G.R. No. L-2910 - Manufacturers Life Insurance Co. vs. Meer

The case involves the Manufacturers Life Insurance Co. (a Canadian corporation duly organized and licensed to do insurance business in the Philippines) as plaintiff-appellant and Bibiano L. Meer, in his capacity as Collector of Internal Revenue, as defendant-appellee.
The action arose from a decision of Judge Buenaventura Ocampo of the Manila Court of First Instance dismissing the plaintiff’s complaint to recover money paid under protest for taxes.

The plaintiff had been engaged in the life insurance business in the Philippines for more than five years before and including 1941.
Due to wartime exigencies, the plaintiff’s branch office in Manila was closed from 1942 until September 1945.
Prior to the war, the plaintiff issued various life insurance policies containing non-forfeiture clauses, which provided for:

An Automatic Premium Loan clause allowing the insurer to treat premiums as paid by advancing funds from the policy’s cash value if the cash value (plus bonuses/dividends) exceeded the premium due.
Provisions for granting cash values or converting policies to paid-up insurance upon surrender, as well as provisions for extended insurance based on premium payment history.

From January 1, 1942, to December 31, 1946, owing to non-payment by the insured for one or more years under certain policies, the plaintiff applied the automatic premium loan clause.
The net amount advanced or “loaned” under such clause amounted to P1,069,254.98.
On this sum, the defendant assessed a tax of P17,917.12 pursuant to Section 255 of the National Internal Revenue Code (NIRC), as amended.

The plaintiff contended that the automatic premium loan advances were not “premiums collected” within the meaning of Section 255 and thus should not be subject to the tax.
To support its position, the plaintiff subdivided the issue into five specific points:

Whether the premium advances under the automatic premium loan clause should be considered as “premiums collected.”
Whether such advances constitute “payment in money, notes, credits, or any substitute for money.”
Whether taxing these advances amounts to double taxation.
Whether the premium advances, although made via the head office in Toronto, Canada, should be deemed as not collected in the Philippines.
Whether the fact that the plaintiff was not actively “engaged in business” (due to the temporary closure of the Manila branch) during part of the period exempts it from the premium tax for that period.

Whether the premium advances made under the automatic premium loan clause are to be deemed as “premiums collected” and thus subject to tax under Section 255 of the NIRC.
Whether the mechanism of the automatic premium loan constitutes a “payment in money, notes, credits, or any substitute for money.”
Whether the imposition of the tax on the advanced premiums results in double taxation, given that taxes had already been paid on portions of the policy’s cash surrender value.
Whether the location where the premium advances were effected—argued by the plaintiff to be Toronto, Canada—affects the taxability of these funds in the Philippines.
Whether the temporary closure of the Manila branch and the ensuing non-engagement in new business during 1942 to September 1945 exempts the plaintiff from the premium taxes for that period.