Afisco Insurance Corporation v.

CA
GR No. 112675, 25 January 1999

Facts:

Petitioners are 41 local insurance firms which entered into Reinsurance Treaties with
Munich, a non-resident foreign insurance corporation. The reinsurance treaties required
them to form an insurance pool or clearing house in order to facilitate the handling of
the business they contracted with Munich.
The CIR assessed the insurance pool deficiency corporate taxes and withholding taxes on
the dividends paid on Munich and to the petitioners respectively. The assessments were
protested by petitioners
CA Insurance pool was a partnership taxable as a corporation and that the latters
collection of premiums on behalf of its members was taxable income
Petitioners - not a partnership! The reinsurers didnt share the same risk or solidary liability,
there was no common fund, the executive board of the pool didnt exercise control and
management of the funds and the pool wasnt engaged in business of reinsurance

Issues:

WON the Insurance Pool is a partnership or association that is taxable as a corporation.

YES

Ruling w/ Doctrine:

Here the ceding companies entered into a Pool Agreement or an association that would handle
all the insurance businesses covered under their quota-share reinsurance treaty and surplus
reinsurance treaty with Munich.

There are unmistakable indicators that it is a partnership or an association covered

by NIRC:
1 The pool has a common fund, consisting of money and other valuables that are
deposited in the name and credit of the pool. This common fund pays for the
administration and operation expenses of the pool.
2 The pool functions through an executive board, which resembles the board of directors
of a corporation, composed of one representative for each of the ceding companies.
3 Though the pool itself is not a reinsurer, its work is indispensable, beneficial and
economically useful to the business of ceding companies and Munich because without it
 they wouldnt have received premiums. Profit motive or business is therefore the
primordial reason for the pools formation.

The fact that the pool doesnt retain any profit or income doesnt obliterate an antecedent
fact that of the pool is being used in the transaction of business for profit. It is apparent and
petitioners admit that their association was indispensable to the transaction of the business.