Mercantile Law

HSBC v. CIR G.R. No. 166018 June 4, 2014 Negotiable Instruments, Bill of Exchange, Electronic Messages


HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed by HSBC through instructions given through electronic messages. The said instructions are standard forms known in the banking industry as SWIFT, or “Society for Worldwide Interbank Financial Telecommunication.” In purchasing shares of stock and other investment in securities, the investor-clients would send electronic messages from abroad instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price therefor upon receipt of the securities.

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary Stamp Tax (DST). The BIR, thru its then Commissioner, Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or advises from abroad on the management of funds located in the Philippines which do not involve transfer of funds from abroad are not subject to DST.

HSBC filed an administrative claims for the refund of the amounts allegedly representing erroneously paid DST to the BIR.

As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter to the CTA.

The CTA favored HSBC. Respondent CIR was ordered to refund or issue a tax credit certificate in favor of HSBC, representing erroneously paid DST that have been sufficiently substantiated with documentary evidence.

The CTA ruled that Sections 180 and 181 of the 1997 Tax Code do not apply to electronic message instructions transmitted by HSBC’s non-resident investor-clients.

However, the Court of Appeals reversed the decisions of the CTA and ruled that the electronic messages of HSBC’s investor-clients are subject to DST.

Hence, these petitions.


Whether or not the electronic messages received by HSBC from its investor-clients abroad instructing the former to debit the latter’s local and foreign currency accounts and to pay the purchase price of shares of stock or investment in securities are negotiable instruments.


The Court favorably adopts the finding of the CTA that the electronic messages “cannot be considered negotiable instruments as they lack the feature of negotiability, which, is the ability to be transferred” and that the said electronic messages are “mere memoranda” of the transaction consisting of the “actual debiting of the [investor-client-payor’s] local or foreign currency account in the Philippines” and “entered as such in the books of account of the local bank,” HSBC.

More fundamentally, the instructions given through electronic messages that are subjected to DST in these cases are not negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of the Negotiable Instruments Law.

The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of exchange.

As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines, there could have been no acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.

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