P a g e | 1 G.R. No. 158085 October 14, 2005 REPUBLIC OF THE PHILIPPINES, Repree!te" b# t$e CO%%ISSIONER OF INTERN&L RE'E RE 'ENUE NUE,, Pet( Pe t(t( t(o!e o!er r, ). SUNLIFE SUNLIF E &SSUR&NCE &SSUR&NCE CO%P&N* OF C&N&+&, C&N&+& , Repo!"e!t. F&CTS
Sun Life is a mutual life insurance company organized and existing under the laws of Canada. It is regis register tered ed and author authorize ized d by the SEC SEC and the Insuran Insurance ce Commis Commissio sion n to engage engage in busin business ess in the Philippines as a mutual life insurance company with principal oce at Paseo de !oxas" Legaspi #illage" $a%ati City. &n &ctober '(" )**+" Sun Life ,led with the CI! its insurance premium tax return for the third -uarter of )**+ and paid the amount of P)"/01"0/.1). 2or the period co3ering 4ugust ') to 5ecember )0" )**+" petitioner ,led with the CI! its documentary stamp tax 65S78 declaration returns and paid P("((("(((.((. &n 5ecember '*" )**+" the C74 rendered its decision in Insular Life Assurance Co. Ltd. v. CIR " which held 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 company" it was li%ewise exempt from the payment of premium tax and 5S7. 5S7 . 9ence" Sun Life ,led with the CI! an administrati3e claim for tax credit of its alleged erroneously erroneously paid premium tax and 5S7 for the aforestated tax periods. 2or failure of the CI! to act upon the administrati3e claim for tax credit and with the ':year period to ,le a claim for tax credit or refund was about to expire" Sun Life ,led with the C74 a petition for re3iew on 4ugust '" )***. It prayed for the issuance of a tax credit certi,cate in the amount ofP;)"/01"0/.1) representing P)"/01"0/.1) of erroneously paid premium tax and P("((("(((.(( of 5S7. Sun Life stood rm on its contention that it is a mutual life insurance company vested with all the characteristic features and element elements s of a cooper cooperati ative ve compan company y or assoc associat iation ion as dened dened in Sectio Section n ! of the Tax Tax Code. Code. Primarily" the management and a
o3embe >o3emberr )'" '(('" '(('" the C74 C74 ruled that a mutual life insurance company is a purely cooperative company" thus# exempted from the payment of premium and documentary stamp taxes. $etitioner Sun Life is without dou%t a mutual life insurance company See%ing reconsideration of the decision of the C74" the CI! argued that Sun Life ought to ha3e registered" foremost" with the Cooperati3e 5e3elopment 4uthority before it could en?oy the exemptions exemptions from premium tax and 5S7 extended to purely cooperati3e companies or associations and for its failure to register" it could not a3ail of the exemptions prayed for. &oreover# the CIR alle'ed that Sun Life failed to prove that ownership of the company was vested in its mem%ers who are entitled to vote and elect the (oard of Trustees amon' them. 7he C74 denied the CI!@s motion for reconsideration. Ruling Rulin g of the Court of Appeals In upholdin' the CTA# CTA# the CA reasoned that respondent was a purely cooperative corporation duly licensed to en'a'e in mutual life insurance %usiness in the $hilippines. 7hus" respondent was deemed exempt from premium and documentary stamp taxes" because its a
P a g e | 2 or assessments" to the creation of a fund from which all losses and liabilities were paid. 7he di3idends it distributed to them were not pro,ts" but returns of amounts that had been o3ercharged them for insurance. 2or ha3ing satisfactorily shown with substantial e3idence that it had erroneously paid and seasonably ,led its claim for premium and documentary stamp taxes" respondent was entitled to a refund" the C4 ruled. ISSUE
Ahether or not respondent is a purely cooperati3e company or association under Section )') of the >I!C and a fraternal or bene,ciary society" order or cooperati3e company on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusi3e bene,t of each member and not for pro,t under Section )** of the >I!C. HEL+
7he Petition has no merit. 7he 7ax Code de,nes a cooperati3e as an -oc(-t(o! co!"/cte" b# t$e eber t$ereo (t$ t$e o!e# co33ecte" ro -o! t$ee3)e -!" o3e3# or t$e(r o! protect(o! -!" !ot or prot.B0 Aithout a doubt" respondent is a cooperati3e engaged in a mutual life insurance business. First " it is managed by its members. oth the C4 and the C74 found that the management and a
4 stoc% insurance company doing business in the Philippines may Balter its organization and transform itself into a mutual insurance company.B )( !espondent has been mutualized or con3erted from a stoc% life insurance company to a nonstoc% mutual life insurance corporation)) pursuant to Section ';; of the Insurance Code of )*+0. )' &n the basis of its bylaws" its ownership has been 3ested in its member: policyholders who are each entitled to one 3ote= ) and who" in turn" elect from among themsel3es the members of its board of trustees.)/eing the go3erning body of a nonstoc% corporation" the board exercises corporate powers" lays down all corporate business policies" and assumes responsibility for the eciency of management. )1 Second " it is operated with money collected from its members. Since respondent is composed entirely of members who are also its policyholders" all premiums collected ob3iously come only from them. );
7he member:policyholders constitute Bboth insurer and insuredB)+ who Bcontribute" by a system of premiums or assessments" to the creation of a fund from which all losses and liabilities are paid.B )0 7he premiums )* pooled into this fund are earmar%ed for the payment of their indemnity and bene,t claims. Third " it is licensed for the mutual protection of its members" not for the pro,t of anyone.
4s early as &ctober (" )*/+" the director of commerce had already issued a license to respondent :: a corporation organized and existing under the laws of Canada :: to engage in business in the Philippines. '(Pursuant to Section ''1 of Canada@s Insurance Companies 4ct" the Canadian minister of state 6for ,nance and pri3atization8 also declared in its 4mending Letters Patent that respondent would be a mutual company e
P a g e | 6 A mutual life insurance company is conducted for the %enet of its mem%er)policyholders# !* who pay into its capital %y way of premiums. To that extent# they are responsi%le 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 %efore the terms of the policies expire# the mem%er)policyholders do not acuire the status of creditors. !/Rather# they simply %ecome de%tors for whatever premiums that they have ori'inally a'reed to pay the company# if they have not yet paid those amounts in full# for ,0m1utual companies x x x depend solely upon x x x premiums., !2 3nly when the premiums will have accumulated to a sum lar'er than that reuired to pay for company losses will the mem%er)policyholders %e entitled to a ,pro rata division thereof as prots., !4
Contributing to its capital" the member:policyholders of a mutual company are ob3iously also its owners.'*Sustaining a dual relationship inter se" they not only contribute to the payment of its losses" but are also entitled to a proportionate share ( and participate ali%e ) in its pro,ts and surplus. Sharing in the common fund" any member:policyholder may choose to withdraw di3idends in cash or to apply them in order to reduce a subse-uent premium" purchase additional insurance" or accelerate the payment period. 4lthough the premium made at the beginning of a year is more than necessary to pro3ide for the cost of carrying the insurance" the member:policyholder will ne3ertheless recei3e the bene,t of the o3ercharge by way of di3idends" at the end of the year when the cost is actually ascertained. B7he declaration of a di3idend upon a policy reduces pro tanto the cost of insurance to the holder of the policy. 7hat is its purpose and e
It does not follow that because respondent is registered as a nonstoc% corporation and thus exists for a purpose other than pro,t" the company can no longer ma%e any pro,ts. /) Earning pro,ts is merely its secondary" not primary" purpose. In fact" it may not lawfully engage in any business acti3ity for pro,t" for to do so would change or contradict its nature/' as a non:pro,t entity. / It may" howe3er" in3est its corporate funds in order to earn additional income for paying its operating expenses and meeting bene,t claims. 4ny excess pro,t it obtains as an incident to its operations can only be used" whene3er necessary or proper" for the furtherance of the purpose for which it was organized.//
P a g e | 4 A9E!E2&!E" the Petition is hereby 5E>IE5" and the assailed 5ecision and !esolution are 422I!$E5.
