THE Makati City Regional Trial Court stopped the Bureau of Internal Revenue (BIR) from implementing Revenue Regulations No. 4-2011 which prescribes the rules on the proper allocation of cost and expenses among the income earnings of banks and other financial institutions for income tax reporting purposes.
Makati RTC Judge Honorio Gualao Jr. issued the ruling after the Bankers Association of the Philippines (BAP) composed of several local and branches of foreign banks filed a petition for declaratory relief with application for a temporary restraining order and/or writ of preliminary injunction.
The restraining order is for 20 days and the court has set a hearing on April 20 for the application for a writ of preliminary injunction.
The objective of RR 4-2011 is to set the rules on income and expenses allocations of banks among their various operations, which are governed by different income tax rules
RR 4-2011 provides that a bank may deduct only those costs and expenses attributable to the operation of the Regular Banking Unit (RBU) to arrive at its taxable income. Any cost or expense related to or incurred in the operation of the foreign currency deposit unit (FCDU)/expanded FCDU (EFCDU) or offshore banking unit (OBU) is not allowed as deduction from the RBUs taxable income.
Failure to comply with the RR will subject officers of the banks and other financial institutions to criminal liability.
The banks filed a petition before the court to nullify RR 4-2011 after the BIR started issuing preliminary assessment notices (PANs) on several banks.
A PAN shows the deficiency tax assessment as well as the detailed facts and the law, rules and regulations or jurisprudence on which the proposed assessment is based.
Petitioner banks feared that issuance of PAN could lead to a distraint and levy of their properties.
Should there be distraint and levy, the banks will be deprived possession of their properties, effectively crippling their business operations, the petition stated.
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Banks win round 1 vs BIR policy on income, expenses allocations