G.R. No. 213860 , July 5, 2022
THE PHILIPPINE STOCK EXCHANGE, INC., ET AL., PETITIONERS, VS. SECRETARY OF FINANCE, ET AL., RESPONDENTS.

FACTS

Petitioners, including the Philippine Stock Exchange and various financial industry associations, filed a Petition for Certiorari and Prohibition assailing the constitutionality of Revenue Regulation No. 1-2014 (RR 1-2014), Revenue Memorandum Circular No. 5-14, and an SEC Memorandum Circular. These issuances mandated brokers, acting as withholding agents, to disclose the personal information of their investor-principals to the Bureau of Internal Revenue (BIR) via an alpha list whenever dividends are declared, replacing the prior practice of lumping payees under nominee accounts like “PCD Nominee.” Petitioners argued the issuances were issued with grave abuse of discretion.
The respondents, through the Office of the Solicitor General, defended the regulations as necessary for tax administration, ensuring proper withholding on dividend income and preventing tax evasion. The regulations aimed to pierce the anonymity provided by the scripless trading system and the use of securities intermediaries, requiring direct disclosure of beneficial owners to the BIR.

ISSUE

Whether the respondent government agencies committed grave abuse of discretion in issuing RR 1-2014 and related circulars.

RULING

The Court, through the main Decision and concurring opinions, granted the petition and invalidated the assailed issuances. The concurring opinion of Chief Justice Gesmundo emphasized that while stock market transactions are impressed with public interest and subject to state regulation, such regulation must be balanced against the constitutional policy encouraging private enterprise and investment. The opinion scrutinized the stated purpose of RR 1-2014—to ensure correct withholding taxes—and found it insufficient to justify the substantial new burden imposed.
Critically, the opinion highlighted that RR 1-2014 constituted a supplementary rule that went beyond merely interpreting existing law. It imposed new, onerous obligations by abolishing the long-standing practice of using nominee accounts for reporting, thereby mandating immediate and detailed disclosure of all investor information. This substantive rule-making required compliance with the mandatory procedural requirements of prior notice, hearing, and publication under the Administrative Code. Since the respondents failed to observe these requirements, RR 1-2014 was issued with grave abuse of discretion and is void. The invalidation of the related BIR and SEC circulars followed, as they were premised on the invalid regulation.