In this world nothing can be said to be certain, except death and taxes. – Benjamin Franklin. This is especially true in case of the settlement of the estate of a deceased person which requires concomitant payment of estate taxes. However, what if the deceased left foreign currency deposits, are they still subject to estate taxes?
This is what the Supreme Court had recently ruled upon in the case of CIR v. Estate of Mr. Charles Marvin Romig (G.R. No. 262092, 9 October 2024).
In this case, Mr. Romig, an American national, died intestate in the Philippines in November 2011. Thereafter, his sole heir filed an Affidavit of Self-Adjudication to claim his properties, including a US Dollar savings account with Hongkong and Shanghai Banking Corporation (HSBC). The estate filed an Estate Tax Return paying Php 26,152.00 in estate taxes and simultaneously requested a confirmatory ruling from the Bureau of Internal Revenue (BIR) regarding the tax exemption of the HSBC account under the Foreign Currency Deposit Act of the Philippines. Later, the estate filed an Amended Estate Tax Return, paying an additional PHP 4,565,349.07 in taxes on the HSBC account. However, the estate filed a claim at the BIR for a refund alleging that it erroneously paid estate tax, including interest and penalties.
The Commissioner of Internal Revenue asserts that Mr. Romig’s HSBC USD Savings Account is subject to estate tax because it does not meet the conditions as an allowable deduction under Section 86(A) of the 1997 National Internal Revenue Code (NIRC) and that the tax exemption for Foreign Currency Deposit Units (FCDUs) under Republic Act No. 6426 was revoked with the enactment of the 1997 NIRC. On the other hand, the estate counters that Section 6 of Republic Act No. 6426, which grants tax exemptions for foreign currency deposits, has not been explicitly repealed by the 1997 NIRC.
The Supreme Court ruled in favor of the estate of Mr. Romig and held that foreign currency deposit accounts under the Expanded Foreign Currency Deposit System (EFCDS) are exempt from estate tax upon the depositor’s death.
The Court traced back the origin and purpose of the tax exemption. It explained that RA No. 6426 was specifically enacted to encourage foreign currency deposits in the Philippines, with tax exemptions to attract foreign investments considering the unstable financial condition caused by heavy dollar spending, which resulted in a dollar deficit. Section 6 of the said Act clearly exempts foreign currency deposits, including interest and earnings, from any taxes, regardless of whether the depositors are residents or non-residents. On the other hand, while the NIRC governs estate taxes, it does not contain any explicit provision that repeals the tax exemption for foreign currency deposits under Republic Act No. 6426. The Court emphasized that it is a fundamental rule in statutory construction that between a general law and a special law, the latter prevails because a special law reveals the legislative intent more clearly than a general law does. Thus, the tax exemption for FCDUs under Republic Act No. 6426 remains valid.
This ruling has significant implications for individuals with foreign currency deposits in the Philippines. It highlights that the law does not provide any mechanism for taxing these deposits upon death. Since estate tax liabilities are computed based on the assets that can be lawfully accessed and disclosed, foreign currency deposits remain beyond the reach of estate tax assessments. It confirms that these deposits remain protected even after the depositor’s death, making them a potential estate planning tool for preserving wealth. However, since the law prioritizes confidentiality, heirs and executors of estates may also face challenges in accessing such accounts without the necessary documentation or court intervention. Those involved in estate planning should consider consulting legal and financial experts to navigate these complexities.
