G.R. No. 210488 - Arroyo vs. Sandiganbayan, 5th Division

The petitioners are 41 non-life insurance corporations organized under Philippine law.
On August 1, 1965, they entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with Munich Re (a non-resident foreign insurer), which required formation of the “Pool of Machinery Insurers.”
The pool’s functions included: allocating and distributing ceded risks among members; maintaining records; collecting and custody of funds; and was governed by an executive board with one representative per member.

On April 14, 1976, the pool filed an Information Return of Organization Exempt from Income Tax for the year ending 1975.
The Commissioner of Internal Revenue (CIR) assessed:

Deficiency corporate income tax of ₱1,843,273.60.
Withholding tax on dividends to Munich of ₱1,768,799.39 and to pool members of ₱89,438.68.

Petitioners protested; on January 27, 1986, the CIR denied the protest and issued a final assessment with breakdowns for net income tax, interest, surcharge, and penalties.
The Court of Tax Appeals (CTA) on October 19, 1992, sustained the CIR’s assessment. The Court of Appeals on October 11, 1993 dismissed petitioners’ appeal and on November 15, 1993 denied reconsideration.

Whether the pool, acting merely as agent and performing administrative functions without insuring in its own name, is a partnership or association taxable as a corporation under the NIRC.
Whether the remittances of reinsurance premiums to pool members and Munich Re constitute dividends subject to withholding tax.
Whether the CIR’s right to assess and collect the tax has prescribed under the statute of limitations.