Title
Manufacturers Life Insurance Co. vs. Meer
Case
G.R. No. L-2910
Decision Date
Jun 29, 1951
A Canadian insurer contested a tax assessment on premium advances made under automatic loan clauses during WWII, arguing they weren't "premiums collected." The Supreme Court ruled the advances were taxable under Philippine law, as they constituted substitutes for money and were collected while doing business in the Philippines.

Case Summary (G.R. No. L-2910)

Relevant Facts

The Canadian insurer had operated in the Philippines for more than five years before and including 1941. Its Manila branch was closed during 1942 up to September 1945 due to wartime exigencies. Prior to the war the company issued life policies in the Philippines containing specified nonforfeiture clauses (automatic premium loan, cash and paid-up values, and extended insurance). From January 1, 1942 to December 31, 1946 the head office at Toronto applied the automatic premium loan clause to insure policies whose owners failed to pay premiums; the net amount advanced under that clause totaled P1,069,254.98. The Collector assessed P17,917.12 in premium taxes under section 255; the insurer paid under protest and sought recovery.

Policy Provisions (Nonforfeiture Clauses)

The policies contained an Automatic Premium Loan clause providing that if, at a premium due date after the policy had been in force three full years, the cash value (after deducting indebtedness) exceeded the premium, the company would treat the premium as paid by application of the cash value and would regard the amount advanced (with interest and an expense charge) as a first lien on the policy. Additional clauses provided cash surrender and paid-up values and extended insurance options after premiums for three or more years had been paid.

Statutory Provision and Assessment

Section 255 of the National Internal Revenue Code imposes a tax of one percent on the total premiums collected by any person or company doing insurance business in the Philippines “whether such premiums are paid in money, notes, credits, or any substitute for money,” with certain limited exclusions (e.g., premiums refunded within six months for rejection of risk).

Issues Presented

The insurer framed five issues: (a) whether premium advances under the automatic premium loan clause constitute “premiums collected” subject to tax; (b) whether application of the clause constitutes payment “in money, notes, credits, or any substitute for money”; (c) whether collection of the tax results in double taxation; (d) whether the advances were made in Toronto or in the Philippines (affecting taxability); and (e) whether the insurer’s branch closure (1942–Sept.1945) meant it was not “doing insurance business in the Philippines” during that period and thus not subject to the tax.

Court’s Analysis — Characterization of Advances as Premium Collections

The Court concluded that when the insurer applied the automatic premium loan clause it effectively advanced funds (or credit) to the insured, who in turn paid the premium on the policy; accordingly, the company “collected” the premium for tax purposes. The fact that the insurer became a creditor by reason of the advance and obtained a lien on the policy does not negate that a premium was paid: the insured’s obligation to the company (the loan) is distinct from the fact that the premium was satisfied and insurance continued in force.

Court’s Analysis — Payment by Notes, Credits or Substitute for Money

The Court held that the insurer’s agreement to treat the premium as paid by application of a loan or credit falls squarely within the statutory language taxing premiums “whether such premiums are paid in money, notes, credits, or any substitute for money.” The Company’s acceptance of a credit/loan as payment means the premium was paid by a substitute for money and is therefore within section 255’s taxable base.

Court’s Analysis — Net Assets, Cash Surrender Value, and Taxability

In response to the insurer’s argument that its assets were not increased by making advances, the Court explained that the loan created a new credit (asset) for the company, and even where the loan is later repaid from the policy’s cash surrender value, the mechanics reduce the company’s liabilities and therefore increase net assets correspondingly. The cash surrender value is a liability (trust fund) owed to the insured; application of it to satisfy the loan reduces liabilities and affects net assets. The statutory tax is assessed on the premium collected, not on any ultimate net effect on corporate assets.

Court’s Analysis — Double Taxation Claim

The insurer’s double taxation argument—i.e., that advancing P250 and later deducting it from a cash surrender value on which taxes had already been paid results in taxing the same funds twice—was rejected. The Court observed that taxes previously paid were on earlier premiums (e.g., the first ten years) while the tax now assessed is on a subsequent premium (e.g., the eleventh year). Not all advances are repaid from cash surrender values; some are repaid in cash by insureds. Moreover, the Court noted there is no constitutional prohibition against double taxation in the circumstances asserted.

Court’s Analysis — Place of the Advance and Tax Avoidance Concern

The Court rejected the insurer’s contention that advances were made in Toronto and thus not subject to Philippine taxation. The advances were made to policyholders in the Philippines who in turn paid the premiums through the Manila branch; treating the advances as foreign-made would permit foreign insurers to evade local premium taxes by routing transactions through head offices. The statute taxes insurers “doing insurance business in the Philippines” irrespective of the place of corpora

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