G.R. No. 158085, 14 October 2005, 473 SCRA 129
Respondent is a mutual life insurance company organized and existing under the laws of Canada. It is registered and authorized by the SEC and the Insurance Commission to engage in business in the Philippines as mutual life insurance company. Sun Life filed with the CIR its insurance premium tax return for the third quarter of 1997 in the amount of 31,485, 834. 51 and paid its DST for the amount of 30,000,000.00.
On December 20, 1997, CA, as affirmed by the Supreme Court, rendered in Insular Life Assurance Co. Ltd. vs CIR a decision that mutual life insurance companies are purely cooperative companies and are exempt from the payment of premium tax and DST. Sun Life surmised that being a mutual life insurance it is exempt from the payment of premium tax and DST and hence filed an administrative case against the CIR for tax credit for its erroneously paid premium tax and DST. CIR raised as special and affirmative defences that petitioner’s claim for refund is subject to administrative routinary investigation by the CIR, Petitioner must prove that it falls under the exception provided for under Section 121 (now 123) of the Tax Code to be exempted from premium tax and be entitled to the refund sought and It is incumbent upon petitioner to show that it has complied with the provisions of Section 204[,] in relation to Section 229, both in the 1997 Tax Code.
Whether or not respondent is a cooperative and whether or not it needs to be registered under CDA
For the first issue, the court ruled that respondent is a cooperative. The tax code defines cooperative as an association conducted by the members thereof with the money collected from among themselves and solely for their own protection and not for profit. Respondent is without doubt a cooperative because of the following reasons:
First, it is managed by its members. Both CA and CTA found that the management and affairs of respondent were conducted by its policyholders. A stock insurance company doing business in the Philippines may alter its organization and transform itself into a mutual insurance company. Respondent has been mutualized or converted from a stock life insurance company to a nonstock mutual life insurance corporation pursuant to Section 266 of the Insurance Code of 1978.
Second, it operated with money collected from its members. Since respondent is composed entirely of members who are also it policyholders, all premiums obviously comes only from them. The member-policyholders constitute both insurer and insured who contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid. The premiums pooled into this fund are earmarked for the payment of their indemnity and benefit claims.
Third, it is licensed for the mutual protection of its members, not for the profit of anyone. A mutual life insurance company is conducted for the benefit of its member-policyholders, who pay into its capital by way of premiums. To that extent, they are responsible for the payment of all its losses. The cash paid in for premiums and the premium notes constitute their assets x x x. In the event that the company itself fails before the terms of the policies expire, the member-policyholders do not acquire the status of creditors. Rather, they simply become debtors for whatever premiums that they have originally agreed to pay the company, if they have not yet paid those amounts in full, for [m]utual companies x x x depend solely upon x x x premiums. Only when the premiums will have accumulated to a sum larger than that required to pay for company losses will the member-policyholders be entitled to a pro rata division thereof as profits.
For the second issue, the court ruled that under the Tax Code although respondent is a cooperative, registration with the Cooperative Development Authority (CDA) is not necessary in order for it to be exempt from the payment of both percentage taxes on insurance premiums, under Section 121; and documentary stamp taxes on policies of insurance or annuities it grants, under Section 199.
First, the Tax Code does not require registration with the CDA. No tax provision requires a mutual life insurance company to register with that agency in order to enjoy exemption from both percentage and documentary stamp taxes.
Second, the provisions of the Cooperative Code of the Philippines do not apply. only cooperatives to be formed or organized under the Cooperative Code needed registration with the CDA. Respondent already existed before the passage of the new law on cooperatives. It was not even required to organize under the Cooperative Code, not only because it performed a different set of functions, but also because it did not operate to serve the same objectives under the new law — particularly on productivity, marketing and credit extension.
The insurance against losses of the members of a cooperative referred to in Article 6(7) of the Cooperative Code is not the same as the life insurance provided by respondent to member-policyholders. The former is a function of a service cooperative, the latter is not. Cooperative insurance under the Code is limited in scope and local in character. It is not the same as mutual life insurance.
Consequently, the court held that respondent is exempt from insurance premium tax and DST.
*Case digest by Em Epsan M. Batoon LLB IV, Andres Bonifacio Law School, S.Y 2018-2019