Estate Tax Exemption for Foreign Currency Deposits

Background of the case 

Charles Marvin Romig, an American citizen residing in Puerto Galera, Oriental Mindoro, Philippines, passed away intestate in 2011. His sole heir, Maricel Narciso Romig, assumed ownership of his assets, including a U.S. dollar deposit account with the Hongkong and Shanghai Banking Corporation (HSBC) in Makati. Initially, Maricel excluded this foreign currency deposit from the estate tax computation. However, upon further consideration, she paid an additional PHP 4,565,349.07 in estate taxes to include the dollar account. Subsequently, she sought a refund, arguing that under Section 6 of Republic Act No. 6426 (RA 6426), also known as the Foreign Currency Deposit Act of the Philippines, such deposits are exempt from estate tax.  

In the Commissioner of Internal Revenue (CIR) denied the refund claim, asserting that the tax exemption for foreign currency deposit accounts had been revoked by the National Internal Revenue Code (NIRC) of 1997. The CIR maintained that all properties of a resident alien decedent, regardless of location, are subject to estate tax. Furthermore, the CIR argued that foreign currency deposits of a resident alien are neither listed among allowable deductions nor among acquisitions and transmissions exempt from estate tax under the NIRC.  

Are all properties of a resident alien decedent subject to estate tax? 

The Court of Tax Appeals (CTA) ruled in favor of the estate, granting the refund. The CTA held that RA 6426, being a special law governing foreign currency deposits, prevails over the general provisions of the NIRC. The court emphasized that the exemption provided under RA 6426 applies to foreign currency deposits, thereby exempting them from estate tax.  

The CIR elevated the case to the Supreme Court, which upheld the CTA's decision. In a ruling penned by Associate Justice Ramon Paul L. Hernando, the Supreme Court affirmed that foreign currency deposit accounts are exempt from estate tax under RA 6426. The Court reasoned that the specific provisions of RA 6426 take precedence over the general tax provisions of the NIRC. This decision underscores the legislative intent to encourage foreign currency deposits by providing tax incentives, including exemption from estate tax.  

Tax treatment of foreign currency deposits 

This landmark ruling clarifies the tax treatment of foreign currency deposits in the context of estate taxation. It reinforces the principle that special laws prevail over general laws when there is a conflict between the two. The decision also highlights the importance of legislative intent in statutory interpretation, particularly in tax laws designed to promote specific economic policies. 

The Supreme Court's decision in Commissioner of Internal Revenue vs. Estate of Mr. Charles Marvin Romig provides a definitive interpretation of the tax exemption status of foreign currency deposits, offering valuable guidance for future cases involving similar issues. 

(Commissioner of Internal Revenue v. Estate of Mr. Charles Marvin Romig represented by its sole heir Mrs. Maricel Narciso Romig, G.R. No. 262092 (Notice), January 28, 2025) 

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