Foreign Currency Deposit Accounts are Exempt from Estate Tax

In a recent decision of the Supreme Court (SC), it was held that foreign currency deposits under Republic Act No. 6426 are not subject to estate tax.  In the case of Commissioner of Internal Revenue v. Romig[1] (Romig Case), the First Division of the Supreme Court, with Associate Justice Ramon Paul L. Hernando as ponente, affirmed the granting of the refund of estate taxes paid by the Estate of Charles Marvin Romig pertaining to a dollar deposit left by the decedent Charles Marvin Romig.

In the Romig Case, the SC stated that Republic Act No. 6426 is a special law created particularly for foreign currency deposits in the Philippines while the 1997 National Internal Revenue Code (NIRC) is a general law on the imposition of national internal revenue taxes, fees, and charges. A special law is generally the exception to what a general law may provide. Hence, a special law, such as Republic Act No. 6426, cannot be repealed or modified by a subsequently enacted general law, such as the 1997 NIRC, in the absence of any express provision in the latter law pertaining to repeal or modification of the prior enacted special law.

Thus, in the absence of an express or specific provision of the 1997 NIRC repealing or modifying the tax exemption granted by Republic Act No. 6426, foreign currency deposits remain exempt from taxes, including estate tax.

The tax exemption on the Romig Case specifically addressed the issue of estate taxes on foreign currency deposits. However, since Section 24 (B) (1) and Section 27 (D) (1) of the 1997 NIRC, as amended expressly provides for the income tax on interest income of foreign currency deposits, the Romig Case does not seem to apply to interest income on foreign currency deposits

[1] G.R. No. 262092, October 9, 2024