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COURT OF APPEALS
[G.R. No. 112675. January 25, 1999]
DOCTRINE:
Unregistered Partnerships and associations are considered as corporations for tax
purposes Under the old internal revenue code, A tax is hereby imposed upon the
taxable net income received during each taxable year from all sources by every
corporation organized in, or existing under the laws of the Philippines, no matter
how created or organized, xxx. Ineludibly, the Philippine legislature included in
the concept of corporations those entities that resembled them such as unregistered
partnerships and associations.
Double Taxation is not Present in the Case at Bar Double taxation means taxing
the same person twice by the same jurisdiction for the same thing. In the instant
case, the insurance pool is a taxable entity distince from the individual corporate
entities of the ceding companies. The tax on its income is obviously different from
the tax on the dividends received by the companies. There is no double taxation.
FACTS:
The petitioners are 41 non-life domestic insurance corporations. They issued risk
insurance policies for machines. The petitioners in 1965 entered into a Quota Share
Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener
Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign
insurance corporation. The reinsurance treaties required petitioners to form a
pool, which they complied with.
In 1976, the pool of machinery insurers submitted a financial statement and filed
an Information Return of Organization Exempt from Income Tax for 1975. On the
basis of this, the CIR assessed a deficiency of P1,843,273.60, and withholding
taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and
to the petitioners, respectively.
The Court of Tax Appeal sustained the petitioner's liability. The Court of Appeals
dismissed their appeal.
The CA ruled in that the pool of machinery insurers was a partnership taxable as a
corporation, and that the latters collection of premiums on behalf of its members,
the ceding companies, was taxable income.
ISSUE/S:
Whether or not the pool is taxable as a corporation.
Whether or not there is double taxation.
HELD:
Argument of Petitioner: Remittances of the pool to the ceding companies and Munich
are not dividends subject to tax. Imposing a tax would be tantamount to an illegal
double taxation, as it would result in taxing the same premium income twice in the
hands of the same taxpayer. Furthermore, even if such remittances were treated as
dividends, they would have been exempt under tSections 24 (b) (I) and 263 of the
1977 NIRC , as well as Article 7 of paragraph 1and Article 5 of paragraph 5 of the
RP-West German Tax Treaty.
Argument of Supreme Court: Double taxation means taxing the same person twice by
the same jurisdiction for the same thing. In the instant case, the insurance pool
is a taxable entity distince from the individual corporate entities of the ceding
companies. The tax on its income is obviously different from the tax on the
dividends received by the companies. There is no double taxation.