HSBC vs CIR

Facts:
Petitioner HSBC performs custodial services in behalf of its investor-clients with
respect to their passive investments in the Philippines. It serves as the
collection/payment agent with respect to dividends and other income derived from its
investor-clients’ passive investments. These investor-clients maintain Philippine peso
and/or foreign currency accounts, which are managed by HSBC through instructions
given through electronic messages.
Pursuant to such electronic messages, HSBC purchases and pays Documentary
Stamp Tax. Later, the BIR issued BIR Ruling No. 132-99 to the effect that instructions or
advises from abroad on the management of funds located in the Philippines which do
not involve transfer of funds from abroad are not subject to DST.
HSBC then filed an administrative claim for refund for the DST it paid for the
electronic messages. HSBC brought the matter to the CTA, which favored HSBC. On its
decision, the CTA held that HSBC is entitled to a tax refund or tax credit because
Sections 180 and 181 of the 1997 Tax Code do not apply to electronic message
instructions transmitted by HSBC’s non-resident investor-clients.
However, the CA reversed the decision. It held that imposition of DST is not on
the bill of exchange or order for payment of money but on the acceptance or payment of
the said bill or order.

Issue:
Whether the electronic messages can be considered negotiable instruments and
thus are subject to Documentary Stamp Tax.

Ruling:
No. The Court held that the electronic messages of HSBC’s investor-clients
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are
"parallel to an automatic bank transfer of local funds from a savings account to a
checking account maintained by a depositor in one bank." The Court favorably adopts
the finding of the CTA that the electronic messages "cannot be considered negotiable
instruments as they lack the feature of negotiability, which, is the ability to be
transferred" and that the said electronic messages are "mere memoranda" of the
transaction consisting of the "actual debiting of the [investor-client-payor’s] local or
foreign currency account in the Philippines" and "entered as such in the books of
account of the local bank," HSBC.