Case Summary (G.R. No. 48506)
Procedural Background and Facts
Manila Electric paid a 1% tax on its foreign-insurer premiums under protest after assessment by the Collector. The trial court dismissed its refund claim. The company appealed from that judgment.
Statutory Provision at Issue
Section 192 prohibits unauthorized insurers from issuing or delivering policies in the Philippines, with penal sanctions. An exception permits property owners to insure directly with foreign companies—provided they report to the Insurance Commissioner and Collector and pay a 1% tax on premiums.
Constitutional Challenge and U.S. Precedents
Petitioner contends the tax’s exception paragraph violates due process, relying on Compania General de Tabacos v. Collector of Internal Revenue (275 U.S. 87). In that decision the U.S. Supreme Court sustained the tax on premiums paid to a London insurer (licensed in the Philippines) but invalidated it on premiums to an unlicensed Paris insurer whose contract and performance lay entirely outside Philippine territory.
Analysis of the Tabacos Decision
• Paris Company Premiums: Contract made in Spain with no Philippine activities; taxing them exceeded territorial jurisdiction and breached due process.
• London Company Premiums: Although the contract was executed abroad, insurer activities—adjusters, proof of loss, dividends—occurred in the Philippines, creating sufficient nexus to uphold the tax under Equitable Life Assurance Society v. Pennsylvania (238 U.S. 143).
Applicability to the Present Case
Here, Manila Electric’s policies cover Philippine risks; contractual clauses require local examinations under oath, production of books, appointment of appraisers, and potential dispatch of adjusters to the Philippines. These provisions parallel the London insurer’s activities and establish a comparable nexus.
Jurisdictional Nexus Through Contractual Incidents
Because (1) the insured and risks are within the Philippines and (2) essen
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Facts
- In 1935, Manila Electric Company (MERALCO), a Philippine corporation with principal office in Manila, insured certain real and personal properties in the Philippines.
- The insurance was placed with two foreign insurers—City of New York Insurance Company (Policy No. 20) and United States Guaranty Company—through a New York broker.
- Neither insurer was licensed in the Philippines, and neither maintained agents there.
- Premiums totaling ₱91,696 were paid in New York by MERALCO’s broker.
- Under section 192 of Act No. 2427 (as amended), the Collector of Internal Revenue assessed a 1% tax on these premiums.
- MERALCO paid the tax under protest; its protest was overruled.
- MERALCO filed suit in the trial court to recover the protested tax.
- The trial court dismissed the complaint, and MERALCO appealed.
Statutory Provision (Sec. 192, Act No. 2427, as Amended)
- Prohibits any person or entity in the Philippines from procuring, issuing, delivering, or accepting policies of unauthorized foreign insurers.
- Violation constitutes a penal offense, punishable by a fine of ₱200 or two months’ imprisonment, or both.
- Provides that owners may obtain direct foreign insurance without using local agents, subject to:
- Reporting each policy to the Insurance Commissioner and the Collector of Internal Revenue;
- Payment of a 1% tax on the premium “in the manner required by law of insurance companies”;
- Application of the same penalties for non-compliance.
Appellant’s Contentions
- The second paragraph of Section 192 (the direct-insurance exception and 1% tax requirement) is unconstitutional.
- Relies on the U.S. Supreme Court decision in Compania General de Tabacos v. Collector of Internal Revenue (275 U.S. 87), which:
- Upheld the tax on premiums paid to a London insurer (licensed in the Philippines).
- Invalidated the tax on premiums paid to a Paris insurer (no Philippine contacts), hol