Via ODiSy March 22, 2012 PHILIPPINE STOCK EXCHANGE ... - BDO

- 132 -PEACe bondsOn October 18, 2001, the Bureau of Treasury (BTr), through an auction, offeredten-year zero coupon treasury bonds, called the Poverty Eradication and AlleviationCertificates Bonds (PEACe Bonds), to Government Securities Eligible Dealers.Rizal Commercial Banking Corporation (RCBC) won the bid in the same year and wasawarded approximately P35,000 worth of government bonds. The PEACe Bonds weresubsequently purchased by investors, including the BDO Unibank, who relied in goodfaith on representations that the same are not subject to 20% Final Withholding Tax(20% FWT).On July 16, 2004, the Commissioner of Internal Revenue ruled that the mere issuanceof government debt instruments and securities is deemed as falling within the coverageof deposit substitute irrespective of the number of lenders at the time of origination.Accordingly, government debt instruments and securities are not exempt from taxes.On October 7, 2011, or nearly ten years after the auction, the Commissioner of InternalRevenue, upon the request of the Secretary of Finance, issued a ruling stating that thePEACe Bonds are not exempt from the 20% FWT.October 16, 2011, Eight Banks that purchased the PEACe Bonds filed a case in theSupreme Court to enjoin the BTr and BIR from withholding or collecting the 20% finalwithholding tax, upon payment at maturity, as well as from enforcing the 2011 ruling.On October 17, 2011, the BIR issued a second ruling stating that the 20% FWT shouldbe imposed upon all subsequent holders of the PEACe Bonds.On October 18, 2011, the Supreme Court unanimously resolved, and issued aTemporary Restraining Order (TRO) which enjoined the government fromimplementing 2011 rulings that the Peace Bonds were subject to 20% final withholdingtax. The Supreme Court instructed that the disputed amount should be placed inescrow by the petitioning banks.On October 27, 2011, RCBC and RCBC Capital, as the original purchasers of thePEACe Bonds filed a Motion for Leave of Court to Intervene, which was granted bythe Supreme Court on November 15, 2011On November 15, 2011, the Supreme Court required the Government to show causewhy they failed to comply with the October 18, 2011 TRO and, required them tocomply with said TRO within 10 days from notice, which would cause the return of thefunds to the petitioning banks, for the latter to place in escrow.The Government has requested additional time within which to file their Comment onthe Petitions-in-intervention.Management believes that the petitioning banks have a strong case, and that theprobability of recovery is high.