It is a fundamental rule in statutory construction that between a general law and a special law, the latter prevails because a special law reveals the legislative intent more clearly than a general law does.
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When a foreign national living in the Philippines died, his sole heir settled his estate. Part of the settlement involved the payment of more than P4 million in estate tax for his US dollar account in HSBC, a foreign currency deposit account.
Thereafter, the estate sought a refund of the payment, claiming the account should have been exempt from estate tax under Republic Act 6426. The claim was denied by the Bureau of Internal Revenue, resulting in a suit before the Court of Tax Appeals.
After the trial, the court ruled in favor of the estate and ordered the refund of the amount prayed for.
On appeal to the Court of Tax Appeals en banc, the decision was affirmed. This prompted the BIR, through the commissioner, to elevate the matter to the Supreme Court of the Philippines.
The Supreme Court declared:
“The BIR claims that Romig’s HSBC USD Savings Account is subject to the estate tax because it is not an allowable deduction under Section 86(A) of the 1997 NIRC nor is it among the acquisitions and transmissions which are not subject to estate tax under Section 87 of the same Code.
“Further, the BIR posits that the tax exemption of FCDUs (Foreign Currency Deposit Unit) under Section 6 of Republic Act 6426 was revoked upon the enactment of the 1997 NIRC, as amended. For its part, the Estate counters that there is nothing in the 1997 NIRC that explicitly revokes the tax exemption found in Section 6 of Republic Act 6426. It argues that Republic Act 6426, being a special law, could not have been impliedly repealed by the 1997 NIRC, given that the latter is a general law that merely provides for a general repealing clause.
“The Court finds the argument of the Estate meritorious. Republic Act 6426 is a special law created particularly for foreign currency deposits in the Philippines, with the goal of attracting deposits from foreign lenders and investors. Pertinently, Section 6 thereof states:
‘Section 6. Tax Exemption — All foreign currency deposits made under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency deposits authorized under Presidential Decree No. 1034, including interest and all other income or earnings of such deposits, are hereby exempted from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or non-residents so long as the deposits are eligible or allowed under aforementioned laws and, in the case of non-residents, irrespective of whether or not they are engaged in trade or business in the Philippines.’
“Prior to its passage in 1972, one of the country’s main economic challenges was the unstable financial condition caused by heavy dollar spending, which resulted in a dollar deficit. To address this problem and to likewise increase the country’s reserves, the government encouraged foreign currency deposits in duly authorized banks so that these may be put into the stream of the banking system.
“Towards this end, Republic Act 6426 provided tax exemptions and incentives to FCDU deposits, as well as banks and financial institutions having an FCDU license.
“Meanwhile, the 1997 NIRC is a general law that governs the imposition of national internal revenue taxes, fees, and charges. Among the taxes imposed by the 1997 NIRC is the estate tax, which is a tax on the right of a decedent to transmit his or her estate to lawful heirs and beneficiaries at the time of death.
“Under Sections 84 and 85, an estate tax shall be levied, assessed, collected, and paid upon the transfer of the net estate of every decedent, whether resident or non-resident of the Philippines, based on the value of such net estate, by including the value at the time of the decedent’s death of all property, real or personal, tangible or intangible, wherever situated.
“It is a fundamental rule in statutory construction that between a general law and a special law, the latter prevails because a special law reveals the legislative intent more clearly than a general law does. Moreover, a special law cannot be repealed or modified by a subsequently enacted general law in the absence of any express provision in the latter law to that effect. A special law must be interpreted to constitute an exception to the general law in the absence of special circumstances warranting a contrary conclusion.
“Based on the foregoing, it then becomes apparent that the decedent’s HSBC USD Savings Account is governed by the provisions of Republic Act 6426 and is therefore exempt from any and all taxes, including the estate tax. Hence, the Court upholds the ruling of the CTA en banc that the Estate has the right to recover the amount of P4,565,349.07 representing the estate tax that it had erroneously paid to the government.”
The facts and quoted but redacted portion of the decision are from SC G.R. 262092 (29 October 2024).
