Case Summary (G.R. No. 158085)
Procedural History
Sun Life paid percentage (premium) tax and documentary stamp tax (DST) for specified 1997 periods, then filed an administrative claim for tax credit on August 20, 1999. When the CIR did not act on the claim and the refund period was near expiry, Sun Life filed a petition with the CTA on August 23, 1999 seeking a tax credit certificate totaling P61,485,834.51. The CTA ruled for Sun Life on November 12, 2002; the CA denied CIR’s petition for review and motion for reconsideration (decision January 23, 2003; resolution April 21, 2003). The CIR filed a petition for review with the Supreme Court raising principally that Sun Life did not qualify for cooperative exemptions under the Tax Code and that registration with the CDA was a prerequisite to claim those exemptions.
Relevant Facts
Sun Life is a mutual life insurance company that had been authorized to transact life insurance business in the Philippines. It had been mutualized (converted from stock to mutual) under applicable law and its amended articles and bylaws vested ownership in member-policyholders, each entitled to one vote, who elect the board of trustees. Sun Life filed and paid percentage tax and DST for specified 1997 periods, then sought refund/credit on the ground that, as a mutual life insurance company, it qualified as a purely cooperative association exempt under the Tax Code. The CIR contested Sun Life’s cooperative character, asserted a registration requirement with the CDA under the Cooperative Code and RMC No. 48-91, and asserted the taxpayer bears the burden to prove entitlement to the exemption.
Issues Presented
The Supreme Court framed the issues as: (1) whether Sun Life is a “purely cooperative company or association” under the Tax Code and a fraternal/beneficiary society or cooperative on the lodge/local cooperation plan under Section 199 of the Tax Code; (2) whether registration with the CDA is a sine qua non to be entitled to tax exemption; and (3) whether Sun Life is exempt from payment of percentage tax on premiums and DST.
Analysis — Whether Sun Life Is a Cooperative
The Court found Sun Life to be a cooperative in the statutory sense. It accepted the CTA’s and CA’s factual findings that management and affairs were conducted by member-policyholders; that ownership was vested in member-policyholders (each entitled to vote and elect trustees); that premiums were collected exclusively from members who thereby constituted both insurer and insured and contributed to a common fund to pay losses and liabilities; and that the company operated for the mutual protection of its members rather than for profit. The Court reiterated characteristics of mutual life insurance companies: no capital stock, membership ownership, contribution of premiums to meet losses, and distribution of divisible surpluses to members as returns of overcharges rather than profits. The Court relied on the Insurance Code provision permitting conversion to mutual form and on Sun Life’s corporate documents and licensing history as evidence of its mutual character.
Analysis — Whether CDA Registration Is Required
The Court held that registration with the CDA is not a prerequisite for claiming the Tax Code exemptions. Its reasons were: (a) the Tax Code itself contains no requirement that a mutual life insurance company register with the CDA to be exempt from percentage tax on premiums (Section 121/123) or from DST on policies (Section 199); (b) RMC No. 48-91’s requirement to submit a certificate of registration with the CDA before issuance of a tax exemption certificate cannot add a statutory requirement absent in the Tax Code and thus cannot prevail over the statute; (c) the Cooperative Code (RA 6938) and the CDA’s registration regime apply primarily to cooperatives formed under the Cooperative Code and to cooperatives that, under earlier laws, were within PD No. 175’s registration categories—Sun Life did not fall within those categories and had existed and been governed by earlier statutes (Insurance Code and Corporation Code) at the time of its mutualization; and (d) the Insurance Code and Corporation Code did not impose CDA registration as a condition to operate as a mutual life insurer in the Philippines. Consequently, administrative convenience or a circular cannot deprive a properly characterized cooperative of a statutory tax exemption.
...continue readingCase Syllabus (G.R. No. 158085)
Nature of the Case and Relief Sought
- Petition for Review under Rule 45 of the Rules of Court seeking to nullify the January 23, 2003 Decision and the April 21, 2003 Resolution of the Court of Appeals in CA‑GR SP No. 69125.
- The dispositive portion of the appealed CA Decision read: "WHEREFORE, the petition for review is hereby DENIED."
- The petitioner (Commissioner of Internal Revenue, CIR) sought reversal of the CTA and CA rulings which granted respondent (Sun Life) a tax credit/certificate for allegedly erroneously paid insurance premium taxes and documentary stamp taxes (DST).
Parties and Corporate Identity
- Petitioner: Republic of the Philippines, represented by the Commissioner of Internal Revenue.
- Respondent: Sun Life Assurance Company of Canada (Sun Life), described as a mutual life insurance company organized and existing under the laws of Canada, registered and authorized by the Securities and Exchange Commission and the Insurance Commission to engage in business in the Philippines, with principal office at Paseo de Roxas, Legaspi Village, Makati City.
- Respondent characterized and adjudicated by courts below and this Court as a mutual, nonstock (mutualized) life insurance corporation whose ownership and governance are vested in its member‑policyholders.
Relevant Procedural History
- Sun Life filed insurance premium tax return and paid premium tax for the third quarter of 1997 in the amount of P31,485,834.51; it also filed DST declaration returns and paid a total of P30,000,000.00 for the period August 21 to December 18, 1997.
- On August 20, 1999, Sun Life filed with the CIR an administrative claim for tax credit for the allegedly erroneously paid premium tax and DST for the cited periods.
- CIR failed to act on the administrative claim; Sun Life filed a petition for review with the Court of Tax Appeals (CTA) on August 23, 1999, praying for issuance of a tax credit certificate in the total amount of P61,485,834.51 (P31,485,834.51 premium tax + P30,000,000.00 DST).
- The CTA rendered judgment in favor of Sun Life on November 12, 2002, finding Sun Life to be a mutual life insurance company that is a purely cooperative company and therefore exempt from premium tax and DST under the Tax Code.
- CIR sought reconsideration before the CTA, which was denied.
- CIR petitioned the Court of Appeals; the CA likewise denied the petition for review, effectively affirming CTA’s grant of tax credit.
- CIR then filed a Petition for Review with the Supreme Court under Rule 45.
Facts Found and Stipulated by Courts Below (as narrated by the CA)
- Sun Life is mutualized: it had been converted from a stock insurance company to a nonstock mutual life insurance corporation pursuant to Section 266 of the Insurance Code of 1978 and by Amended Articles of Incorporation.
- On the basis of its bylaws, ownership is vested in member‑policyholders; each member is entitled to one vote and members elect trustees from among themselves.
- Management and affairs of Sun Life were conducted by its member‑policyholders; premiums collected were from members who constituted both insurer and insured; premiums were pooled to pay losses and liabilities.
- Sun Life was licensed to engage in mutual life insurance business in the Philippines; it received annual Certificates of Authority from the Insurance Commissioner (notably those dated July 1, 1997 and July 1, 1998).
- The CTA relied on precedent, notably Insular Life Assurance Company, Ltd. v. CIR, and the CA’s ruling in CIR v. Insular Life Assurance Company, Ltd., to conclude Sun Life was similarly a cooperative and entitled to tax exemptions.
Issues Presented to the Supreme Court (as framed by petitioner)
- Whether respondent is a purely cooperative company or association under Section 121 (now Section 123) of the National Internal Revenue Code and a fraternal or beneficiary society, order or cooperative company on the lodge system or local cooperation plan organized and conducted solely by its members for their exclusive benefit and not for profit under Section 199 of the National Internal Revenue Code.
- Whether registration with the Cooperative Development Authority (CDA) is a sine qua non requirement to be entitled to tax exemption.
- Whether respondent is exempted from payment of tax on life insurance premiums and documentary stamp tax.
Supreme Court’s Dispositive Ruling
- The petition has no merit; the Supreme Court denied the petition and affirmed the CTA and CA decisions and resolution.
- The Supreme Court held that Sun Life, having been satisfactorily proven a bona fide cooperative by the CTA, CA, and this Court, was entitled to exemption from payment of taxes on life insurance premiums and documentary stamps.
- Registration with the Cooperative Development Authority was not required for Sun Life to avail itself of the tax exemptions; neither the Tax Code nor the Insurance Code mandates such administrative registration as a precondition for exemption.
- The claim for tax credit in the amount of P61,485,834.51 was seasonably filed and amply substantiated; the grant of a tax credit certificate was correct.
- No pronouncement as to costs. The Decision and Resolution below were affirmed. Justices Sandoval‑Gutierrez, Corona, Carpio Morales, and Garcia concurred.
Court’s Analysis — First Issue: Whether Respondent Is a Cooperative
- Definition applied: 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."
- Three principal characteristics found and analyzed:
- Management by members: Both the CA and CTA found respondent’s management and affairs were conducted by member‑policyholders; bylaws and corporate provisions vest governance in members and trustees elected from among members (citations to Corporation Code provisions: one vote per member; no trustee elected unless a