42081741 afisco insurance vs ca gr 112675

8/13/2019 42081741 Afisco Insurance vs CA Gr 112675

1/14

G.R. No. 112675 January 25, 1999

AFISCO INSURANCE CORPORATION;CCC, petitioner,

vs.COURT OF APPEALS, COURT OF

TA APPEALS an! CO"ISSIONEROF INTERNAL RE#ENUE, respondent.

PANGANI$AN,J.:

Pursuant to "reinsurance treaties," anumber of local insurance firms formedthemselves into a "pool" in order tofacilitate the handling of businesscontracted with a nonresident foreigninsurance company. May the "clearinghouse" or "insurance pool" so formedbe deemed a partnership or anassociation that is taxable as acorporation under the National InternalRevenue ode !NIR# $hould the

pool%s remittances to the membercompanies and to the said foreign firmbe taxable as dividends# &nder thefacts of this case, has the goverment%sright to assess and collect said taxprescribed#

The Case

'hese are the main (uestions raised inthe Petition for Review on Certioraribefore us, assailing the )ctober **,*++ -ecision1of the ourt of ppeals2in /0R $P 12+31, which dismissed

petitioners% appeal of the )ctober *+,*++1 -ecision %of the ourt of 'axppeals&!' which had previouslysustained petitioners% liability fordeficiency income tax, interest andwithholding tax. 'he ourt of ppealsruled4

567R78)R7, thepetition is -I$MI$$7-,with costs againstpetitioner5

'he petition also challenges theNovember *2, *++ ourt of ppeals! Resolution6denyingreconsideration.

The Facts

'he antecedent facts,7as found by theourt of ppeals, are as follows4

*


2/14

'he petitioners are 9*non/life insurancecorporations, organi:edand existing under thelaws of the Philippines.&pon issuance by themof 7rection, Machinery;reauota $hareReinsurance 'reaty anda $urplus Reinsurance'reaty with theMunchenerRuc


3/14

ordered the petitioners,assessed as "Pool ofMachinery Insurers," topay deficiency incometax, interest, and with?h@olding tax, itemi:edas follows4

Net income perinformation return

P,AA,A3.33

EEEEEEEEEEE

Income tax duethereon P*,1+B,3B3.33

dd4 *9F Int. fr.9G*2GA=

to 9G*2GA+ 292,*+.=3

HHHHHH

')' M)&N' -&7 JP*,B9,1A.=3

)7'I;7

-ividend paid toMunich

Reinsurance ompanyP,A1B,9*1.33

HHHHHH

2F withholding tax at

source due thereonP*,39,+99.13

dd4 12F surcharge1=,1=.32

*9F interest from

*G12GA= to *G12GA+*A,3*+.*9

ompromise penalty/

non/filing of return33.33

late payment 33.33

HHHHHH


4/14

')' M)&N' -&7 JP*,A=B,A++.+

)7'I;7EEEEEEEEEEE

-ividend paid to PoolMembers P=22,==.33

EEEEEEEEEEE

*3F withholding tax at

source due thereonP=2,2=.=3

dd4 12F surcharge*=,+3.+3

*9F interest from

*G12GA= to *G12GA+=,BB9.*B

ompromise penalty/

non/filing of return33.33

late payment 33.33

HHHHHH

')' M)&N' -&7 JPB+,9B.=B

)7'I;7EEEEEEEEEEE '

'he ruled in the main that the poolof machinery insurers was apartnership taxable as a corporation,and that the latter%s collection ofpremiums on behalf of its members,the ceding companies, was taxableincome. It added that prescription didnot bar the ;ureau of Internal Revenue!;IR from collecting the taxes due,because "the taxpayer cannot be

located at the address given in theinformation return filed." 6ence, thisPetition for Review before us.9

The Issues

;efore this ourt, petitioners raise thefollowing issues4

*. 5hether or not thelearing 6ouse, acting

9


5/14

as a mere agent andperforming strictlyadministrativefunctions, and whichdid not insure orassume any ris< in itsown name, was apartnership orassociation subKect totax as a corporationL

1. 5hether or not theremittances topetitioners andM&NI6R7 of theirrespective shares ofreinsurance premiums,pertaining to theirindividual and separatecontracts ofreinsurance, were"dividends" subKect totaxL and

. 5hether or not therespondentommissioner%s right toassess the learing6ouse had alreadyprescribed.1(

The Court's Ruling

'he petition is devoid of merit. 5esustain the ruling of the ourt ofppeals that the pool is taxable as acorporation, and that the government%sright to assess and collect the taxes

had not prescribed.

First Issue4

Pool Taxable as a Corporation

Petitioners contend that the ourt ofppeals erred in finding that the poolof clearing house was an informalpartnership, which was taxable as acorporation under the NIR. 'hey pointout that the reinsurance policies werewritten by them "individually andseparately," and that their liability was

limited to the extent of their allocatedshare in the original ris< thusreinsured.116ence, the pool did notact or earn income as a reinsurer.12Itsrole was limited to its principal functionof "allocating and distributing theris

2


6/14

performance of incidental functions,such as records, maintenance,collection and custody of funds, etc." 1%

Petitioners belie the existence of apartnership in this case, because !*they, the reinsurers, did not share thesame ris< or solidary liability,1&!1there was no common fundL15! theexecutive board of the pool did not

exercise control and management ofits funds, unli


7/14

corporations. tax ishereby imposed uponthe taxable net incomereceived during eachtaxable year from allsources by everycorporation organi:edin, or existing underthe laws of thePhilippines, no matterhow created ororgani:ed, but notincluding dulyregistered general co/partnership !compaiascolectivas, generalprofessionalpartnerships, privateeducationalinstitutions, andbuilding and loanassociations . . . .

Ineludibly, the Philippine legislatureincluded in the concept of corporations

those entities that resembled themsuch as unregistered partnerships andassociations. Parenthetically, theNIR%s inclusion of such entities in thetax on corporations was made evenclearer by the tax Reform ct of *++A,21which amended the 'ax ode.Pertinent provisions of the new lawread as follows4

$ec. 1A. Rates ofIncome 'ax on-omestic orporations.H

! In General. H7xcept as otherwiseprovided in this ode,an income tax of thirty/five percent !2F ishereby imposed uponthe taxable incomederived during eachtaxable year from allsources within andwithout the Philippinesby every corporation,as defined in $ection

11 !; of this ode, andtaxable under this 'itleas a corporation . . . .

$ec. 11. H -efinition.H 5hen used in this'itle4

xxx xxx xxx

A


8/14

!; 'he term"corporation" shallinclude partnerships,no matter how createdor organi:ed, Koint/stoc< companies, Kointaccounts !cuentas enparticipacion,associations, orinsurance companies,but does not includegeneral professionalpartnerships ?or@ a Kointventure or consortiumformed for the purposeof underta


9/14

'heterm"partnership"includes asyndicate,group,pool,Kointventureorotherunincorporatedorgani:ation,throughor bymeansofwhichanybusines

s,financialoperation, orventureiscarriedon. )))!BMerten%s awof8ederalIncome

'axation, p.2=1Note=

Ar*. 1767 o+ *- C/0 Co!-r-on3-4 *- r-a*on o+ aon*ra* o+ ar*n-r4 -n *oor 8or- -r4on4 n! *-84-0/-4*o on*ru*- 8on-y, ro-r*y, orIn!u4*ry *o a o88on +un!, **- n*-n*on o+ !/!n *-ro+*4 a8on *-84-0/-4. 25I*4

r-:u4*-4 ar- ,an!


10/14

a44oa*on 80-4 a44oa*-4 o-n*-r n*o a ?on* -n*-rr4- . . .+or *- *ran4a*on o+ u4n-44. 2'

In *- a4- -+or- u4, *- -!no8an-4 -n*-r-! n*o a Poo0Ar--8-n* 29or an a44oa*on %(

*a* ou0! an!0- a00 *-n4uran- u4n-44-4 o/-r-!un!-r *-r :uo*a@4ar-

r-n4uran- *r-a*y%1

an! 4ur0u4r-n4uran- *r-a*y%2* "un.T- +o00on un84*a>a0yn!a*-4 a ar*n-r4 or ana44oa*on o/-r-! y S-*on 2&o+ *- NIRC4


11/14

oa*on a4n!4-n4a0- D*o*- *ran4a*on o+*- u4n-44, . . . I+*o-*-r *-y a/-on!u*-! u4n-44,ro+* 8u4* a/---n *- o?-* a4,n!--!, ro+* a4-arn-!. Tou *-ro+* a4aor*on-! a8on*- 8-8-r4, *4 4on0y a 8a**-r o+on4-:u-n-, a4 *80-4 *a* ro+*a*ua00y r-4u0*-!. %7

'he petitioners% reliance on Pascuals v.Commissioner%'is misplaced, becausethe facts obtaining therein are not onall fours with the present case. InPascual, there was no unregisteredpartnership, but merely a co/ownershipwhich too< up only two isolated

transactions. %9'he ourt of ppealsdid not err in applying Evangelista,which involved a partnership thatengaged in a series of transactionsspanning more than ten years, as inthe case before us.

"econd Issue4

Pool's Remittances are Taxable

Petitioners further contend that theremittances of the pool to the ceding

companies and Munich are notdividends subKect to tax. 'hey insistthat such remittances contravene$ections 19 !b !I and 1= of the *+AANIR and "would be tantamount to anillegal double taxation as it wouldresult in taxing the same taxpayer"&(

Moreover, petitioners argue that sinceMunich was not a signatory to the Poolgreement, the remittances it receivedfrom the pool cannot be deemeddividends.&1'hey add that even if suchremittances were treated as dividends,they would have been exempt underthe previously mentioned sections of

the *+AA NIR,&2as well as rticle A ofparagraph *&%and rticle 2 ofparagraph 2&&of the RP/5est 0erman'ax 'reaty. &5

P-**on-r4 ar- 0u*n a* 4*ra4.Bou0- *aa*on 8-an4 *an *-4a8- ro-r*y *- -n *4ou0! - *a-! on0y on-. Ta* 4,. . . *an *- 4a8- -r4on *-y *- 4a8- ?ur4!*on +or *-

**


12/14

4a8- *n &6In *- n4*an* a4-,*- oo0 4 a *aa0- -n**y !4*n*+ro8 *- n!/!ua0 orora*--n**-4 o+ *- -!n o8an-4.T- *a on *4 income4 o/ou40y!++-r-n* +ro8 *- *a on *-dividendsr--/-! y *- 4a!o8an-4. C0-ar0y, *-r- 4 no!ou0- *aa*on -r-.

T- *a --8*on4 0a8-! y-**on-r4 anno* - ran*-!,4n- *-r -n**0-8-n* *-r-*or-8an4 unro/-n an!un4u4*an*a*-!. I* 4 ao8a* n*- 0a o+ *aa*on *a* *a-4 ar-*- 0+-0oo! o+ *- na*on. -n-,--8*on4 *-r-+ro8 ar- 0y!4+a/or-! n 0a an! - o0a84 *a --8*on 8u4* - a0-*o ?u4*+y 4 0a8 or r*. &7

P-**on-r4 a/- +a0-! *o!4ar- *4 ur!-n o+ roo+.T- 4-*on4 o+ *- 1977 NIRC *-y *- ar- na0a0-,

-au4- *-4- -r- no* y-* n-++-* -n *- no8- a4-arn-! an! -n *- 4u?-*n+or8a*on r-*urn +or *- y-ar-n!n 1975 a4 +0-!.

R-+-rrn, *o *- 1975 /-r4on o+*- oun*-rar* 4-*on4 o+ *-NIRC, *- Cour* 4*00 anno* ?u4*+y*- --8*on4 0a8-!. S-*on255 ro/!-4 *a* no *a 4a00 . . .- a! uon r-n4uran- y anyo8any *a* a4 a0r-a!y a! *-*a . . . T4 anno* - a0-! *o

*- r-4-n* a4- -au4-, a4r-/ou40y !4u44-!, *- oo0 4 a*aa0- -n**y !4*n* +ro8 *--!n o8an-4; *-r-+or-, *-0a**-r anno* n!/!ua00y 0a8 *-no8- *a a! y *- +or8-r a4*-r on.

On *- o*-r an!, S-*on 2&


13/14

*r-a*-4 r-:ur-! *-r-a*on o+ 4a! oo0.

Un!-r *4 oo0 arran-8-n* **- -!n o8an-4; "un4ar-! n *-r no8- an! 0o44.T4 4 8an+-4* +ro8 a r-a!n o+Ar*0- % &9an! 1( 5(o+ *- uo*a@Sar- R-n4uran- *r-a*y an!Ar*0-4 % 51an! 1( 52o+ *-

Sur0u4 R-n4uran- Tr-a*y. T-+or-on n*-rr-*a*on o+ S-*on2&


14/14

*aay-r anno* - 0oa*-! a* *-a!!r-44 /-n n *- n+or8a*onr-*urn +0-! an! +or r-a4on*-r- a4 !-0ay n 4-n!n *-a44-448-n*. 5'In!--!, -*-r*- o/-rn8-n*4 r* *o o00-*an! a44-44 *- *a a4 r-4r-!n/o0/-4 +a*4 a/- --nru0-! uon y *- 0o-r our*4. I*4 ao8a* *a* n *- a4-n- o+a 0-ar 4on o+ a0a0- -rroror ra/- au4- o+ !4r-*on, a4 n*4 a4-, *4 Cour* 8u4* no*o/-r*urn *- +a*ua0 +n!n4 o+ *-CA an! *- CTA.

8urthermore, petitioners admitted intheir Motion for Reconsideration beforethe ourt of ppeals that the poolchanged its address, for they statedthat the pool%s information return filedin *+B3 indicated therein its "presentaddress." 'he ourt finds that this fallsshort of the re(uirement of $ection of the NIR for the suspension of the

prescriptive period. 'he law clearlystates that the said period will besuspended only "if the taxpayerinforms the ommissioner of InternalRevenue of any change in theaddress."

567R78)R7, the petition is -7NI7-.'he Resolution of the ourt of ppealsdated )ctober **, *++ and November*2, *++ are hereby 88IRM7-. ostagainst petitioners.#$%phi#.n&t

$) )R-7R7-.

Romero! itug! Purisima! Gon(aga)Re*es! ++.! concur.

*9

42081741 afisco insurance vs ca gr 112675

Documents