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Phil. Guaranty Co., Inc. v. Cir, 13 Scra 775 - The Lifeblood Doctrine - Digest

The Philippine Guaranty Co. entered into reinsurance contracts with foreign insurers not doing business in the Philippines. It did not withhold or pay taxes on the premiums ceded to the foreign insurers. The CIR assessed withholding taxes on the premiums. The Supreme Court ruled that the premiums are subject to withholding tax because the reinsurance activity that generated the income occurred in the Philippines, not the place of business of the foreign insurers. It also held that no deductions can be made in computing the withholding tax on the premiums.

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3K views2 pages

Phil. Guaranty Co., Inc. v. Cir, 13 Scra 775 - The Lifeblood Doctrine - Digest

The Philippine Guaranty Co. entered into reinsurance contracts with foreign insurers not doing business in the Philippines. It did not withhold or pay taxes on the premiums ceded to the foreign insurers. The CIR assessed withholding taxes on the premiums. The Supreme Court ruled that the premiums are subject to withholding tax because the reinsurance activity that generated the income occurred in the Philippines, not the place of business of the foreign insurers. It also held that no deductions can be made in computing the withholding tax on the premiums.

Uploaded by

Kate Garo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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THE PHILIPPINE GUARANTY CO., INC.

v CIR
G.R. No. L-22074. April 30, 1965
BENGZON, J.P., J.:

FACTS:
Petitioner entered into reinsurance contracts with foreign insurance companies not doing business in the
Philippines. Said reinsurance contracts were signed by Philippine Guaranty Co., Inc. in Manila except the
contract with Swiss Reinsurance Company, which was signed by both parties in Switzerland. Pursuant to
the aforesaid reinsurance contracts Philippine Guaranty Co., Inc. ceded to the foreign reinsurers
premiums and excluded such premiums from its gross income when it filed its income tax returns for 1953
and 1954. Furthermore, it did not withhold or pay tax on them Consequently, the CIR assessed against
petitioner withholding tax on the ceded reinsurance premiums. Petitioner protested the assessment on
the ground that reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines
are not subject to withholding tax. It also contends that the withholding tax should be computed from the
amount actually remitted to the foreign reinsurers instead of from the total amount ceded. And since it
did not remit any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.

ISSUE:
WON reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject
to withholding tax.

HELD:
YES. Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within
the Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to
the income. 1 The reinsurance premiums were income created from the undertaking of the foreign
reinsurance companies to reinsure Philippine Guaranty Co., Inc. against liability for loss under original
insurances. Such undertaking, as explained above, took place in the Philippines. These insurance
premiums therefore came from sources within the Philippines and, hence, are subject to corporate
income tax.

The foreign insurers place of business should not be confused with their place of activity. Business implies
continuity and progression of transactions 2 while activity may consist of only a single transaction. An
activity may occur outside the place of business. Section 24 of the Tax Code does not require a foreign
corporation to engage in business in the Philippines in subjecting its income to tax. It suffices that the
activity creating the income is performed or done in the Philippines. What is controlling, therefore, is not
the place of business but the place of activity that created an income.

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary
burden to preserve the State’s sovereignty and a means to give the citizenry an army to resist an
aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvements designed for the enjoyment of the citizenry and those which come within the State’s
territory, and facilities and protection which a government is supposed to provide. Considering that the
reinsurance premiums in question were afforded protection by the government and the recipient foreign
reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance premiums and
reinsurers should share the burden of maintaining the state.

Reinsurance premiums ceded to foreign reinsurers not doing business in the Philippines are subject to
withholding tax under Sections 53 and 54 of the Tax Code. The mentioned provisions allow no deduction
from the income therein enumerated in determining the amount to be withheld. Accordingly, in
computing the withholding tax due on the reinsurance premiums in question, no deduction shall be
recognized.

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