Saturday, February 25, 2012

Republic vs. Sunlife Assurance Company of Canada [GR No. 15805; October 14, 2005]

Facts: On December 29, 1997, the [Court of Tax Appeals] (CTA) 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. This pronouncement was later affirmed by this court in [CIR] v. Insular Life Assurance Company, Ltd. Sun Life surmised that[,] being a mutual life insurance company, it was likewise exempt from the payment of premium tax and DST. Hence, on August 20, 1999, Sun Life filed with the CIR an administrative claim for tax credit of its alleged erroneously paid premium tax and DST for the aforestated tax periods. 

For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year period to file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed with the CTA a petition for review. The CTA found in favor of Sun Life. 

Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to have registered, foremost, with the Cooperative Development Authority before it could enjoy the exemptions from premium tax and DST extended to purely cooperative companies or associations under [S]ections 121 and 199 of the Tax Code. For its failure to register, it could not avail of the exemptions prayed for. The CTA denied the CIR’s motion for reconsideration. 

Issue: Whether or not respondent is exempted from payment of tax on life insurance premiums and documentary stamp tax 

Held: YES. The Tax Code defines a 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.” Without a doubt, respondent is a cooperative engaged in a mutual life insurance business. 

First, it is managed by its members. Both the CA and the CTA found that the management and affairs of respondent were conducted by its member-policyholders. SUNLIFE 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. On the basis of its bylaws, its ownership has been vested in its member-policyholders who are each entitled to one vote; and who, in turn, elect from among themselves the members of its board of trustees. 

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 obviously come 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.” 

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. 

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. 

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