Bloomberg News

Rizal Bank Asks Philippine Court to Review Tax Agency Bond Rule

October 14, 2011

Oct. 14 (Bloomberg) -- Rizal Commercial Banking Corp. said it asked a Philippine court yesterday to review a government order that seeks to impose a 20 percent tax on bonds sold in 2001 that were supposed to be exempt from the levy.

Rizal is “questioning the propriety and legality” of a Bureau of Internal Revenue ruling this month that a final withholding tax is applicable on 35 billion pesos ($808 million) of government bonds due Oct. 18, Macel Fernandez Estavillo, the bank’s head of legal and regulatory affairs, said in a telephone interview today from Manila. The ruling is in breach of contract, she said.

The government will generate almost 5 billion pesos in revenue from the levy, the tax agency estimated last week.

The Bankers Association of the Philippines, which represents the nation’s 36 commercial lenders, is seeking a dialog with the government to discuss the issue, Nestor Tan, head of the association’s tax committee, said by telephone.

“We are hoping the government will reconsider this ruling because this sets a bad precedent for future capital issues,” said Tan, who is also president of Banco de Oro Unibank Inc. “It will impact profits of banks in varying degrees.”

The internal revenue agency on Oct. 7 said that the 20 percent tax on the bonds will be deducted by the Bureau of the Treasury at the time of redemption. The bonds weren’t subject to a withholding tax, according to a term sheet distributed to investors when the debt was issued in 2001.

“This ruling came as a total surprise to all the banks,” Metropolitan Bank & Trust Co. Treasurer Fernand Antonio Tansingco said in a separate phone interview. “Investors who in good faith bought the government bonds according to the term- sheet details will suffer.”

--With assistance from Clarissa Batino in Manila. Editors: Chitra Somayaji, Alan Soughley

To contact the reporter on this story: Karl Lester M. Yap in Manila at

To contact the editor responsible for this story: Stephanie Phang at Chitra Somayaji at

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