The Court of Tax Appeals (CTA) has ruled that a consolidated rural bank does not enjoy another five-year exemption from all kinds of taxes, except corporate-income tax and local taxes, as provided by the Rural Banks Act, if the constituent banks have already availed themselves of such tax exemption.
In the case of One Network Bank Inc. v. Commissioner of Internal Revenue, the CTA en banc denied the petitioner’s appeal for a P152-million tax refund allegedly representing erroneous payment of gross receipts tax for taxable year 2012.
In 2009 One Network Rural Bank Inc. and Rural Bank of New Corella Inc. consolidated to form the One Network Bank Inc. The resulting corporation was authorized to operate as a rural bank by the Bangko Sentral ng Pilipinas in August 2011.
In 2012 the petitioner paid under protest its gross receipts tax amounting to some P152 million, then subsequently filed an administrative claim for refund which was not acted upon by the Bureau of Internal Revenue (BIR), hence, the petitioner’s recourse to the CTA to obtain the claimed refund.
The petitioner argued at the CTA that as a rural bank with a separate juridical entity from the dissolved corporations which constituted it, it is entitled to a fresh tax exemption for a period of five years from the date of commencement of operations, as provided by Republic Act (RA) 7353, or the Rural Banks Act.
The petitioner said that Revenue Memorandum Circular (RMC) 66-2012 issued by Internal Revenue Commissioner Kim Jacinto-Henares should not apply to it because its application would result in the retroactive application of the law.
The RMC 66-2012 provides that: “Rural banks formed through consolidation of existing rural banks shall not be entitled to the tax exemption under Section 15 of RA 7353 in cases when the constituent rural banks previously availed of this exemption. However, should any or both the constituent rural banks not be able to enjoy the tax exemption for the entire five-year period, then the consolidated rural bank shall be entitled to the exemption for the remaining period.”
However, the CTA said that even without RMC 66-2012, the intent of the Rural Banks Act was not to provide an indefinite tax exemption for rural banks. RA 7353 already provides in Section 18 a tax exemption for consolidated rural banks who shall merge and consolidate within three years from the enactment of RA 7353, which meant that Congress did not intend to extend the tax-exemption incentive past 1995.
The CTA also admonished the petitioner for citing as legal basis for the claimed exemption a BIR ruling issued in favor of one of the constituent corporations confirming its eligibility for the five-year tax exemption under the Rural Banks Act.
“Petitioner cannot invoke the argument that it is a new corporate entity under the Corporation Code only when it suits its purposes, and, on the other hand, disavow the same when it does not.
The general interpretative rule that petitioner claims it relied upon was a ruling for a single rural bank and its eligibility in availing the tax exemption under Section 15 of RA 7353.
The ruling did not involve a consolidated corporation borne out of several constituent rural banks,” the CTA decision said.