The Office of the Solicitor General (OSG) asked the Supreme Court to dissolve the temporary restraining order (TRO) it issued in favor of the Philippine Stock Exchange and company, prohibiting the enforcement and implementation of Bureau of Internal Revenue (BIR) and Securities and Exchange Commission (SEC) rules requiring the disclosure and submission of recipients of dividend income. The OSG also asked the SC to deny the petition that the PSE et al. filed last September 2014.
The TRO, which the SC issued in favor of the Philippine Stock Exchange, Inc. (PSE), the Bankers Association of the Philippines, the Philippine Association of Securities Brokers and Dealers, Inc., the Fund Management Association of the Philippines, the Trust Officers Association of the Philippines and Marmon Holdings, Inc., barred the Philippine government from enforcing and implementing Revenue Regulation No. 01-14 and Revenue Memorandum Circular No. 05-14, insofar as they prohibit the naming of an entity called the Philippine Central Depository (PCD) Nominee, or any other securities intermediaries representing the beneficial owner, as the payee for dividend payments made by listed companies.
The TRO likewise prevented in its entirety the implementation of SEC Memorandum Circular No. 10, Series of 2014, which required the submission of an alphabetical list (alpha list) of recipients of dividend income, a move seen to bolster the long overdue improvement of transparency and tax efficiency in the Philippine markets.
The OSG argued that the submission of the alpha list of PCD Nominee has always been a requirement under the National Internal Revenue Code (NIRC) since the time of manual alphabetical listing. The OSG pointed to Section 245 (i) of the NIRC, which specifically mandates the Commissioner of Internal Revenue to specify, prescribe or define “the manner in which tax returns, information and reports shall be prepared and reported and the tax collected and paid, as well as the conditions under which evidence of payment shall be furnished the taxpayer, and the preparation and publication of tax statistics.”
Government lawyers also maintained that BIR Commissioner Kim S. Jacinto-Henares, one of the respondents, was merely exercising the power granted her under the NIRC when she issued the questioned regulations. They pointed out that the questioned regulations are not the first issuances on how tax returns, information and reports are to be prepared and submitted to the BIR, because these are mere amendments to Revenue Regulation No. 2-98, as amended by RR 10-2008, both of which are interpretative of and based on Sec. 245 (i) of the NIRC. Both also require the submission of an alphabetical list of employees and list of payees on income payments subject to creditable and final withholding taxes which are required to be attached as integral part of the Annual Information Returns (BIR Form No. 1604CF/1604E) and Monthly Remittance Returns (BIR Form No. 1601, etc.).
Further, the OSG questioned the petitioners’ claim that the regulations were “impossible to comply with” and would expose issuers with legal liabilty, showing evidence that other entities, like the Philippine Dealing Holding Corporation & Subsidiaries (PDS) and the brokers of Pacific Online Systems Corporation (POSC), have confirmed ability to comply with the regulations. That companies were already complying with the said regulations prior to the issuance of the TRO shows that the petitioners’ concerns were unwarranted and even unrepresentative of the majority of the actors in the market.
The OSG, represented by Acting Solicitor General Florin T. Hilbay, also defended the action of respondent Securities and Exchange Commission (SEC) Chairperson Teresita J. Herbosa in issuing SEC MC 10-14, saying that the SEC Chair issued the said SEC MC pursuant to her authority and duties under the Securities Regulation Code (SRC) to assist the BIR and the DOF in the implementation of RR No. 01-14 and RMC No. 05-14 and her power of supervision over all corporations, partnership or associations (Section 5 of the SRC). The OSG added that SEC is only exercising its role to protect the investors and the public interest; to safeguard securities and funds; and to maintain fair competition among brokers, dealers, clearing agencies, and transfer agents.
The said questioned regulations, the OSG also argued, are preparations to the on-going Asia Pacific Economic Cooperation (APEC) Asia Region Funds Passport (ARFP), which will be launched in 2015, with more and more jurisdictions implementing stricter rules on disclosure to ensure transparency on the heels of the financial crisis half a decade ago. They are also the Government’s response to corporate governance advocates espousing disclosure of shareholdings as key to preventing future financial crises and as part of a global trend towards transparency and good corporate governance.
Finally, the OSG assured the Highest Tribunal that the questioned regulations do not allow unregulated processing and disclosure of personal information of investors. Rather, they facilitate transparency and allow for a mechanism for check and balance with the use of technology to establish a socially conscious, free and robust market that regulates itself, encourages the widest participation of ownership in enterprises, enhances the democratization of wealth, promotes the development of the capital market, protects investors, ensures full and fair disclosure about securities, and minimizes if not totally eliminates insider trading and other fraudulent or manipulative devices, and practices which create distortions in the free market.
Petitioners named in the case were the Philippine Stock Exchange, Inc., the Bankers Association of the Philippines, the Philippine Association of Securities Brokers and Dealers, Inc., the Fund Management Association of the Philippines, the Trust Officers Association of the Philippines, and Marmon Holdings, Inc. Named respondents in the case were Department of Finance Secretary Cesar V. Purisima, BIR Commissioner Kim S. Jacinto-Henares, and SEC Chairperson Teresita J. Herbosa.
