To tax or not to tax: A doctrinal analysis of the taxability of Foreign Currency Deposits in the estate of a depositor

The case of Commissioner of Internal Revenue (CIR) v. Estate of Romig,1 promulgated by the Court of Tax Appeals (CTA) En Banc last July 19, 2022, applied Republic Act No. 6426 or the Foreign Currency Deposit Act of 1972 (the 1972 FCDA), as amended in 1977 by Presidential Decree 12462 (R.A. 6426 (as amended)) to exempt Foreign Currency Deposits (FX Deposits) from estate tax. The estate of resident alien Charles Romig originally paid estate tax amounting to P26,152.00 which grew to PhP4,565,349.07 upon inclusion of the foreign currency deposit account of Romig on his Hongkong Shanghai Banking Corporation United States Dollar savings account. The estate sought the refund of the alleged erroneously paid estate tax. The CTA ruled based on statutory construction and upheld the principle that a special law, i.e., R.A. 6426 (as amended), being a special law of the foreign currency deposit system, governs over the National Internal Revenue Code of 1997 (1997 NIRC).3 The Romig case was triggered when the CIR took the view that Romig is not entitled to a refund of the estate tax paid for the transfer of the foreign currency deposits to his heirs because the decedent, although an American citizen, is a resident of the Philippines. Basing their arguments on Section 854 of the 1997 NIRC on Gross Estate, the CIR maintained that all of Romig’s properties, wherever situated, are subject to estate tax. The CIR further noted that FX Deposits of a resident alien decedent are neither listed in the allowable deductions from the value of the resident alien decedent’s gross estate under Section 86 (A) of the 1997 NIRC nor is it among the acquisitions and transmissions which are not subject to estate tax under Section 87 of the 1997 NIRC. The CIR also maintained that according to Section 84 of the 1997 NIRC, all persons – whether resident or nonresident of the Philippines – shall be levied and assessed estate tax that must be collected and paid upon the transfer of the net estate as determined in accordance with Sections 85 and 86 of 1997 NIRC. The CTA, however, dismissed the arguments of the CIR, stating that a reading of the pertinent provisions of R.A. 6426 (as amended), and the 1997 NIRC, show that the tax exemption in R.A. 6426 as amended by P.D. 1246 was not repealed with respect to imposition of estate tax to eligible deposits. The CTA further held that since R.A. 6426 (as amended) was a special law, it must prevail: the latter special law envisages the legislative intent clearer than a general statute (like the Tax Code) and must not be taken as intended to affect the specific provisions of the earlier act - unless it is necessary so to construe the general statute in order to give its language any meaning at all. The CTA also reiterated that R.A. No. 6426 (as amended) was enacted to address foreign currency deficits and to provide tax exemptions and incentives to encourage depositors. Thus, the CTA granted Romig’s petition for a refund of what it considered to be erroneously paid tax and thus exempted his FX Deposits from estate tax. The study aims to critique and examine the Romig ruling against the backdrop of: the long and rather complex history of the tax regime of foreign currency deposits in the Philippines, and the nature, and importance of estate tax. It also aims to provide fresh insights on what the proponents believe to be the appropriate analysis and interpretation of Section 6 of R. A. No. 6426 (as amended) in the sphere of CIR v. Romig, utilizing principles of taxation, statutory construction, and digging deep into the legislative intent on the imposition and exemptions of taxes on foreign currency deposits