Tax exemptions, being in derogation of the State’s inherent power to tax, are strictly construed against the taxpayer. Thus, when one is upheld, it is not merely a legal triumph — it is a cause for celebration. In G.R. No. 262092 (October 9, 2024), the Supreme Court ruled that a foreign currency deposit — specifically an HSBC USD Savings Account — is exempt from estate tax under Section 6 of Republic Act No. 6426 (1974), also known as The Foreign Currency Deposit Act of the Philippines. This provision categorically exempts foreign currency deposits from “any and all taxes whatsoever.”
The Court emphasized that this exemption remains valid and has not been expressly repealed or amended by the 1997 National Internal Revenue Code (NIRC). Applying the rule that a special law prevails over a general law, the Court upheld the estate’s entitlement to the refund of estate taxes erroneously paid on the deposit.
Case Background:
Charles Marvin Romig, an American citizen and resident of Oriental Mindoro, passed away intestate. His sole heir, Maricel Narciso Romig, executed an Affidavit of Self-Adjudication, adjudicating to herself all the properties left by Charles, including a Foreign Currency Deposit Unit (FCDU) account with HSBC Premiere–Makati Branch.
Subsequently, Maricel, acting as the representative of the estate, filed the estate tax return and paid the corresponding estate tax. Believing the tax paid on the HSBC deposit was erroneous, the estate filed both an administrative and judicial claim for refund.
Supreme Court Ruling:
The Supreme Court ruled in favor of the estate, holding that Section 6 of R.A. No. 6426 remains effective. The Court emphasized:
- R.A. No. 6426 is a special law enacted to attract foreign currency deposits from residents and non-residents to address the dollar deficit and support the country’s financial system.
- The law grants broad tax exemptions on eligible foreign currency deposits, including interest and other income, regardless of the depositor’s residency or business activity in the Philippines.
- In contrast, the 1997 NIRC is a general law governing internal revenue taxes, including the estate tax — which is imposed at a rate of 6% of the net estate’s value at the time of death.
- The NIRC does not contain any express repeal of the tax exemption under R.A. No. 6426.
Applying the rules of statutory construction, the Court held that the provisions of R.A. No. 6426 must be construed as an exception to the general provisions of the NIRC.
This article provides a general overview of the case and is not intended as legal advice. For case-specific guidance, please consult any of the Partners at GVES Law.
Atty. Ludanielle N. Legarde
Partner, GVES Law