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Afisco Insurance Corp

1) The petitioners are 41 insurance companies that entered into reinsurance treaties with Munich Re, requiring them to form a pool to handle the reinsurance business. 2) The Commissioner of Internal Revenue ruled that the pool was a taxable partnership. The petitioners appealed, arguing the pool was not a separate taxable entity. 3) The Court of Appeals and Supreme Court upheld the tax, finding that the pool had features of a partnership or corporation, including a common fund and executive board. It served an important economic purpose for the members and Munich Re. 4) The Court also found no double taxation in taxing the pool's income and later distributions to members, as the pool was a distinct

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146 views1 page

Afisco Insurance Corp

1) The petitioners are 41 insurance companies that entered into reinsurance treaties with Munich Re, requiring them to form a pool to handle the reinsurance business. 2) The Commissioner of Internal Revenue ruled that the pool was a taxable partnership. The petitioners appealed, arguing the pool was not a separate taxable entity. 3) The Court of Appeals and Supreme Court upheld the tax, finding that the pool had features of a partnership or corporation, including a common fund and executive board. It served an important economic purpose for the members and Munich Re. 4) The Court also found no double taxation in taxing the pool's income and later distributions to members, as the pool was a distinct

Uploaded by

Marife Minor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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AFISCO INSURANCE CORP, et al., vs CA, et al.

original insurance among the signatories to the treaty or the members of the pool based on
their ability to absorb the risk(s) ceded[;] as well as the performance of incidental functions,
FACTS: such as records, maintenance, collection and custody of funds, etc.ry

The petitioners are 41 non-life insurance corporations, organized and existing under the Petitioners belie the existence of a partnership in this case, because (1) they, the reinsurers,
laws of the Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler did not share the same risk or solidary liability; (2) there was no common fund; (3) the
Explosion and Contractors All Risk insurance policies, the petitioners entered into a Quota executive board of the pool did not exercise control and management of its funds, unlike the
Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener board of directors of a corporation; and (4) the pool or clearing house was not and could not
Ruckversicherungs-Gesselschaft (Munich), a non-resident foreign insurance corporation. possibly have engaged in the business of reinsurance from which it could have derived
The reinsurance treaties required petitioners to form a pool.. income for itself.cräläwvirtualibr

On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed According to the Court, the ceding companies entered into a Pool Agreement or an
an Information Return of Organization Exempt from Income Tax for the year ending in 1975, association that would handle all the insurance businesses covered under their quota-share
on the basis of which it was assessed by the Commissioner of Internal Revenue deficiency reinsurance treaty and surplus reinsurance treaty with Munich. The following unmistakably
corporate taxes in the amount of P1,843,273.60, and withholding taxes in the amount indicates a partnership or an association covered by Section 24 of the NIRC:
of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners,
respectively. These assessments were protested by the petitioners through its auditors (1) The pool has a common fund, consisting of money and other valuables that are
Sycip, Gorres, Velayo and Co. deposited in the name and credit of the pool. This common fund pays for the administration
and operation expenses of the pool.cräläwvirtualibräry
The Commissioner of Internal Revenue denied the protest and ordered the petitioners,
assessed as Pool of Machinery Insurers, to pay deficiency income tax, interest, and (2) The pool functions through an executive board, which resembles the board of directors
withholding tax. of a corporation, composed of one representative for each of the ceding
companies.virtualibräry
Upon appeal, the CA ruled that the pool of machinery insurers was a partnership taxable as
a corporation, and that the latter’s collection of premiums on behalf of its members, the (3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however,
ceding companies, was taxable income. It added that prescription did not bar the Bureau of its work is indispensable, beneficial and economically useful to the business of the ceding
Internal Revenue (BIR) from collecting the taxes due, because the taxpayer cannot be companies and Munich, because without it they would not have received their premiums.
located at the address given in the information return filed. Hence, this Petition for Review. The ceding companies share in the business ceded to the pool and in the expenses
according to a Rules of Distribution annexed to the Pool Agreement. Profit motive or
ISSUE: business is, therefore, the primordial reason for the pools formation.

1. Whether or not the pool is taxable as a corporation RULING No. 2


2. Whether or not the remittances to petitioners and MUNICH of their respective shares of
reinsurance premiums, pertaining to their individual and separate contracts of reinsurance, Petitioners further contend that the remittances of the pool to the ceding companies and
were dividends subject to tax Munich are not dividends subject to tax. They insist that taxing such remittances contravene
Sections 24 (b) (I) and 263 of the 1977 NIRC and would be tantamount to an illegal double
RULING: taxation, as it would result in taxing the same premium income twice in the hands of the
same taxpayer.

The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the pool is
taxable as a corporation. According to the Court, double taxation means taxing the same property twice when it
should be taxed only once. That is, xxx taxing the same person twice by the same
jurisdiction for the same thing. In the instant case, the pool is a taxable entity distinct from
1. Petitioners contend that the Court of Appeals erred in finding that the pool or clearing the individual corporate entities of the ceding companies. The tax on its income is obviously
house was an informal partnership, which was taxable as a corporation under the NIRC. different from the tax on the dividends received by the said companies. Clearly, there is no
They point out that the reinsurance policies were written by them individually and separately, double taxation here.
and that their liability was limited to the extent of their allocated share in the original risks
thus reinsured. Hence, the pool did not act or earn income as a reinsurer. Its role was
limited to its principal function of allocating and distributing the risk(s) arising from the

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