach or violation of the
statute, deed, contract, etc. to which it refers. Where
the law or contract has already been contravened prior
to the filing of an action for declaratory relief, the court
can no longer assume jurisdiction over the action. Under
such Circumstances, inasmuch as a cause of action has
already accrued in favor of one or the other party, there is
nothing more for the court to explain or clarify, short of a
judgment or final order.18
50. An action for declaratory relief presupPQses

that there has been no actual breach of the instruments
involved or of rights arising thereunder. Since the
purpose of an action for declaratory relief is to secure an
authoritative statement of the rights and obligations of the
parties under a statute, deed, or contract for their guidance
in the enforcement thereof, or compliance therewith, and not
to settle issues arising from an alleged breach thereof, it may
be entertained only before the' breach or violation of the
statute, deed, or contract to which it refers. A petition for
declaratory relief gives a practical remedy for ending
controversies that have not reached the state where another
relief is immediately available; and supplies the need for a
form of action that will set controversies at rest before they
lead to a repudiation of obligations, an invasion of rights, and
a commission of wrongs. 19
51. Where the law or contract has already been

contravened prior to the filing of an action for declaratory
relief, the courts can no longer assume jurisdiction over the
action. In other words, a court has no more jurisdiction over
an action for declaratory relief if its subject has already been
infringed or transgressed before the institution of the action. 20
18 Hon. Gabriel Luis Quisumbing, et al. vs. HOll. Gwendolyn F. Garcia, G.R. No. 175527, December 8,
2008, 573 SCRA 266.
19 Carmen D. Malana, et al. vs. Benigno Tappa, et ai., G.R. No. 181303, September 17,2009,600 SCRA
18 (2009). Emphasis supplied. "-
20 Ibid. Emphasis and underscoring supplied.
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G.R.240163
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52. Indisputably in, this case, the petition for

declaratory relief should be dismissed since these were' filed
only after the issuance of PANs by the BIR.
53. Upon the issuance of RR No. 4-2011 in March 2011,

respondents should have adjusted their accounting and
bookkeeping methods in accordance with the directives of the
issuance. The issuance of these PANs four (4) years later, or
in 2015, reveals the preliminary findings of the BIR that
respondents utterly failed to comply with RR No. 4-2011 in
determining their taxable income for the period 2011.
54. Simply put, this means respondents did not allocate

costs and expenses as required by the revenue regulation in
contravention of RR No. 4-2011. Hence, they already violated
the assailed issuance, which rendered the petitions for
declaratory relief unavailing under the circumstances,for want
of a vital requisite: the absence of breach prior to filing the
action.
55. In view of the issuance of the PANs, which are

based on, the assailed RR No. 4-2011, the circumstances of
the subject petitions filed before the RTC dictate that these
cases should have been brought directly before the Court of
Tax Appeals.
II. RR No. 4-2011 is a

valid regulation
issued by the OOF
and BIR, consistent
with their mandate
to issue rules and
regulations
interpreting and
implementing the
National Internal
Revenue Code.
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G.R.240163
x--------------------------------..---------------------x
56. Petitioner DOF is the agency with the mandate of

formulation, institutionalization and administration of fiscal
policies in coordination with other concerned subdivisions,
agencies and instrumentalities of the government; gen~ration
and management of the financial resources of government;
and supervision of the revenue operations of all local
government units. 21 It is the approving authority of proposed
regulations of petitioner BIR.
57. The BIR, on the other hand, is a bureau under the

DOF mandated by law to assess and collect all national
internal revenue taxes, fees and charges,. and to enforce all
forfeitures, penalties and fines connected therewith, among
others.22 To enable it to fulfill this mandate, it is authorized to
promulgate rules and regulations to interpret and implement
laws pertaining to internal revenue.
58. In this case, RR No. 4-2011 was issued by

petitioners in the exercise of their power to promulgate all
rules and regulations for the effective enforcement of the
provisions of the National Internal Revenue Code. 23 Said
revenue regulation was published in the Manila Bulletin on
March 17, 20 11. 24
59. Parenthetically, the Commissioner of the BIR is also

vested with the exclusive power to interpret the provisions of
the Code and other tax laws, subject to review by the
Secretary of Finance. 25 Thus, petitio-ners could not have
21 DOF Mandate, Department of Finance website - hlt12§jll.nyxy!_d9.[gQy'J2hLiXl,d.S:~,\:12L1p~11?.Ql!J/WJIQ:w.~:m~{.

Last accessed July 23,2018.
22 BIR Mandate, Bureau of Internal Revenue website
hUps:llww\v.bir.gov.ph/illdex.12 hp/transparcncyltransparencY.:::§.9aIlbir·-manclatc.html. Last accessed July 23,
2018.
23 National Internal Revenue Code: Section 244. Authority o/Secretary o/Finance to Promulgate Rules and
Regulations. - The Secretary of Finance, upon recomm~ndation of the Commissioner, shall promulgate all
needful rules and regulations for the effective enforcement of the provisions of this Code.
·24 https:llw\vw.birtEov.ph/index.php/archive/20 ll-revenue-regulations.html
25 Section 4. Power 0/ the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - Th~ 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.
. ~he pow~r to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penaltIes unposed 111 relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.
Page 18
.. Petition for Review
DOF & BIRvs. AUB, etal.,
G.R.240163
x------------------------------------------------------x
encroached upon any legislative power since they have the

authority to issue rules and regulations interpreting and
implementing the National Internal Revenue Code.
60. Further, as can be gleaned from RR No. 4-2011,

such revenue regulation has.a valid governmental objective:
to clearly set the rules on the allocation of cost and expenses
between the Regular Banking Unit (RBU) or Foreign Currency
Deposit Unit/Expanded Foreign Currency Deposit Unit
(FCDU/EFCDU) or Offshore Banking Unit (OBU) Operations of
a depository bank in view of the different income. taxation
regimes under the National Internal Revenue Code. This is
premised on established principles that different earnings of
banks from various operations may either be subject to the
corporate income tax rate, a final tax, or exempt from. income
taxes. 26
61. The revenue regulation undertakes to allocate

proper expenses which are deductible to the specific type of
income by a bank, primarily by specific identification, or by
allocation of common expenses incurred by a bank through a
percentage share of gross inc.ome earnings. The latter method
recognizes the fact that not all expenses j'ncurred by banks
can be identified to a specific income stream inasmuch as
there are common expenses that contribute in generating the
various earnings derived by a bank from its operations.
Among these ar~ overhead expenses, costs of equipment, and
information system, etc. that cannot be deemed exclusive to
a certain type of income.
62. Consequently, to arrive at a fair and reasonable

estimate of the taxable income for a certain income stream,
allocation must be made for common expenses that are not
specifically attributable to a specific income earning by a
bank. This method is then achieved by making use of a
percentage of gross income of a specific income earning to
the total gross income earnings of the bank which is the
process of apportionment prescribed by RR No. 4-2011.
26 Annex B.
Page 19
Petition for Review
G.R.240163
x------------------------------------------------------x
63. Based on the foregoing, the issuance of RR No. 4-

2011 cannot be considered to be a violation of substantive
due process.
64. Substantive due process requires the intrinsic

validity of the law in interfering"with the rights of the person
to his property. The inquiry in this regard is not whether or
not the law is being enforced in accordance with the
prescribed manner but whether or not, to begin with, it is a
proper exercise of legislative power. To be so, the law must
have a valid governmental objective, i.e., the interest of the
public as distinguished 'from those of a particular class,
requires the intervention of the State. This objective must be
pursued in a lawful manner, or in other words, the means
employed must be reasonably related to the accomplishment
of the purpose and not unduly oppressive. 27
65. Also, neither does RR No. 4-2011 violate the equal

protection of laws. For one, the revenue regulation is
premised on the distinct feature of banks which have different
income earnings from its various operations that ultimately
have different tax treatments. Second, it is intended to arrive
at a more reasonable and accurate taxable income through
the allocation of costs and expenses incurred by banks. Third,
it is not limited to existing conditions only, but applies equally
to present and future conditions. Fourth, RR No. 4-2011
applies equally to all members of the same class, i.e.,
including other financial ins~itutions which are subject to or
exempt from both regular income and final taxes with
reference to proper allocation of costs and expenses.
(Prayer follows .. .)
27 Concurring and Dissenting Opinion of Justice Sandoval-Gutierrez in Abakada Guro vs. The 'Honorable
Executive Secretary, G.R. No. 168056, September 1,2005,469 SCRA 1 (2005).
Page 20
Petition for Review
G.R.240163
x------------------------------------------------------x
PRAYER
WHEREFORE, petitioners respectfully pray that the

subject Petition for Review on Certiorari be GRANTED and the
Order dated May 25, 2018 be REVERSED and SET ASIDE.
Respectfully submitted.
Makati City for the City of Manila, August 1, 2018.
neral tor
011 . 24852
IBP Lifetime ership No. 015~60, 8-18-16
MCLE Exemption· No. VI-000016, 9~28-16
MA. ANTONI~ c~
DIZON
Assistant Solicitor General
Roll No. 33774
IBP Lifetime Membership No. 010284, 12-12-11
MCLE Exemption No. VI-000374, 4-2-18
PERFECTO AD C. CHUA CHENG

State licitor I
, Roll N 56702
IBP Lifetime Membership No. 013335, 1-29-15
MCLE Compliance No. V-OOl1826, 11-10-15
-more-
Page 21
Petition for Review
DOF & BIR vs. AUB, et al.,
G.R.240163
x------------------------------------------------------x
-·fJ·~
N DOMINIC S. OBIAS
Associate Solicitor
Roll No. 62163
IBP Lifetime No. 011758/ 4-2-2013
MCLE Compliance No. V-0008917/ 7-1-2015
OFFICE OF THE SOLICITOR GENERAL

134 Amorsolo Street, Legaspi Village, Makati City
Tel. No. 8130086
Telefax No. 8137544
VoIP Trunk Line No. 988-1674
URL: www.osg.gov.gh
E-mail: docket@osg.gov.ph
COpy FURNISHED
ANGARA ABELLO CONCEPCION REGALA &. CRUZ

Counsel for the Respondents BOO Unibank, et al.
22 nd Floor, ACCRALAW Tower
2 nd Avenue corner 30 th Street, Crescent Park West
Bonifacio Global City, Taguig City.
DEFANTE & PACIS LAW OFFICE

Counsel for Respondent AVa
32 nd Floor Joy-Nolstag Center
17 ADB Avenue, Ortigas Center
Pasig City
BPI LEGAL AFFAIRS AND

DISPUTE RESOLUTION DIVISION
Counsel for Respondent BPI & BPI Direct
14th Floor, BPI Building
Ayala Avenue corner Paseo de Roxas
Makati City
LAND BANI( OF THE PHILIPPINES

Legal Services Group-Litigation Department
31 st Floor, Landbank Plaza
1598 M.H. Del Pilar cor. Dr. J. Quintos Sts.
Malate, Manila
Page 22
Petition for Review
G.R.240163
x------------------------------------------------------x
DEVELOPMENT BANK OF THE PHILIPPINES

Legal Services Group
10th Floor, DBP Building
Sen. Gil J. Puyat Avenue, Makati City
BUREAU OF INTERNAL REVENUE

BIR National Office Building, Agham Road
Diliman, Quezon City
Department of Finance Building
Bangko Sentral ng Pilipinas Complex
Roxas Boulevard, Manila
BANK OF AMERICA
27F Philamlife Tower, 8767
Paseo de Roxas, Makati City 1226
TAN CONCEPCION &. QUE

Counsel for UOBP
Suites 1501-1502 The Orient Square Building
F. Ortigas Jr. Road (formerly Emerald Avenue)
Ortigas Center, Pasig City
The Branch Clerk of Court

RTC, Branch 57
Makati City
EXPLANATION
The foregoing Petition is being served by registered mail

. due to limited number of personnel.
~' __--"--'i :::?'- --'-_._ .....
~-~-===-=-~'~i~=-~~
PERFECTO AD . FO C. CHUA CHEN:G
State Solicitor I
Page 23
VERIFICATION AND CERTIFICATION
OF NON-FORUM SHOPPING
I, MARISSA O. CABREROS, Deputy Commissioner, Legal Group of the

Bureau of Internal Revenue (BIR), with office address at the SIR National Office
Bldg., BIR Road, Diliman, Quezon City, after being sworn in accordance with
law, hereby depose and state that:
1. By virtue of Revenue Delegation Authority Order (RDAO) No. 2-

2007 dated March 1, 2007, the Commissioner of Internal Revenue has
delegated to the Deputy Commissioner, Legal Group of the BIR, or in his
absence the officials next in rank, the authority to verify and certify against
forum shopping petitions for review in cases of appeal from adverse court
decisions or institution of cases. Attached hereto is a copy of the said RDAO
No. 2-2007;
2. I have caused the preparation of the foregoing Petition for Review

on Certiorari in the case entitled "Department of Finance and the Bureau of
Internal Revenue' vs. Asia United Bank, et al.", G.R. No. 240163 (Civil Case
Nos. 15-287, 15-291 & 15-411) and read the same, the contents and
allegations of which are true and correct of my own personal knowledge and
based on authentic records at hand; and
3. I certify that I have not commenced or filed any other action or

proceeding involving the same issue before this Honorable Court or any
Division thereof, the Court of Tax Appeals or different divisions thereof, to the
best of my knowledge, no such other action or proceeding has been filed or is
pending before this Honorable Court or any other court, tribunal or quasi-
judicial agency. Should I learn that a similar action or proceeding has been
filed or is pending before this Honorable Court or any other court, tribunal or
quasi-judicial agency, I will inform this Honorable Court within five (5) days
from notice.
Depu Commissioner
~ gal Group
Bureau 0 nternal Revenue
N° ~88 0 569
SUBCRIBED AND SWORN to before me this ga~ o~O_'_8
__
2018 at Quezon City, Philippines, by affiant who exhibited to me her
Identification Document (ID) issued by the BIR, bearing her photograph and
signature as competent evidence of identity.
D oc. N o. 4~
_-=--_
Page No. 1J-
Book No. vi
Series of 2018. MCLENv. (
PTRNo.5533835/0L03.2018
COmfruBsion Expires on 31 December 2018
{teplilliic of the PII.t!lnpil\/js _ .~.
Dejl<lrttllellt of Filloil~e . I..·(.r:;.l) . •.
. ,),J
l:HHiGAU O~' HlTEIU1AL REVENUE; "':"1;:,:: /' ""
i··Pf,\E:
MARISSA O. CABR.EROS
"-
POSifIUI'i
Assistant Commissioner
'W"I
131-890~790
) .J-- F'ERSUlli'IEL !-/UI\-18ER
i!' 00004379
.~. t r(!·~~{,~.~·,(.(i ;i,.if~:
REPUBL1C OF THE PHILIPPINES
Quezon City
01 I\1arch 2007
REVENUE DELEGATION AUTHORITY ORDER NO. a-m 1-

SUBJECT Delegation of Authority With Regard To Institution Of Civil and
Criminal Actions/Cases To Effect Recovery Of Taxes Or The
Enforcelnent Of Any Fine, Penalty Or Forfeiture Under The Tax
Code, With Regard To The Defense/s of The Bureau Of Internal
Revenue In Cases/Actions Instituted Against It, And With lZ~gard
To Other Cases
TO All Internal Revenue Officers And Others Concerned
I. Delegated Authority
Pursuant to Section 7 of the Tax RefonnAct of 1997 ("Tax Code") authorizing

the Conunissioner of Internal Revenue ("eIR") .to delegate the powers vested in him
under the Tax Code, his authority is hereby delegated to officials of the BIR, with regard
to the institution of civil, adn1inistrative and crinlinal actions/cases for an10ng others, the
recovery of taxes or the enforcement of any fine, penalty. or forfeitw"e under the Tax
Code; "vith regard to defenses of the Bureau of Inten1al Revenue ("BIR") with respect to
cases instituted against it, and with regard to other cases, as follows:
A. The Deputy Commissioner for Legal and Inspection Group is authorized to

approve and sign the following:
]. Verify cOlnplaints and certify against fOfunl shopping in civil actions

for collection of taxes to be instituted by the National Office of the
BIR with the courts, or quasi-judicial bodies such as, but not lilnited
to, the Depmilnent of Justice with respect to cases against another
govemn1ent agency or instrulnentality including govenunellt-owned
and controlled corporations;
2. Verify petitions for review or other pleadings which are required to be

verified, and certify against forun1 shopping, i.n cases of appeal fro111
court decisions or decisions of quasi-judicial bodies, such as, but not
lilnited to, appeaJ.s -I·to the Secretary of Justice or the Office of the
President, with respect to cases against another govenllnent agency or
instrumentality including govermllent-owned and controlled
corporations, involving civil actions for collection' of taxes to be
:5
hi, .. l
instituted by the National Office or any taxpayer or third party against

the BIR;
3. Sign approvals and refenal letters to authorize the institution of

crilninal actions/cases for the National Offi~e of the BIR as required
by Section 220 thereof, with the Departn1ent of Justice or Prosecutor's.
Office or other quasi-judicial bodies for prelilninary investigation al1d.
consequently, the filing of infonnation in cOlu1s, involving violations~
of the provisions of the Tax Code; Provided,. however that with respect.
to the institution of crinlinal actions/cases developed or to be filed
under the Run After Tax Evaders (RATE) Progran1 of the BIR in the
National Office, the, approvals and referral letters thereon shall be
signed by the Commissioner after the Deputy Con1111issioner for the
Legal and Inspection Group shall have revievved the same together
with the cOlllplaint-affidavit and other relevant doculnents;
4. Verify petitions for review, COIDIDents or other pleadings, and/or

cel1ify against forulD shopping, with respect to cases involving appeals
of crilninal actions frOID the decisions of the State or DOJ Prosecutors
or the Secretary of Justice, decisions of the coulis or decisions of other
quasi-judicial bodies, including those filed under the 'RATE Progran1
of the BIR in the National Office, that involve violations of the
provisions of the Tax Code;
5. Sign approvals and referral letters to authorize the institution of

actions/cases, verify c0111plaints and other pleadings and/or celiify
against foruln shopping, with respect to such other cases, i. e., civi~,
criminal, or other cases of whatever kind and nature, to pursue and/or
defend the interests of the BIR concen1ing those affecting the
operations in general of the National Office, \-vith the coul1s or quasi-
judicial bodies.
B. The Regional Directors are likewise authorized to approve and sign the
same dOCUlnents as 111entioned above, with respect to civil, adIninistrative and crilnillal
actions/cases and other cases of whatever kind and nature, en1anating from their
respective Regional Offices, with the coulis, government agencies or quasi-judicial
bodies, pursuant to, and consistent with, the functions of their office as defined under
Revenue Adn1inistrative Order No. 10-2000, including those cases developed for filing
under the Run After Tax Evaders (RATE) Program of the BIR within their respective
regional offices, if not refened to the National Office for filing.
II. Other Signatories
In order that the interests of the BrR may not be prejudiced, in the absence of said
delegated officials above, or as Inay be necessitated ·by CirCUlTIstances or as n1ay be
directed by the eIR, the officials next-in-rank to the Deputy COlnmissioner for Legal and
IWREAU Of INTERNAL REVENUE

RECOR.DS DIVISION
g:qf 1t·1A-
MAR 0 2 2007, +
Inspection Group andlor the concerned Regional Director, as the case Inay be, are hereby
authorized to sign the above docun1ents. .
Furthermore, the delegated authority under this Order notwithstanding, the eIR
may at any time, require that he be the signatory to the afore-mentioned dOCUlTIents.
III. Repealing Clause
All existing revenue delegation authority order, revenue men10randulTI circulars,

orders and other issuarices which are inconsistent herewith are hereby repealed, modified
or amended, accordingly.
IV. Effectivity Clause
This Order shall take effect ilrunediately upon approval hereof.
Accordingly, all intelnal revenue officers and others concerned are requested to
give this Order as wide a publicity as possible.
IUREAU Of INTERNAL REVENUE

RECORDS D1VISION
g: ¥f /r, fit ·
MAR 0 2 ZOU7,J.i
R E eEl V EDr"c._" .~c;";:, , , ,.,
, /~ I
VERIFICATION AND CERTIFICATION OF
NON-FORUM SHOPPING
I, CARLOS G. DOMINGUEZ, Filipino, with office address at

Department of Finance, OOF Building,· SSP Complex, Roxas Boulevard,
Manila, after being duly sworn in accordance with law, hereby depose and
state:
1. I am the duly apPointed Secretary of the Department of Finance

(OOF) ;
2. I caused the preparation of the foregoing Petition for Review on

Certiorari.
3. I have read and understood the contents thereof.
4. The allegations therein are true and correct of my personal

knowledge and on the basis of authentic records.
5. I/petitioner have not previously commenced any other action

involving the same issues in. the Supreme Court, the Court of Tax
Appeals or different divisions thereof, or any other tribunal or
agency; and if I/petitioner should thereafter learn that a similar
action or proceeding has been filed or is pending before this
Honorable Court, the Court of Tax Appeals, or different divisions
thereof, or any other tribunal or agency, I/petitioner undertake
to promptly inform the aforesaid courts and other tribunal or
agency of that fact within five (5) days therefrom.
EZ
AUG 0 8 2018
SUBSCRIBED AND SWORN TO before me this in
CITY Of MANILA , Philippines, the affiant exhibiting to me his
_____________ as competent evidence of identity.
ATrY. FI [, C. RAMOS, CPA

:Notary blic _. City of Manila
Commission No. 2017-045
·Untll December 31, 2018
Roll of Attorneys No. 66640
IBP No·, 022459 / Bulacan Chapter / January 8, 20Hl
PTR No. 7026089/ City of Manila I January 8,201.8
Rm, 301, International Operations Departmen~
Ban.gkoSentralngPiI!pinas, Malate, Manila
DEPARTMENT OFFH'iA.NCE
DOF 8LOG .. ROXAS 8l\;0; MANILA
"i"
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§".T.H. OA.T.E------..... September 1.0,1945
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I HOME ADDRESS!
I 151 Sarangani st., Ayala Alabang Village, M-
I U1Uritirilupa.City 11,:,-,
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TELEPHO/llE NO.: 850·7621 I
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This 10 Card isnoo-transierabie it r)iust be wornai ail
times Within the office premisos. 1f found, please return
to Perspnnei Set\1ces OMsioll,. Oep~rimen! of Finance.
Roxliof El61.1'evard, Manila,Telephone No. 5250244.
r~1Jr~A~
Undersecretary
REPUBLIC OF THE PHILIPPINES
AFFIDAVIT OF SERVICE
MARIA LUCJLL (Revised as of April 1992)
EM. VALDEZ,AOl'
GSIS L~IDJ #OO6"'\~116~758-2
I, , OFFICE OF THE SOliCITOR GENERAL,
with Office addreA{j@ 03!4 ~OYNsolo St., Legaspi Village Makati City, after being sworn to depose and say:
That on 08/08/2018 , I caused to be served a copy of the following pleading/paper:
-----------------
NATURE OFTHE PLEADING
PETITION
G. R No. 240163
In case No. (CIVIL CASE NO. 15-287), entitled ASIA UNITED BANK, BOO UNIBANK, INC., BANK OF
VS. THE DEPARTMENT OF FINANCE AND THE DEPARTMENT OF INTERNAL REVENUE
pursuant to Section 3,4,5 and 10, Rule 13 of the Rules of Court, as follows:
By Personal Service To: ( ) By depositing a copy to the party or his/her attorney

on as shown on p _ __
( ) By leaving a copy in his/her clerk or with a person
having charge thereof on as shown on p
( ) By delivering a copy to the~urt!Tribunal Office on

_ _- - as shown on p ~ 11 .
By Registered Mail To: ( ) By depositing copy on tI ~~in the Post
Office at ________ as evidenced fo{)y Registry
BANK OF AMERICA
Receipt(s) No.(s) hereto attached and
27F Philamlife Tower, 8767
indicated after the name (s) of the addresse(s), and
Paseo de Roxas, Makati City 1226
with instruction to the postmaster to return the mail to
, , Philippines
the sender after (10) days if undelivered.
BPI LEGAL AFFAIRS AND DISPUTE
Counsel for Respondents BPI & BPI Direct
14th Floor, BPI Building
Ayala Avenue corner Pas eo de Roxas
Makati City
, , Philippines
DEVELOPMENT BANK OF THE PHILIPPINES
Legal Services Group
10th Floor, DBP Building
Sen. Gil J. Puyat Avenue, Makati City
, , Philippines
LAND BANK OF THE PHILIPPINES
Litigation Department
31 st Floor, Landbank Plaza
1598 M.H. Del Pilar cor. Dr. J. Quintos Sts.
Malate, Manila
, , Philippines
The Branch Clerk of Court
RTC, Branch57
Makati CUy
, , Philippines
BIR National Office Building, Agham Road
Diliman, Quezon City, , Philippines
ANGARA ABELLO CONCEPCION REGALA &
Counsel for Respondents BOO, et al.
22nd Floor, ACCRALAW Tower
2nd Avenue corner 30th Street, Crescent Park
West
Bonifacio Global City, Taguig City
Department of Finance Building
Bangko Sentral ng Pilipinas Complex
Roxas Boulevard, Manila, , Philippines
DEFANTE & PACIS LAW OFFICE
ATTY. RAINER T. DEFANTE
Counsel for Respondent AUB
32nd Floor Joy-Noistag Center
17 ADS Avenue, Ortigas Center
Pasig City
, , Philippines
TAN CONCEPCION & QUE
Counsel for United Overseas Bank of the
Philippines
Suites 1501-1502 The Orient Square Building
F. Ortigas Jr. Road (formerly Emerald Avenue)
Ortigas Center, Pasig City·
i/l!;
L,\:
Makati, Metro Manila, Phililippines ~ ","
(Affia1nt)
MARIA LUCILLE M. VALDEZ,AO '(
('.sIS lmoo #006...'111f.....758-Z
SUBSCRIBED AND SWORN to before me this - r - t " " T M - 7 " r - M , - - ' - - - - - ~_ _ _ _ _ _ at Makati
City, Philippines. Affiant exhibiting to me his AUG 0 £} i,I.J i IJ iss~ed at Pasay City.
~
o c....~ vu,VHL
/11111111111111111111111111111111111111111111111111 11111111111111111111111111111
15-008947-0146
.,"'1 .,
., t
:':.~
.cf.\/I" 1'1 itt"to ~ ~~

","11£ 01l)f?n If[ r v"nU\m
REPUBLiC OF. THE
"
PHILIPPif\lES
......
r."i:·.:~··;'-·8rm~"·:::n::·"' \ TIONAL CAPITAL JUDICIAL Rl=GION
1IIIIltllllllltllltllllltlll1l11111l11'
15-13138947-0139
IllIllllllIll REGIONAL TRIAL COURT-
P.OW-06-?8 6:1;1:135 PfJl CITY OF MAKATI
GREGORIO S. ARANETA
Perfecto C. Ghua Chong BRANCH 57
ASIA UNITED BANK, ET AL. n

Petitioners,
-versus- CIViL CASE NO. 15..287
THE DEPARTMENT OF FINANCE, through

the Secretary of Finance, and the BUREAU
OF INTERNAL REVENUE, through the
Commissioner of Internal Revenue I
Respondents. .
x - - - - - - - - - - - - - - - : - - - - - - - - - - - - - - -)(
BANK OF THE Pl--IILIPPINE ISLANDS,
Petitioner:
-versus- CIViL CASE NO. 15-291
THE HONORABLE SECRETARY OF FINANCE

AND THE COMMISSIONER OF INTERNAL
REVENUE,
Respondents.
x - - - - - - - - - - - - - - . . - . . - - - - - - - - - - - - - .. - - -x
BPI DIRECT SAVINGS BANK, INC~,
Petitioner,
-versus- C~ViL CASE NO~ 15-411
Q I THE DEPARTMENT OF FINANCE, through

~ the Secretary of Finance, and the BUREAU
\,\~OF INTERNAL REVENUE! through the
~\o- 'Commissioner of Internal Rev'en ue )
Respondents.
x-- .. ------------------------------ x
ORDER
Before this Court are two (2) Petitions: one is a Petition for
Declaratory Relief (with Urgent Application for the Issuance of a Temporary
Restraining Order and/or a Writ of Preliminary Injunction) under Rule 63 of
the Rules of Court, docketed as Sp. Civil Action No. 15-287 ("Declaratory
Relief case"); and the other is a Petition (with Prayer for fssuance of a
Temporary Restraining Order and/or Preliminary Injunction)) docketed as
Civil Case No. 15-291 rapt
Petition"). Since both petitions deaf with the
.1
question of validity of Revenue Regulation No. 04~2011 ("Revenue
Regulation") issued by the Secretary of Finance, upon the recorr1Jllendation
of the Commissioner for Internal Revenue, as well as other issuances of
the same tenor and ill1POrt, they will be resolved jointly by this Court.
As a background, the Department of Finance) through the Secretary

of Finance, issued on March 15, 2011 the said Revenue Regulation,
prescribing the rules on "proper allocation of costs and expenses amongst
income earnings of banks and other financial institutions for income tax
reporting purposes." The said Revenue Regulation provides that a bank
nlay deduct only those costs and expenses attributable to the operations of
its regular banking units to arrive at its taxable inCO!lle. Any cost or
expense .related with or incurred for the operations of its foreign currency
deposit units are not allowed as deduction from the RBU's taxable income.
To compute for the amount allowable as deduction from RBU operations,
all costs and expenses should be allocated between the RBU and FCDU
by way of (1) specific identification, and (2) allocation.
The petitioners in Sp. Civil Action No. 15-287 are I~sia United 'Bank
("AUB"), BDO Unibank, Inc. ("BOO Unibank"), Bank of America ('BofA
Philippines"), Bank of Commerce ("BankCom"), BDO Private Bank, Inc.
H
("BOO Private")l Citibank, N.A.) Philippine Branch CC.itibank Philippines ),
China Banking Corporation ("China Bank"), Chinatrust (Phils.) Commercial

Bank Corporation C'Chinatrusf'), Deutsche Bank AG} t\J1anila Branch
("Deutsche Manila"), t::ast West Banking Corporation CEast West"), ING
Bank N.V. ("ING Manila"), Philippine Bank of Comnlunications ("PBCOM"),
Philippine National Bank ("PNB"), Philippine Veterans Bank ("Veterans
Bank"), PNB Savings Bank ("PNB Savings"), Rizal Conllftercial Banking
n
Corporation ("ReSC ), Security Bank Corporation ("Security Bank"),
Standard Chartered Bank, Philippine Branch CSCB Philippines"), United
Coconut Planters Bank ("UCP8 " ), Hongkong Shanghai Banking
Corporation Limited-Philippine Branches ("HSBC Linjjted)'), HSBC Savings
Bank (Philippines, Inc. CHSBC Savings"), Korea Exchange Bank, ry1anHa
Branch CKEBank
I l1
and JPMorgan Chase Bank, N.A'l Philippine Branch
)",
("JPCMB Philippines"), while the petitioner in Civil Case No. 15-291 is the
Bank of the Philippines Islands ("BPr'). In the course of the proceedings,
the following banks were allowed to intervene as petitioners: Development
Bank of the Philippines CDBP"), United Overseas Bank Philippines
CUOBP"), Land Bank of the Philjppines ("land Bank']), MetropOlitan Bank &
Trust Company CMetrobank"), Union Bank of the Philippines CU nionBank1J),
and BOO Capital and Investrrlent Corporation ("BOO Capita/ n ). All the
petitioners, including the intervenors, are banks or financial institutions with
retail banking units CRBU") and foreign currency deposit units C'FCDU").
The respondents in both Petitions are the Departnlent of Finance
C'DOF"), and the Bureau of Internal Revenue, through the Commissioner of
Internal Revenue ('lSIR!!).
2
'-
The Proceedings
On April 6, 2015, the Declaratory Relief case was filed before the
Regional Trial Court of Mal<atiCity, and subsequently raffled to this Court.
This was followed by the BPI Petition, which was raffled to Branch 132.
This Court issued an Order dated April 6, 2015 setting the application
for Temporary Restraining Order in .the. Declaratory Rerief case for a
summary hearing on April 8, 2015.
On April 7,2017, the presiding judge of Branch 132 issued an Order

directing the branch clerk of court to forward the records of the BPI Petition
to this Court for consolidation with the Declaratory ReBef case, subject to
the conformity of the Executive Judge. Thus, both petitions were
subsequently consolidated before this Court.
After due notice and summary hearing on April 8\ 2015) this Court
issued an Order dated April 8, 2015 CTRO"), enjoining the enforcement,
carrying out, or implementation of the Revenue Regulation. This Court
subsequently issued an Atnended Order dated April 13, 2015 to include
Veterans Bank, PNB Savings} ReBe, Security Bank, and SCB Philippines
which were inadvertently omitted fronl the list of Petitioners in the original
TRO.
In granting the TRO, this Court (1) recognized that the Revenue
Regulation and its implementation may violate the Petitioners' rights, (2)
acknowledged that the entire banking industry may be affected by the
issuance of the Revenue Regulation, and (3) noted that the Revenue
Regulation itself failed to supply the basis for its issuance.
At the hearing of Petitioners' application for issuance of a writ of

preliminary injunction on April 20, 2015, the parties agreed Cl) to orally
argue their respective positions, (2) to dispense with the presentation of
witnesses, and (3) to submit judicial affidavits of the witnesses.
After taking into consideration the arguments and supporting

affidavits submitted, this Court issued an Order dated April 27} 2015
("Injunction Order"), granting the application for issuance of a writ of
preHminary injunction, and enjoining the Respondents and any and all their
representatives, agents, or persons acting on their behalf franl enforcing,
carrying out, or implementing in any way or nlanner: the Revenue
Regulation against the petitioners-applicants, including the issuance of
Preliminary Assessment Notice or Final AsseSSlllent Notice} as the case
rnay be, based on the subject Revenue Regulation, pendjng litigation,
unless sooner dissolved. This Court ruled that said writ shall be
enfor~eable immediately subject to the fiJing of the correspondJng injunction
bond In the amount of Php100 million for petitioners in the Sp_ Civil Action
No .. 15-287, and Php4 million for petitioner BPI in Civil Action No. 15-291 7
subject to the approval of this Court.
3
In an Order dated June 10 2015, this Court clarified the coverage of
J
the Injunction Order as including a prohibition on the Respondents from

ruling or deciding any adrninistrative matter regarding the Revenue
Regulation. .
Meanwhile, Respondent CIR filed a Motion for Reconsideration (Re:

Order dated 27 April 2015) 'dated May 12, 2015, arguing that this Court did
not have jurisdiction over the Petitions filed by the Petitioners and that the
colle~tion of taxes cannot be enjoined. Respondent SIR also filed a
Consolidated Comn1ent with Motion to DisI11iss (To: Petition for Declaratory
Relief) dated May 21, 2015, seeking the dismissal of the Petitions on the
similar ground, among others, of this Court's lack of jurisdiction over the
subject matter.
For its part, Respondent OOF filed a Consolidated Con?rnent dated

June 30,2015 which similarly assailed the jurisdiction of this Court over the
Petitions.
Meanwhile! DBP filed a Motion for Leave to File and Admit DBP's
Petition-in-Intervention dated June 25, 2015. UOBP also filed its Motion for
Leave to Intervene and to Admit Petitio17-in-lntervention dated July 28 r
2016. After giving the other partjes the opportunity to file their Comments
and/or Oppositions to the said ll1otions,. and after considering the same,
this Court granted the Motions of DBP and U08P in an Order dated
September 7,20'15.
Land Bank also filed a Motion for Leave to File and Admit LBpJs
Petition-ln-lntelVention dated October 15, 2015, which this Court granted in
an Order dated December 28, 2015.
In an Order dated April 4: 2016, this Court denied the Respondents'

Motion for Reconsideration dated May 12, 2015 and the Respondent SIR's
Motion to Dismiss dated May 21,2015 for lack of merit.
Pre-trial commenced on August 31, 2016.
On November 22, 2016] Metrobank fjfed a Motion in Intervention. On

'January 30, 20'17, Metrobank's Motion in Intervention and Petition for
Declaratory Relief were admitted by this Court.
Metrobank then filed on April 17, 2017 a Manifestation and Motion for
the Issuance of ConfinnatolY Order, praying for confirmation ·from this
Co~~ that t~e .writ of preliminary injunction issued in favor of
the original
Petrtloners SImilarly applies to it. .
Subsequently, UnjonBank filed a Motion in Intelliention on March 27

2017. '
4
In an Order dated May 8, 2017) this Court granted Metrobank's
Manifestation and Motion for the Issuance of Conf.innatolY Order dated
April 17, 2017 and confirmed that Metrobank and UOBP are similarly
situated with the other petitioners and are thus also protected and covered
by the writ of preliminary injunction. This Court likewise granted
UnionBanJ<:'s Motion in Intervention and admitted its Petition for Declaratory
Relief. Thereafter, UnionBank flied its Manifestation and Motion for the
Issuance of Confinnatory Order dated May 15, 2017 seeking confirmation
that it will be similarly protected and covered by the vvrjt of preliminary
injunction.
On May 24, 2017, Respondent SIR filed its Opposition dated May 22,
2017 to UnionBank's Manifestation and Motion for the Issuance of
Con finn a tory Order dated May 15, 2017, and Metrobank's Manifestation
and rV/otion for the Issuance of Confirmatory Order dated April 171 2017,
praying that Metrobank and UnionBank should be denied the protection
and coverage of the writ of preliminary injunction.
Due to the number of parties, pre-trial extended until p\ugust 3, 2017.

Considering that the parties agreed that the issue· involved in this action is
purely legal, i.e. the validity of the Reyenue Regulation) the parties jointly
J
ITloved for the submission of their respective mernoranda in lieu of trial,

which this Court granted. In compliance with said Order, the parties
submitted their respective rnemoranda on Septell1ber 15, 2017, except for
Land Bank t which submitted its menl0randum on October 5, 2017.
On August '18, 2017, BOO Capital filed an O/nnibus Motion for A.)
Leave to File and Ad/nit BOO Capital and Investment Corporation's
(Formerly CUibank Savings, Inc.) Petition-ln-Intelvention; and B.)
Subsequent Issuance of a Confirmatory Order, which \Nere admitted by this
Court on October 13, 2017.
On November 21, 2017, BOO Capital filed a tv1anjfestation and

Motion for Issuance of Confirrnatory Order to: (1) manifest that it is
adopting the position papers filed by the petitioners and petitioners-in-
intervention; and (2) to confirm that the writ of preliminary injunction
granted to petitioners similarly applies to it. In the sinlilar Manifestation and
Motion, BDO Capital requested to adopt the Memorandurn of Petitioner-
.Banks dated Septerllber 15, 2017, and submitted the instant case for this
Court's resolution. This Coufi granted BOO Capitars Nlanifestation and
Motion in an Order dated November 29, 2017.
Thereafter, the Court issued an Order dated December 12, 2017,

which granted Metrobank's and UnionBank's Motion for Issuance of
Confirm~tory Order.
.. C?n Fe~ruary. ~O, 2018, this Court issued a writ of preliminary

~nJunctJon, .Whl~h enjoIned the Respondents from enforcing) carrying out, or
lmpleillentrng ,n any way or nlanner the assailed Revenue Regulatiqn
5
against Petitioner-Intervenors Land Bank, Metrobank 1 UOBP BDO Capital 1
and Union Bank.
In an Order dated February 28, 2018, this Court submitted the case
for resolution.
Issue$.
,f
Thelega\ issues for consideration of this Court are as fotlows:
1. Whether this Court has jurisdiction over the petitions;

2. Whether a Petition for Declaratory Relief under Rule 63 of the Rules
of Court is the proper remedy:
3. Whether the issuance of the Revenue Regulation by the OOF and the
SIR is valid and constitutional, as having been issued in accordance
with:'a. valid delegation of power; b. the proper procedure for
Revenue Regulations; and c. the equal protectJon clause.
Ruling
On the lurisdictional issue
In their respective memoranda, the Respondents argue that this

Court does not have jurisdiction over t~e subject petitions as these are tax
matters properly belonging to the jurisdiction of the Court of Tax Appeals
("GTA") ...
Respondent CIR relies on the Supreme Court ruling in The Philippine

Arnerican Life and Genera/Insurance VS. The Secretary of Fjnance and the
COll1missionerof Internal Revenue (G.R. No. 210987 November 24,2014)
1
in arguing that the eTA has jurisdiction over this case viz:
l
"Moreover, City of Manila diallletricaHy opposes British

American Tobacco to the effect that it is!!.Q]Y ~ithin the po~er
of the CT~ through its power of certiorari~to ruie Q!1 the
validity: of !! particular administrative rule m: regulation §.Q
long as it is within its appellate jurisdiction. Hence, it can
~ rule not only on the propriety of an assessment ;r tax
treatment of a certain transaction, but also on t'Je y~~Hdity of
the Revenue Regulation or revenue memorandurn circular
--.. ;q:rc_)ii!li$4I'I_
on ~hich the !~l~ assessment is based." (Emphasis

supplied.)
6
Based on the foregoing, the power of the eTA to rule on the validity
of a revenue regulation can be exercised in its appeliate jurisdiction and
when such revenue regulation is the basis of an assessnlent' being
assailed. This is not the case before this Court which challenges the
validity of the Revenue Regulation itself, and not the tax assessments
(whether PANs or FANs) in relatIon to a Revenue Regulation. The present
action is an original action, and not an appeal from a final tax assessment.
Thus, the case relied upon by Respondent erR is misplaced and not
applicable in the present case.
Respondent OOF, for its part, relies on Banco de Oro v. Republic

(G.R. No. 198756, August 16, 2016) to bolster its position that it is the eTA
which has jurisdiction over thjs case. A perusal of the factual background
of the Banco De Oro case would show that what was being challenged in
that case is the exercise of a quasi-judicial function of the 81 R. The
petitioners in Banco De Oro challenged SIR Ruling Nos. 370-2011 and DA
378-2011 wherein the SIR ruled and interpreted the 1997 National Internal
Revenue Code (NIRC) provisions on the taxability of the interest income
from zero-coupon bonds issued by the government. In the present case,
what is being assailed is the validity of a Revenue Regulation in relation to
the enabling law, i.e., the 1997 National Internal Revenue Code, which was
issued in the exercise of the rule-nlaking authority of the Respondents.
Section 7 of Republic Act No. 9282provides the specific powers of

the CTA. The CT A is a specialized court tasked to reviev\f on appeal the
decisions or inaction of the Comrllissioner of Internal Revenue,
decisions/orders/resolutions of the Regional Trial Courts in local tax cases!
decisions of the Commissioner of Custorns, the Central Board of
Assessment Appeals, the Secretary of Finance, and the Secretary of Trade
and Industry, in relation to particular tax issues. Its Jurisdiction is limited to
those specifically mentioned in Republic Act (RJ1.) No. 1125, An Act
Creating the Court of Tax Appeals, as amended by RA 9282. The eTA has
not been tasked to hear a petition for declaratory relief from a regulation, in
the exercise of its appellate jurisdiction, Such authority belongs to the
regular courts.
Section 1, Rule 63 of the Rules of Court leaves no room for

interpretation that this type of Petition should be brought before the
appropriate Regional Trial Court. Thus, this Court rules that it can exercise
jurisdiction over this case.
In the present case, what is being assailed is a Rdvenue Regulation

which was issued by the BIR pursuant to 'its quasi-legislative function. The
quasi-legislative or rule-making power of an administrative agency is the
power to make implementing or interpretative rules or regulations within the
confines of the granting statute. This includes t"e issuance of rules and
regulations as well as administrative issuances, i.e.) circulars and orders.
7
The Supreme Court ruling in Clark Investors and Locators
Association, Inc. v. Secretary of Finance (G.R. tva. 200670, July 6,
2015) is quite instructive as to which court has jurisdiction In a petition for
declaratory relief from a question of constitutionality of a revenue
regulation, thus:
"In order to determine whether a Revenue Regu!ation is

quasi-legislative in nature] we must examine the legal basis of
tfie Secretary of Finance in the issuance thereof. In BPI
Leasing Corporation v. Court of Appeals., we ruled that
Revenue Regulation 19-86 was quasi-legislative in nature
because it was issued by the Secretary. of Finance in the
exercise of his rule-making powers under Section 244 of the
National Internal Revenue Code (NIRC):
The Court finds the questioned revenue

regulation to be legislative in nature. Section 1 of
Revenue Regulation 19-86 plainly states that it vvas
promulgated pursu~nt to Section 277 of the NIRC.
Section 277 (now Section 244) is an express grant
of authority to the Secretary of· Finance to
promulgate all needful rules andregulations for the
effective enforcenlent of the provisions of the NIRC.
In Paper lndustries Corporation of the Phiiippines v.
Court of Appeals) the Court recognized that the
application of Section 277 calls for none other than
the exercise of quasi-legislative or rule-making
authority. VerilY1 it cannot be disputed that Revenue
Regulation 19-86 was issued pursuant to the rule-
making power of the Secretary of Finance; thus
making it legislative, and not interpretative as
alleged by BLC.
x x x
Relevantly, Section 244 of the NIRC provides:
SEC. 244. Authority of Secretary of Finance

to Promulgate Rules and Regulations. - The
Secretary of Finance, upon recommendation of the
Commissioner, shaH promulgate all needful rules·
and regulations for the effective enforcernent of the
provisions of this Code.
Conformably with our ruling in BPI Leasing Corporation

that the application of Section 244 of the NJ RC is an exercise of
q~asi-Iegislativ~ or rule-making powers of· the Secretary of
F~nance, and sInce RR 2~2012 was issued by the Secretary of
Finance based on Section 244 of the NIRC, such administrative
8
issuance is therefore quasi-legislative in naturE: vvhich is outside
the scope of a petition for certiorari.
Secondly, while this case is styled as a petition for

certiorari, there is, however, no denying tl'le fact that, in
essence, it seeks the declaration by this Court of the
unconstitutionality and illegality of the questioned rule, thus
partaking the nature, in reality, of one for declaratory relief over
which this Court has on!y appellate, not original, jurisdiction.
Section 5, Article VIII of the 1987 Philippine Constitution
prov~des:
Sec. 5. . The Supreme Court shall have the

foUowing powers:
(1) Exercise original jurisdiction over cases

affecting an1bassadors other public Ininisters and
I
consuls~ and over petitions for certiorari, prohibjfjo17,

mandan1us, quo warranto, and habeas ,corpus.
(2) Review, revise; reverse, modifj, or affinn
on appeal or certiorari as the law or the Rules of
Cault may provide, final judgments and orders of
lower courls in:
(a) All cases in which the constitutionality or
validity of any treaty, international or executive
agreell1ent, law, presidential decree, proclamation, .
order. instruction, ordinance, or reguiation is in
question.
xxx xxx xxx
Accordingly, this petition must fail because this Court
does not have original jurisdiction over a petition for declaratory
relief even if only questions of law are involved. The special
civil action of declaratory relief falls under the exclusive
jurisdiction of the Regional Trial Courts. The Rules of Court is
explicit that such action shall be brought before the appropriate
Regional Trial Court Section 1, Rule 63 of the Rules of Court
prov;des~ x x x"
To be clear, what was brought before this Court is not an appeal from
a t~x assessment or a tax ruling which would be within the jurisdiction Of
the eTA to review on appeal, but a challenge to the validity of the Revenue
Re~ulation which is within the jurisdiction of the Regional Trial Court to
hear on declaratory relief.
The argurnent of Respondents that the pronouncement in the Banco

De Oro case should apply must be considered in light of the circumstances
of this case. Assurning for the sake of argument that the Banco De Oro
ca~e applies to this present action) it must be noted that vI/hen this ca~e
9
was instituted by the Petitioners on April 6, 20'15, the pronouncenlent of the
Suprerne Court in Banco De Oro was not yet part of the law of the land.
This Court had already acquired jurisdiction over the case under the
aforecited Section 1, Rule 63 of the Rules of Courtl being an original action
for declaratory relief.
In DAR v. Trinidad Valley Realty and _Devefoprnent Corporation

(G.R. No. 173386, February 11, 2014), the Supreni8 Court pronounced
that "[i]t is a cardinal principle in remedial· law that the jurisdiction of a court
over the subject matter of an action is determi,!ed by the lavv In force at the
time of the filing of the complaint and the allegatIons of the complaint.
Jurisdiction is deterrnined exclusively by the Constjtution and the law and
cannot be conferred by the voluntary act or agreenlent of the parties. It
cannot also be acquired through or waived, enlarged or dinlinished by their
act or oll1ission, nor conferred by the acquiescence of the court. It is neither
for the court nor the parties to violate or disregard the rule, this matter
being legislative in character. The nature of an action, as well as which
court or body has jurisdiction over it, is determined based on the allegations
contained in the complaint of the plaintiff, irrespective of vvhether or not the
plaintiff is entitled to recover upon all or some of the claims asserted
therein. The averments in the complaint and the character ·of the relief
sought are the ones to be consulted. Once vested by the allegations in the
complaint, jurisdiction also remains vested irrespective of vvhether or not
the plaintiff is entitled to recover upon all or some of the claims asserted
therein."
On the issue q(..erol2er remedy
Respondents argue that a petition for declaratory relief under Rule 63

of the Rules of Court is not the proper remedy! and that Petitioners have no
cause of action because there has already been a breach of the Revenue
Regulation due to the issuance by the BIR of Preliminary Assessment
Notices ("PANs") and Final Assessment Notices CFANs") pursuant to the
said Revenue Regulation. Respondents' question before this Court is
whether the issuance of PANs and/or FANs against Petitioners already
constitutes a breach as contemplated in Rule 63 of the Rules of Court.
Declaratory relief is defined as an action by any person interested in

a deed, will, contract or other written instrument, executive order or
resolution, to determine any question of construction or validity arising from
the instrument, executive order or regulation, or statute; and for a
declaration of his rights and duties thereunder.1
The requisites of an action for declaratory _relief are: (1) the subject
matter of the controversy must be a deed, will, contract or other written
instrument, . statute, executive order or regulation, or ordinance; (2) the
terms of said documents and the validity thereof are doubtful and require
:I. Province of Camarines StU v. Court of Appeals, G.1(. No. 175064, September 18, 2009.
judicial construction~ (3) there must have been no breach of the documents
in question; (4) there must be an actual justiciable controversy or the
'[ripening seeds" of on,e between persons whose interests are adverse; (5)
the issue must be ripe for judicial determination; and (6) adequate relief is
not available through otller rneans or other forms of action or proceeding. 2
The Suprelne Court has made several rulings that a legislative or

executive act that is declared void for being unconstitutional cannot give
3
rise to any right or obligation. Applying that principle in this case, the
allegation that there is already actual breach by Petitioners, as submitted
by Respondents, can be answered in this lT1anner: jf an unconstitutional
issuance does not give rise to any right or obligation) then the same cannot
be breached. The question of whether or not there is actual breach prior
to the filing of the present cases would depend on 'whether the Revenue
Regulation is valid under its enabling .law, i.e.) the 1997 National Internal
Revenue Code, or the 1987 Constitution, or not.
When the Respondents issued the Revenue Regulation on March 15,

2011, and imrnediately issued Letter Notices and .P/\Ns to the banks and
financial institutions concerned, these issuances were made pursuant to
said Revenue Regulation. However, it is generally understood that as to
administrative age'ncies exercising quasi-judicial or legislative· power there
is an underlying power in the courts to scrutinize the acts of such agencies
on questions of raw and jurisdiction even though no right of review is given
by statute: The purpose of judicial review is to keep the adminjstrative
agency within its jurisdiction and protect substantial rights of parties
affected by its decisions. It is part of the system of checks and balances
which restricts the separation of powers and forestalls arbitrary and unjust
4
adjudications.
This Court understands that a Preliminary Assessment Notice or a

Final Assessment Notice does not automatically give rise to a ~ax liability
on the part of the party assessed nor 'is it tantamount to a breach of the
Revenue Regulation, as the same is subject to protest, and does not attain
a permanent character. Even if the Respondent Bi R has issued the Letter
Notices, PANs or FANs to the concerned. banks and financial institutions,
there is no breach or violation to speak of at that point when the Petitions
were filed as held by the Supreme Court in Tupaz ~/~ Ulep (G.R. No.
127777, October 1, 1999), thus:
In LilTI, Sr. v. Court of Appeals, we stated that by its nature

If
the violation could only be con7Jnitted after service of notice and

den7and for payment of the deficiency taxes upon the taxpayer.
2, Ferrer, Jr. vs, Roco, Je, C.R No, 174129, July 5,2010.
:lCommissioner of Internal Revenue v, San Roque Power Corporation, G.R. No. 187485, October 8, 2013.
4 Jqse lViercado v. Board of Election Supervisors of Ibaan Ba.tangas, G.R No. 109713. Apl'i16, 1995.
l
Hence) it cannot be said that the offense has been comJTlitted as
early as 1980, upon filing of the Inco/TIe tax return. Tl'»is is so
because prior to the finalitv of the assessment: the taxp.ayer
j
has not committed any violation for nonpaVfj1-ent of the tax.

The offense was committed onlv after the finality of the
assessment coupled with tax/:?8)[er'S willful r€~fusai to pay the
taxes within the al/otted e.eriod. III this case, when the notice of
assessment was issued on July 16, 1984, the taxpayer still had
tf7ilty (30) days from receipt' thereof to protest or question the
aSSeSSl77ent. otl1erwise, the assessment would become final and
unappealable. " (Elnphasis supplied)
Even assuming for the sake of argun7enf that there is a breach before
the final determination of the case, the present action may be converted
into an ordinalY action, and the parties shall be al/ovved to tile such
pleadings as !naY.he necessary or proper, as provided in Section 6, Rule
63 of the Rules of Court. To be clea~ at this point., there is no breach to
speak of, and the filing of the present action is tile proper remedy to
question the validity of the 'Revenue Regulation, ,and later, to clarify the
... , ....
rights and obligations of the parties herein under the Revenue Regulation,
if any.
On the issue of validity' of the Revenue Regulation
The present controversy centers on whether the issuance of the

Revenue Regulation finds basis in, and is consistent \Nith; the provisions of
the 1997 National Internal Revenue Code which is the enabling law.
This Court understands that the corporate inconle tax is computed on

the basis of "taxable income" which Section 31 of the National Internal
Revenue Code defines as the pertinent items of gross income specified in
the said Tax Code, less the deductions and/or persona! and additional
exemptions, if any, authorized for such types of incolTle by the National
Internal Revenue Code or other special laws. .
Section 34 of the National Internal Revenue Code provides the rules

on the allowable deductions for purposes of cornputing the "taxable
income" in a given taxable year. Said section states) arnong others, that
ordinary and necessary expenses paid or incurred during the taxable year
in carrying on or which are directly attributable to; the development,
management, operation and/or conduct of the trade Of business are
allowed as deductions from the gross incofile.
The Revenue Regulation in question was issued to prescribe the

rules on the allocation of costs and expenses between the RBU and FCDU
of banks, and of other financial institutions as follows:
!'Section 3. Method of Allocation of Cost and

Expenses - Only costs and expenses aitr}butable to the
12
operations of the RBU can be claimed as deduction to arrive at
the taxable income of the RBU subject to regular lncorne tax.
Any cost or expense related with or incurred for t,he operations
of FCDU/EFCDU or OBU are not allowed as deduction from the
RBUs taxable income. In computing for anlount allowable as
deduction fronl RBU operations, all costs and expenses should
be allocated between the RBU and FCDU/EFCDU or OBU
using the following basis:
1. By Specific Identification
Expenses which can be specifically identified to a
particular unit (RBU , FCDU IEFCDU or OBU) shaH be
reported and declared as the cost or expenses of that
unit.
2. By Allocation
Common expenses or expenses that cannot. be
specifically identified for a particular unit shall be allocated
based on percentage share of gross income earnings of a
unit to the total gross income earnings subject to regular
inCOl1l8 tax and final tax including those exempt from
income tax.
This method of allocation is likewise applicable to other

financial institutions with reference to aBocating cost and
expenses among income earnings derived from active business
operation which are subject to regular income tax} passive
activitieswhicll are subject to final tax and other activities
producing incorne which are exenlpt from income taxes."
Petitioners submit before this Court that the Revenue Regulation

should be struck down as invalid for being an ultra vires issuance for
unduly expanding and/or contravening the provisions of the 1997 National
Internal Revenue Code. They argue that the inlpositlon of an allocation
method, as provided in the assailed Revenue Regulation, is not included in
the grant of authority to the Secretary of Finance.
The Respondent Secretary of Finance for its part, alleges that the
1
Revenue Regulation was issued in the exercise of its povver to promulgat~

rules and regulations for the effective enforcelllent of the orovisions of the
National InternaJ Revenue Code. ' . ,
Respondent Commissioner of Internal Revenue argues that the

~evenue Re~uf.ation ;s not even a quasi-legislative exercise, as it merely
Interprets eXIstIng provisions of the National Internal Revenue Code.
Hence, it does not require the necessary notice and hearing.
I~ analyzing whether the act of issuing the Revenue Regulation was

ultra vIres; and therefore, unconstitutional, this Court focuses on the basis
13
of the said delegation of power to the administrative agencies of the
government.
The Supreme Court has consistently ruled that a delegation of

legis/ative power, being an exception rather than the ruler is strictly
construed against the concerned administrative agency.
Administrative agencies are not given unfettered power to

promulgate fules. 5 Two requisites must be satisfied in order that rules
issued by administrative agencies may be considered valid: the
6
completeness test and the sufficient standard test. A law IS complete when
it sets forth therein the policy to be executed, carried out or Inlplemented
by the delegate. It lays down a sufficient standard \Nhen it provides
adequate guidelines or limitations in the law to rnap out the boundaries of
the delegate's authority and prevent the delegation from running riot. To b~
·sufficient) the standard must specify the limits of the delegatets authority,
announce the legislative policy and identify the conditions under which it is
7
to be implemented.
Administrative regulations adopted under legislative authority by a

particular department must be in harmony with the provisIons of the law
and should be for the sale purpose of carrying into effect its general
8
provisions. An administrative agency cannot alllend an act of Congress.
Rules that subvert the statute cannot be sanctioned. 9 An administrative
agency issuing regulations may not enlarge, alter or restrict the provisions
of the law it administers, and it cannot engraft additional requirements not
conteillplated by the legislature.10 f
In fact, there have been several instances in the past wherein the
Supreme Court struck down revenue regulations or provisions thereof on
the ground of unauthorized administrative legislation.
In Fort Bonifacio Oeveloplnent Corporation v. GiR,11t he Supreme

Court declared as invalid Section 4.105-1 of Revenue Regulation 7-95 for
limiting the definition of "goodsl! to the value of the improvements on the
land. This was contrary to the exparisive definition of the term "goods"
under Section 105 of the Tax Code, which refer to all tangible and
intangible objects capable of pecuniary estimation.
5 Quezon City PTCA Federation, Inc. v. Department of Education, G.R No. 188720 / ~3 February 2016
6 Cerochi v. Department of Energy, C.R No. 159796, ] 7 July 2007.

7 Abakada Guro Party List v. Purisima, 584 Phil 246 (2008).
g People v.Maceren., C.R No. 1.-32166, 18 October 1977
9 Ibid.
10 Conunlssioner of InternaJ Revenue vs. Central Luzon Drug Corporation, G.R. No. 159647, 15 April
2005. .
llG.R. No. 175707, 19 November 2014.
In Secretary of Finance v. Lazatin 12 the Supreme Court ruled that
J
Revenue Regulation 2-2012 contravened RA 9400 (which amended RA

7227 or the Bases Conversion and Developrnent Act) vvhen said revenue
regulation subjected to tax all petroleum/petroteum products coming
directly from abroad and brought into the Philippines, including freeport and
economic zones ("FEZSH). The Supreme Court held that the taxes imposed
by Section 3 of Revenue Regulation 2-2012 directly contravened the tax
exemptions enjoyed by FEZ enterprises under the law, which extend even
to VAT and excise tax.
In the present case, Respondents Commissioner of internal Revenue

and Secretary of Justice relied on Sections 27(A) ("Rates of!ncome Tax on
DOlllestic Corporations"), 28 ("Rates of Income Tax on Foreign
ll
Corporations 50 ("Allocation of Income and DeductionsH) and 244
),
("Authority of Secretary of Finance to Promulgate Rules and Regulations")

of the 1997 National Internal Revenue Code, as legal bases to support the
issuance of the assailed Revenue Regulation.
This Court finds, after wejghing the arguments of the parties, that
Respondents were unable to refute that the Revenue Regulation which
imposes an accounting method on the banks and the financial institutions
with regard to the allocation of their expenses. This imposition of an
accounting method has no basis in Sections 27(A) and 28 of the 1997
National Internal Revenue Code. Those provisions only provide for the
different tax rates for the sources of incorne of dornestlc and foreign
corporations. Nowhere in those provisions did it empower the Secretary of
Finance or the Commissioner of Internal Revenue to impose a particular
accounting method for allocating expenses of a corporation.
This Court likewise finds that Section 50 of the N IRC does not justify
the passage of the Revenue Regulation. The .said provision only applies
when (1) there are two or more separate and distinct organizations, trades
or businesses; and (2) there has been a prior deternllnation (I.e. post-audit)
that the method of income/cost allocation among the involved
organizations, trades or businesses does not clearly reflect the results 9f
the operations of the business unit or that there is a need to prevent t~x
evasion. In the present case) however, the Revenue Regulation provid~s
for an allocation rnethod for different income strearns \Nithin one bank Or
financial institution. Moreover, this allocation method is irnposed before
any determination that the cost allocation method does not clearly reflect
the results of business operations.
It is also clear to this Court that Section 43 ("General Rule" on

Accounting Periods and Methods of Accounting) of the 1997 National
Internal Revenue Code allows the Commissioner of internal Revenue to
impose an accounting n1ethod only if no such method of accounting has
------.. ----.---
--~- .........
llG.R No. 210588. Novetnber 29, 2016.
:].5
been so employed or if the method ernp/oyed does not clearly reflect the
inconle. Thus, if a particular entity already elnploys an accounting method,
and such method clearly reflects the income the Cornnlissioner of Internal
1
Revenue cannot substitute its own judgment and irnpose an accounting

method on the taxpayer entity.
In the present case, it is not disputed that the Petitioners already

have an accounting method which they employ in allocating expenses.
There was no finding by the Respondents on the taxpayers concerned that
would show that the accounting nlethods ernployed by said taxpayers do
not reflect their actual income. Thus, there is no basis 'for the Respondents
to illlpose an accounting method for allocating the ~xpenses of Petitioners,
as provided in the Revenue Regulation.
The argument of Respondent CIR that this accounting method can be

detennined even before an audit or a finding that the accounting methods
do not reflect the actual income shows the arbitrariness of, and the
exercise of undue haste in, the issuance of the Revenue Regulation.
Indeed, an audit is the best protection not only for the taxpayers but also
the state so that there is no· doubt that taxes and the method of their
computation were arrived at fairly and thoughtfully.
Furthermore, the itl1posed method of allocation under the Revenue

Regulation is not fair nor equitable to a' similar class of taxpayers. To
demonstrate, aside from imposing a limitation on the accounting method to
be used by the taxpayer concerned which is not found in the "1997 National
l
Internal Revenue Code, the Revenue Regulation further imposed a

lir:nitation on the deductibility of ordinary and necessary expenses, which in
turn would gravely affect the concerned taxpayers) rIght to deduct in full the
ordinary and necessary expenses as provided in the 1997 National Internal
Revenue Code. In addition, ttle Revenue Regulation provides that the
allowable deduction of the ordinary and necessary expenses only
corresponds to the percentage of the income subject to regular corporate
income tax out of the total gross income is in direct contrast to Section
34(A)(1 )(a) of the 1997 National Internal Revenue Code which only
requires that an expense must have been paid or incurred in carrying out a
trade or business for it to be deductible) in full, frorn the inCOll1e derived
frorn the trade or business operations concerned. The said enabring law
did not provide any qualification nor limit as to the anl0unt of the ordinary
and necessary expenses which can be deducted.
Still another effect of the imposition under the Revenue Regulation IS

that it divides one single taxpayer into its several business activities, as if
each business activity is a separate taxpayer. Various income-generating
~spects of a taxpayer with regular banking units cannot be treated
lndep~nd~ntly considering that there are synergies within the taxpayer's
organization that work together in carrying out a single trade or business.
16
.:.:.
While this Court accepts the disputable presumption of regularity and

constitutionality of regulatory issuance, this presumption can be overconle
if the Petitioner avails of a remedy such as declaratory relief whose
purpose is precisely to squarely assail ttle unconstitutionality of the
issuances. This Court believes that the burden has been sufficiently
discharged by Petitioners in this case.
With regard to the violation of the equal protection clause, Petitioners

argue that the Revenue Regulation imposes this accounting method only to
banks and financial institutions. They claim that it is a vjolation of their right
under the Constitution against unequal protection of laws.
A perusal of the questioned Revenue Regulation does reveal under

its objective that the purpose of its passage is to "clearly set the rules on
the allocation of cost and expenses between the Regular Banking Unit
(RBU) or Foreign Currency Oeposit Unit (FCDU) I Expanded Foreign
Currency Deposit Unit (EFCDU) or Offshore Banking Unit (OBU)
operations' of a depository bank considering that the RBU and
FCDUIEFCDU or OBU is governed by different incorne taxation regin7e in
the National Internal Revenue Code (NtRe) of 1997 as amended." It
further stated that "[tjl1ese Regulations are likewise applicable to other
financial institutions which are subject to or exernpt frorn both regular
income and final taxes reference to proper aJ/ocation of costs and
expenses. J1.Given this objective, the Revenue Regulation was intended
solely for the banks and financial institutions, and not to other types of
taxpayers.
Under the equal protection clause of the 1987 Constitution, arbitrary

power in enforcing its edicts to the injury of the persons and property of the
citizens is not law. 13 In such excesses) this Court should step in and protect
the constitutional right of Petitioners to due· process and equal protection.
True, the government is authorized to make reasonable and natural

classifications for purposes of taxation and regulation. 14 The requirements
for a valid and reasonable classification under the Equal Protection Clause
are: (1) it must rest on substantial distinctions; (2) it must be genllane to
the purpose of the law; (3) it must not be limited to existing conditions only;
and (4) it must apply equally to a·1I members of the san1e class. 15
This Court finds that the Revenue Regulation failed to meet the
criteria for a vafid classification under the Equal Protection Clause due to
the folJowing observations:
1. There is no substantial distinction between Petitioners and the

other taxpayers whether to show why only banks and financiaJ institutions
1
Lopez v. Director of Lands! 47 Phil. 23 (1924:).

14
Sison v. Anch~~tar G.R No. L-59431, 25 Ju.ly 1984, 130 S(RA 65 l, 664.
L
15
lvlindanao Shopping Destination Corp. v. Duterte, C.R No. 211093. June 6, 2017.
17
"
are subject to the allocation' method of their exper~ses prescribed in the

Revenue Regulation. Under the Equal Protection C}aus9! person.s who are
in like circumstances and conditions must be treahr~d aUke both a.s to the
privileges conferred and liabihties imposed. 16
2. The singling out of banks and financial institutions by this

Revenue Regulation is not germane to the purpose o-f the law. From the
foregoing provisions of the 1997 }\}ationaJ Interna! Revenue Code relied
upon by Respondents in their issuance of the Revenue Regulation, these
provisions do not support the allocation rnethod imposed in the said
regufation. Respondents do not propose any other legal basis which would
support the issuance.
It is clear that the assailed Revenue Regulation has gone over and
beyond the provisions of the 1997 National Internal Revenue Code relied
upon for its issuance. Therefors this. Court hOlds that the Revenue.
1
Regulation was issued ultra vires for having no basis in the 1997 National
Internal Revenue Code or other laws, and in vioiatiorl of the equal
protection clause of the Constitution.
WHEREFORE, in view of the foregoing prernises, the Petition for

Declaratory Relief in Sp. Civil Action No. 15-287 and the Petition in Civil
Case No. 15-291 are GRANTED. Revenue Regulation No. 4 ...2011 is
hereby declared NULL AND VOID for being issued beyond the authority of
the Secretary of Finance and Commissioner of Interna.1 Revenue. The Writs
of Preliminary Injunction issued on Aprii 25, 2015 and February 28, 2018,
respectively, are hereby MADE PERMANENT.
SO ORDERED.
Given in chambers this 25th day of May 2018 at the City of Makati.
HONORIO Ea GUANLAO, JR.

Presjding judge
OCi.'llilpO v. Enriquez! G.R No. 2259·72~_, NovC!lnbcr 8, 2016.
18
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Petition For Review On Certiorari

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Petition For Review On Certiorari

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REPUBLIC OF THE PHILIPPINES

- versus - G.R. No. 240163

ASIA UNITED BANK, BOO

~. Petition for Review

PETITION FOR REVIEW

PETITIONERS THE DEPARTMENT OF FINANCE

COMMISSIONER, through the Office of the Solicitor General

NATURE OF THE PETITION

1. This is a Petition for Review on Certiorari under Rule

3. Briefly, RR No. 4-2011·' established rules on the

STATEMENT OF MATERIAL DATES

4. On June 25, 2018, petitioners, through the OSG,

Court in Makati City, in Civil Case Nos. 15-287, 15-291 and

5. Under Section 2, Rule 45 of the Rules of Court,

6. Due to the heavy pressure of work in other equally

7. Accordingly, this Petition for Review on Certiorari is

8. Petitioner DOF is the government agency

9. Petitioner SIR is vested with the assessment and

'~ Petition for Review

10. The DOF and the SIR may be served with

11. Respondent Asia United Bank (AUB) is a local

12. Respondents BDO Unibank, Inc. (BDO Unibank),.

13. Respondent Citibank Philippines, is the duly

14. Respondent Deutsche Manila is the duly registered

15. Respondent ING Manila· is the duly registered

Petition for Review

institution duly organized and existing under the laws of the

16. Respondent Standard Chartered Bank, Philippines

17. Respondent Hongkong Shanghai Banking

18. Respondent HSBC Savings Bank, Philippines, Inc.

19. Respondent Korea Exchange Bank, Manila Branch

20. Respondent JPMorgan Chase Bank, N.A., Philippine

21. The above respondents may be served with notices

22. Respondent Bank of America (BofA) Philippines is

c'( lletition for Review

23. Respondent United Overseas Bank Philippines

24. Respondent Land Bank of the Philippines (LBP) is a

25. Respondent Development Bank of the Philippines

26. Respondent Bank of the Philippine Islands (BPI) is

27. The above respondents are banks or financial

STATEMENT OF THE FACTS

28. On March 15, 2011, respondent Secretary of the

29. RR No. 4-2011 aims to set the rules on the

30. RR No. 4-2011 requires that all costs and expenses

31. In February and March 2015, petitioner SIR sent

32. Despite the issuance of these notices, respondent

Trial Court, alleging that RR No. 4-2011 is unconstitutional

33. After notice and hearing, the RTC issued an order

34. On April 27, 2015, the RTC issued an order granting

35. During pre-trial, the parties agreed that the issue

36. After the submission of the respective memoranda,

WHEREFORE, in view of the foregoing premises, the

37. Hence, this petition for review on certiorari raising

GROUNDS FOR ALLOWANCE OF THE PETITION

THE RTC ERRED IN RULING THAT IT HAD

RR NO. 4-2011' IS A VALID REGULATION

I. The RTC had no

38. The petitions assailing the validity of RR No. 4-2011