The Supreme Court on Tuesday stopped the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC) from enforcing new regulations that would require the stock exchange, brokers, banks and other companies to disclose their shareholders or investors who receive income payments and dividends.
In an en banc session on Tuesday, the high court issued a temporary restraining order (TRO), effective immediately, stopping Finance Cesar Purisima and BIR Commissioner Kim Henares from enforcing the new regulations. The SEC was also covered by the TRO.
The TRO was issued in response to a petition filed by the PSE, the Bankers Association of the Philippines (BAP) and other groups questioning the BIR and the SEC’s issuance of new regulations requiring businesses to submit an alphabetical list (alphalist) of their portfolio investors, including personal information on these investors.
The Secretary of Finance, the BIR and the SEC were named respondents to the case.
The TRO, which is of indefinite duration, was issued under the leadership of acting Supreme Court Chief Justice Antonio Carpio. Chief Justice Sereno is on wellness leave.
The respondents were ordered by the high court to lodge their comments on the petition.
The petition alleged that the new regulations will jeopardize the privacy of individual investors and market stability in general.
Joining the PSE and BAP in the petition were the Philippine Association of Securities Brokers and Dealers, Inc., Fund Managers Association of the Philippines, Trust Officers Association of the Philippines, and Marmon Holdings Inc.
“Respondents, in the guise of tax administration, have jeopardized not only the stability of the Philippine capital market but also the liberty, properties, privacy and security of the market participants, which includes the petitioners,” the petition read.
In particular, the PSE assailed Department of Finance (DOF) Revenue Regulation No. 01-14 (RR 01-140); Memorandum Circular No. 05-14 (RMC 05-14), issued by the Commissioner of Internal Revenue (CIR); and Securities and Exchange Commission (SEC) Memorandum Circular No. 10, Series of 2014 (SEC MC 10-14) issued by the chair of the SEC.
The new regulations mandate listed companies to declare as payees of dividend payments the entities and individual investors including their personal information.
Petitioners said this runs counter to the system of scripless trading, where PCD Nominee Corp. is considered as the registered shareholder for shares of stocks lodged by broker-dealers before the Philippine Depository and Trust Corp. on behalf of investors.
PCD Nominee is the securities intermediary and also the payee of dividend payments for scripless stocks, or stocks with no certificates; the system also disallows access to information beyond the PCD Nominee.
The petitioners fear that compliance with the new regulations would open them to criminal suits since compliance would violate the right of investors to privacy under Republic Act (RA) No. 10173, also known as the Data Privacy Act.
“The issuance of the questioned regulations have placed the petitioners in a conundrum. If the petitioners comply with the said regulations, they risk criminal prosecution under the Data Privacy Act (which carries a penalty of imprisonment of one to six years) and existing banking laws and regulations (which includes suspension or revocation of license to act as a custodian and imprisonment of two to ten years, among others).
“On the other hand, if they do not comply, they risk criminal prosecution and administrative penalties under the National Internal Revenue Code (NIRC) of 1997 and the Securities Regulations Code (which carry a penalty of imprisonment of one to ten years),” the petition said.