phil. guaranty v. cir digesttax 1 week 1 phil guaranty v. cir

Phil. Guaranty v. CIR(1965)- Bengzon, J.P Plaintiff: Collector of Internal Revenue Defendants: The Commissioner of Internal Revenue and the Court of Tax Appeals Concept: Scope and Nature of Taxation Brief Facts: Phil. Guaranty entered into reinsurance contracts with foreign reinsurers not doing business in the Philippines. It ceded premiums in 1953 and 1954, but did not withhold tax on them. Doctrine: The Tax Code subjects foreign corporations to tax on their income from sources within the Philippines. The word "sources" has been interpreted as the activity giving rise to income, which is independent of the place of business of the corporation. Given that foreign corporations were afforded protection by the government and the recipient foreign reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share the burden of maintaining the state through taxes. FACTS: 1. Phil. Guaranty entered into reinsurance contracts, on various dates, with foreign insurance companies not doing business in the Philippines. Phil. Guaranty thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines, in consideration for the assumption by the latter of liability on an equivalent portion of the risks insured. The reinsurance contracts were signed by Phil. Guaranty in Manila and by the foreign reinsurers, except for one contract with Swiss Reinsurance, which was signed by both parties in Switzerland. 2 .The reinsurance contracts made the commencement of the reinsurers' liability simultaneous with that of Phil. Guaranty under the original insurance. A proportionate amount of taxes on insurance premiums not recovered from the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers further agreed, in consideration for managing or administering their affairs in the Philippines, to compensate the Philippine Guaranty Co., Inc., in an amount equal to 5% of the reinsurance premiums. Premiums amounting to P842,466.71 (1953) and P721,471.85 (1954) were ceded to the foreign reinsurers and were excluded from Phil Guaranty’s gross income when it filed its income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. 3. The CIR, via a letter dated April 13, 1959, assessed against Phil. Guaranty withholding tax on said premiums amounting to P230,673.00 (1953) and P234,364.00 (1954). Phil. Guaranty protested the assessment on the ground that reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are not subject to withholding tax. 4. The protest was denied and it appealed to the CTA. The CTA ordered Phil. Guaranty to pay the assessments issued by the CIR. ISSUES: WON Phil. Guaranty should be exempted from tax (NO) RATIO: NO. Phil. Guaranty is subject to corporate income tax because the insurance premiums came from sources within the Philippines. -Sec. 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the income. -The reinsurance premiums were income created from the undertaking of the foreign reinsurance companies to reinsure Phil. Guaranty against liability for loss under original insurances. Such undertaking, as explained above, took place in the Philippines. These insurance premiums, therefore, came from sources within the Philippines and, hence, are subject to corporate income tax. -The foreign insurers' place of business should not be confused with their place of activity . Business should not be continuity and progression of transactions while activity may consist of only a single transaction. An activity may occur outside the place of business. -Section 24 of the Tax Code does not require a foreign corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the activity creating the income is performed or done in the Philippines. What is controlling,

phil. guaranty v. cir digesttax 1 week 1 phil guaranty v. cir

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