THE Supreme Court has declared void for being unconstitutional the regulations issued by the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC) requiring businesses, including those in the banking and financial sectors, to disclose the names of their investors including their addresses, tax identification number (TIN) and their corresponding amount of income and withholding tax.
In a 46-page decision penned by Associate Justice Ramon Paul L. Hernando, the SC held that BIR Revenue Regulations 1-2014, Revenue Memorandum Circular (RMC) 5-2014 and SEC Memorandum Circular (MC) 10 (Series of 2014) violate the petitioners’ right to privacy and due process.
The Court raised the possibility of abuses in the enforcement of the regulations.
“There is no assurance that the information gathered and submitted to the listed companies pursuant to the questioned regulations will be protected and not be used for any other purposes outside the stated purpose,” the SC stressed.
“The investors provided their information to the brokers, presumably without the intention of sharing such with any other entity, including the investee companies and the BIR,” it added.
Criminal penalties
ON September 9, 2014, the Court issued a temporary restraining order (TRO) enjoining the BIR and the SEC from implementing the regulations.
The TRO was sought by the Philippine Stock Exchange Inc. (PSE), the Bankers Association of the Philippines, the Philippine Association of Securities Brokers and Dealers Inc., the Fund Managers Association of the Philippines, the Trust Officers Association of the Philippines and Marmon Holdings Inc.
Petitioners argued that their right to privacy over their personal information protected by Republic Act 10173 (Data Privacy Act), is violated by the regulations.
Requiring broker dealers to divulge personal information of their clients such as TIN, birthdate and address, if such were followed, would expose the broker dealers to criminal penalties under the Data Privacy Act.
Petitioners said their right to due process was violated by the respondents—Department of Finance, BIR and SEC—which failed to send notice or hold hearings to explain the provisions and requirements of the regulations.
The SC affirmed both of the arguments of the petitioners. It held that the government failed to prove that issuing the regulations would prevent abuses in the payment and collection of taxes.
The DOF, the BIR and the SEC did not claim or show that taxes were improperly collected or there was collection deficit due to lack of certain details like the ones sought by the assailed regulations, the SC said.
Increasing burden
ACCORDING to the High Tribunal, “the State must show an active effort in showing the inefficacy of all possible alternatives; this is to assure that the chosen course of actions is the sole effective means. This can be supported through sound data gathering, which respondents failed to do or show in the instant case.”
“Thus, the Court sees that the enforcement of the questioned regulations puts the right to privacy of the investors in peril. For this, the questioned regulations must be struck down,” it added.
The SC said respondents should have held a public hearing since the assailed regulations are not mere “interpretative issuances” but “legislative in nature that change, if not increase, the burden of those governed.”
Thus, the SC said, notice and hearing are required for such to be considered valid.
“In fine, the questioned regulations should have undergone notice and hearing prior to their enactment. They imposed new and substantial burdens on those governed. For failure to conduct notice and hearing prior to issuance and publication, the questioned regulations are therefore void.”
Aside from requiring businesses to submit an alphabetical list of payees, BIR RR 01-14 also prohibits the lumping into one single amount and account of various income payments and taxes withheld such as “PCD nominee,” “Various Payees,” or “Others.”
No authority
ON the other hand, BIR RMC 5-15 requires withholding agents to indicate in the alphalist the tax identification numbers, complete names, income amount and tax withheld from the payees.
SEC MC 10-14 supplements the provisions of RR 01-14 by directing the Philippine Depository and Trust Corp. (PDTC), broker dealers and other depository participants to provide listed companies with the information needed to enable the latter to comply with RR 01-14.
The BIR earlier said RR 01-14 was issued “for purposes of ensuring that information on all income payments paid by employers/payors, whether or not subject to the withholding tax except on cases prescribed under existing international agreements, treaties, laws and revenue regulations, regardless on the number of employees and/or payees, are monitored by and captured in the taxpayer database of the BIR, with the end in view of establishing simulation model, formulating analytical framework for policy analysis and institutionalizing appropriate enforcement activities.
The SC also ruled that the SEC had no authority to issue SEC MC 10- 2014 and that the DOF and the BIR, in including the prohibition on lumping of accounts, acted outside of their scope of authority.
It said the enforcement of tax laws is within the powers of the DOF and the BIR and not the SEC.
Image credits: Mike Gonzalez via Wikimedia Commons CC BY-SA 3.0