BANCO DE ORO, ET AL VS Republic of the Philippines, et al G.R. No. 198756, August 16, 2016

The Bureau of Treasury (BTr) in a notice announced the auction of 10- year Zero-Coupon Bonds denominated as the Poverty Eradication and Alleviation Certificates or the PEACE Bonds on October 16, 2001, which the BTr states shall not be subject to 20% final withholding tax since the issue is limited to 19 buyers/lenders.

At the auction, Rizal Commercial Banking Corporation (RCBC) participated on behalf of Caucus of Development NGO Networks (CODE-NGO) and won the bid.

Thus, bonds were issued to RCBC, who, as appointed issue manager and lead underwriter of CODE-NGO, then sold and distributed said government bonds to petitioner-banks.

On October 7, 2011, barely 11 days before maturity of the PEACe Bonds, the BIR issued the following:

BIR Ruling No. 370- 201119 declaring that the PEACe Bonds, being deposit substitutes, were subject to 20% final withholding tax . Under this, DOF directed BTr to withhold 20% final tax from the face value of the PEACe Bonds. BIR Ruling No. DA 378-201157 clarified that the final withholding tax should be imposed and withheld not only on RCBC/CODE NGO but also on all subsequent holders of the Bonds.

Banco de Oro, et al. thus filed a petition for Certiorari, Prohibition and Mandamus under Rule 65 to the Supreme Court contending the assailed 2011 BIR Ruling, with urgent application of TRO and/or writ of Preliminary Injuction.

SC then issued a TRO enjoining the implementation of the BIR ruling, subject to the condition that 20% FWT be delivered to the banks to be placed in escrow. SC Decision promulgated January 13, 2015, SC granted petition and ruled that the number of lenders/ investors at every transaction determines whether a debt instrument is a deposit substitute subject to 20% FWT. When at any transaction, funds are simultaneously obtained from 20 or more lenders/investors, there is deemed to be public borrowing and bonds are deemed deposit substitutes. Hence, seller is required to withhold 20% FWT on the imputed interest income from the bonds.

The two BIR Rulings is void for disregarding the 20-lender rule provided in Section 22 (Y) of the Tax Code. BTr reprimanded for its continued retention of the amount corresponding to 20% FWT. Separate Motions for Reconsideration and clarification were filed both by BDO, et al and the Republic, et al.


  1. Does CTA have jurisdiction to determine the constitutionality or validity of tax laws, rules and regulations, and other administrative issuances of CIR?
  2. May the 20-lender rule apply to PEACe Bonds?
  3. Assuming the PEACe Bonds are considered “deposit substitutes,” whether government or the Bureau of Internal Revenue is estopped from imposing and/or collecting the 20% final withholding tax from the face value of these Bonds?
  4. Whether BTr is liable to pay 6% legal interest rate?

YES. CTA has jurisdiction and may take cognizance of cases directly challenging constitutionality or validity of a tax law, regulation or administrative issuance such as revenue order, revenue memorandum circular, and ruling.

RA 9282: appeals from the decisions of quasi-judicial agencies on tax-related problems must be brought exclusively to the CTA

YES. The 20-lender rule may apply to PEACe Bonds, depending on the number of lenders “at any one time”

The definition of deposit substitutes in Section 22(Y) specifically defined “public” to mean “twenty (20) or more individual or corporate lenders at any one time.” Hence, if there are 20 or more lenders, the debt instrument is considered a deposit substitute which is subject to the 20% FWT.
“The reckoning of the phrase “20 or more lenders” should be at the time when the petitioner-intervenor RCBC Capital sold the PEACe bonds to investors. Should the number of investor to whom petitioner-intervenor RCBC Capital distributes the PEACe bonds, therefore, be found to be 20 or more, the PEACe Bonds are considered deposit substitutes subject to 20% final withholding tax. Petitioner-intervenors RCBC/CODE-NGO and RCBC Capital, as well as the final bondholders who have recourse to government upon maturity are liable to pay the 20% final withholding tax.”

YES. The Bureau of Internal Revenue is estopped from imposing and/or collecting the 20% final withholding tax from the face value of these Bonds

The Supreme Court interpretation in its January 2015 decision of the phrase “at any one time” to determine the phrase “20 or more lenders” to include both the primary and secondary market cannot be applied to the PEACe Bonds and should be applied prospectively.

RCBC and the rest of the investors relied in good faith on the BIR Rulings which provide that PEACe Bonds are not treated as deposit substitutes and are subject to the 20% final withholding tax.

YES. BTr may be held liable.

The BTr made no effort to release the amount corresponding to the 20% FWT which is an utter disregard and defiance of the order of the Court

BTr is ordered to immediately release and pay the bondholders the amount of P4,966,207,796.41, representing the 20% final withholding tax on the PEACe Bonds, with legal interest of 6% per annum from October 19, 2011 until full payment.


Credit to: Maika Ros Bagunu-Fontelera


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