News Non-Life06 Dec 2018

Philippines:Top court dismisses case against higher tax rates on non-life insurers

06 Dec 2018

The Supreme Court has upheld the legality of the Bureau of Internal Revenue's (BIR) move to impose higher tax rates on non-life insurance companies compared to life insurance firms.

A suit was filed by Standard Insurance, which operates as a non-life insurance company. The insurer contested the assessed tax liability issued by the BIR against it arising from a deficiency in the payment of documentary stamp taxes (DST) for the taxable years 2011 to 2013 amounting to PHP418.8m ($7.9m), including interest and compromise penalty, reported Philippines News Agency.

The firm had sought an injunction against the implementation of Section 108 and Section 184 of the National Internal Revenue Code of 1997 (NIRC) with respect to the taxes to be paid by non-life insurance companies.

Section 108 imposes a 10% value-added tax on gross receipts derived from the sale or exchange of services, including the use or lease of properties. Section 184 imposes the collection of a documentary stamp tax of PHP0.50 on every PHP4, of the amount of premium charged on insurance policies covering properties.

In its petition, Standard Insurance claimed that the NIRC provisions violate the equal protection clause under the Constitution and cited the Act Reducing the Taxes on Life Insurance Policies which lowers from 5% to 2% the tax rate on life insurance premiums.

The company also cited the ongoing deliberations on a House Bill known as "An Act Rationalising the Taxes Imposed on Non-Life Insurance Policies". The proposed law seeks equal treatment for both life and non-life companies.

On 8 May 2015, the Makati City Regional Trial Court (RTC) ruled in Standard Insurance's favour and permanently enjoined the BIR from implementing Sections 108 and 184. This prompted the BIR to lodge an appeal with the Supreme Court.


In a 10-page decision penned by Chief Justice Lucas Bersamin, promulgated on 7 November this year and released on 3 December, the Supreme Court reversed the order issued by the RTC.

In granting the BIR’s petition, the Supreme Court held that the trial court “grossly erred” in granting Standard Insurance’s petition for declaratory relief and subsequently enjoining the BIR from implementing the NIRC provisions permanently.

“The apprehension of the respondent that it could be rendered technically insolvent through the imposition of the iniquitous taxes imposed by Section 108 and Section 184 of the NIRC, laws that were valid and binding, did not render the action for declaratory relief to fall within the purview of an actual controversy that was ripe for judicial determination,” the Supreme Court said.

“The respondent was thereby engaging in speculation or conjecture, or arguing on probabilities, not actualities. Therein lay the prematurity of its action, for a justiciable controversy refers to an existing case or controversy that is appropriate or ripe for judicial determination, not one that is conjectural or merely anticipatory,” it added.

“With not all the requisites for the remedy of declaratory relief being present, the respondent’s petition for declaratory relief had not legal support and should have been dismissed by the RTC,” the Supreme Court ruled.


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