REPUBliC OF THE PHiliPPINES

Coon ol Tax Appeals

QUEZON CITY
SECOND DIVISION
PRULIFE OF UK INSURANCE
CORPORATION,
C.T.A. CASE NO. 6774
Petitioner,
-versus-
Members:
CASTANEDA, JR., Chairperson
UY, and
PALANCA-ENRIQUEZ, JJ.
COMMISSIONER OF INTERNAL Promulgated:
REVENUE, SEP
Respondent.
1
1 200] /
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Y- ---------X
DECISION
CASTANEDA, JR., J.:
The instant Petition for Review seeks the cancellation of the
assessment issued by the Commissioner of Internal Revenue against Prulife
of UK Insurance Corp. for deficiency premium and documentary stamp taxes
and compromise penalties in the aggregate amount of P5,756,316.21 for
taxable year 1999.
Prulife of UK Insurance Corp. (Petitioner) is the successor-in-interest of
Allstate Life Insurance Company of the Philippines Inc. (Allstate) , a duly
registered corporation doing business in the country, with headquarters based Jk-
DECISION
C.T.A. CASE NO. 6774
Page 2 of 12
in Hong kong and whose local principal office is at 25
1
h Floor, Tower 1, The
Enterprise Center, Ayala Avenue corner Paseo de Roxas and De Ia Rosa
Streets, Makati City.
1
Commissioner of Internal Revenue (Respondent) is the a public officer
of the Bureau of Internal Revenue (BIR) authorized under the National
Internal Revenue Code (NIRC) to examine any taxpayer including inter alia,
the power to issue tax assessments, evaluate and decide upon protests
relative thereto.
2
On January 24, 2003, respondent issued Assessment/Demand Notices
No. 34-99
3
addressed to Allstate, finding the latter liable for the following:
Tax Type
Premium Tax (Sec. 123)
Compromise Penalty
Documentary Stamp Tax (Sec. 183)
Compromise Penalty
Documentary Stamp Tax (Sec. 175)
Compromise Penalty
Amount of Assessment
p 664,051 .96
16,000.00
411 ,675.50
16,000.00
4,623,588.75
25,000.00
p 5.756.316.21
On February 21 , 2003, petitioner seasonably protested the
Assessment/Demand Notices, and attached documents in support of its
protest.
4
BIR Regional Director Ruper!o P. Somera informed petitioner that
the case-docket will be reinvestigated and forwarded to Revenue District
Office No. 34.
5
1
Paragraph 1, Joint Stipul ati ons of Facts, Rollo, page 69.
2
Paragraph 2, Joint Stipulati ons of Facts, Rollo, pages 69-70.
3
BIR Records, pages 42-50.
4
BIR Records, pages 14-41.
5
Paragraph 6, Joint Stipul ati ons of Facts, Rollo, page 70.
DECISION
C.T.A. CASE NO. 6774
Page 3 of 12
On September 2, 2003, petitioner wrote a letter to the Bl R District
Officer (Atty. Alarcon) relative to the re-investigation of the case. The re-
investigation has not been terminated as of September 19, 2003.
6
Hence, petitioner filed a Petition for Review with this Court on
September 19, 2003.
During trial , petitioner applied for compromise settlement of the
premium tax assessment by paying forty percent (40%) of the basic assessed
tax or an amount of P166,072.00, on the ground of doubtful val idity of the
assessment. The recommendation for the approval of the offer of compromise
settlement was not yet final , being still subject to the approval of the Regional
Evaluation Board according to Section 7(c) of the NIRC.
7
The issues,
8
jointly submitted by the parties for resolution of this Court,
are the following:
"1. Whether or not the taxes covered by the 1999 deficiency
assessments under Assessment and/or Demand Notices
No. 34-99, all dated January 24, 2003 were already paid;
2. Whether or not the alleged findings of 1999 deficiency taxes
have factual and legal bases;
3. Whether or not the issuance of Assessment and/or Demand
Notices No. 34-99, all of which were dated January 24, 2003
are valid;
4. Whether or not Petitioner failed to submit all relevant
supporting documents relative to the premium tax, within
sixty (60) days from the filing of the protest on February 21 ,
2003, and if so, whether such failure is in violation of Section
228 of the 1997 Tax Code so as to render the Assessment
Notices No. 34-99 and demand letters all dated January 24,
2003, final , executory and demandable;
6
Paragraphs 7 and 8, Joint Stipulations of Facts, Ro//o, page 70; SIR Records, pages 8-9.
7
TSN, August 17, 2004, pages 2-3; Ro//o, page I 41.
8
Joint Stipulation of Facts, Ro//o, page 73; Minutes of February II , 2004 hearing, Ro//o, page 116.
DECISION
C.T.A. CASE NO. 6774
Page 4 of 12
5. Whether or not the accounts receivable written off in the
amount of P7.864.722.00, is subject to premium tax;
6. Whether or not the advance payment of policyholder and the
non-policy related collections are included in the petitioner's
premium income for 1999 which was made subject of the
deficiency assessment of premium tax by respondent. "
This Court shall first resolve the issues involving the applicability of
Section 228 of the NIRC which states:
"SECTION 228. Protesting of Assessment. - When the
Commissioner or his duly authorized representative finds that
proper taxes should be assessed, he shall first notify the
taxpayer of his findings:
XXX
The taxpayers shall be informed in writing of the law and
the facts on which the assessment is made; otherwise, the
assessment shall be void.
Within a period to be prescribed by implementing rules
and regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the Commissioner
or his duly authorized representative shall issue an assessment
based on his findings.
Such assessment may be protested administratively by
filing a request for reconsideration or reinvestigation within thirty
(30) days from receipt of the assessment in such form and
manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from submission of
documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the said decision, or from the lapse of
the One Hundred Eighty (180)-day period; otherwise, the
decision shall become final , executory and demandable."p
DECISION
C.T.A. CASE NO. 6774
Page 5 of 12
Upon reviewing the assessment notices for the deficiency premium tax
and documentary stamp tax, the Court finds the same to be factually and
legally supported. The assessment/demand notices showed detailed
computations and applicable provisions of the NIRC in arriving at the amount
of deficiency taxes. The figures used in the computations were obtained from
documents submitted by petitioner to respondent. Thus, the
assessment/demand notices issued were valid.
The same, however, cannot be said about the compromise penalties
imposed by respondent. The Court has no jurisdiction to compel a taxpayer to
pay the compromise penalty because by its very nature, it implies a mutual
agreement between the parties in respect to the thing or subject matter which
is so compromised, and the choice of paying or not paying it distinctly belongs
to the taxpayer.
9
Absent any showing that petitioner consented to the
compromise penalty, its imposition should be deleted. The imposition of the
compromise penalty without the conformity of the taxpayer is illegal and
unauthorized.
1
Considering that respondent had not shown that petitioner
conformed to the imposition of the compromise penalty, the compromise
penalty is deleted.
Notwithstanding petitioner's lack of relevant documents in support of its
protest insofar as the premium tax assessment is concerned, that
assessment did not attain finality as respondent argued. The only effect of
petitioner's lack of supporting documents submitted is that it lost its chance of Jh-
9
Philippine Internal Fair, Inc. v Co/lector of Internal Revenue, G.R. Nos. L-12928 and L-12932,
March 3 1, 1962 (4 SCRA 774).
1
Commissioner of Internal Revenue vs. Lianga Bay Logging Co. , Inc., G.R. No. 35266, January 21,
1999 ( 193 SCRA 86).
DECISION
c.T.A. CASE NO. 6774
Page 6 of 12
further contesting the premium tax assessment. In Solidbank Corporation vs.
Commissioner of Internal Revenue,
11
this Court ruled:
"xxx [T]he finality of the assessment, as worded in the
provision of law, simply means that where the taxpayer
decides to forego with its opportunity to present the
documents in support of its claim within sixty {60) days
from the filing of its protest, it merely lost its chance to
further contest the assessment.
Effectively, its non-compliance with the submission
of the necessary documents would either mean that the
petitioner no longer wishes to further submit any document
for the reason that its protest letter filed was more than
enough to support its claim, or that the petitioner failed to
comply thus it can no longer give justification with regard
to its objections as to the correctness of the assessment
notices.
Nonetheless, the necessity of the submission of the
supporting documents lies on the petitioner. It cannot be left to
the discretion of the respondent for in doing so would leave the
petitioner's case at the mercy of the whims of the respondent. In
other words, it is for the petitioner to decide whether or not
supporting documents are necessary to support its protest, for it
is in the best position, being the affected party to the
assessment, to determine which documents are necessary and
essential to garner a favorable decision from the respondent. "
(Emphasis supplied)
Now, this Court shall determine the merit of the assessments.
Respondent assessed petitioner of deficiency DST based on the
latter's alleged non-payment of DST on original issue of shares of stocks and
life insurance policies under Sections 175 and 183 of the NIRC, respectively,
computed as follows:
Taxable Sales Receipt
Applicable rate
Tax due thereon
Less: Allowable tax credits/taxes already paid
Deficiency Tax Due
11
C. TA. CASE No. 6557, May 5, 2005.
Section 175
250,000,000.00
2/200
2,500,000.00
2,500,000.00
Section 183
502,955,201 .00
0.5/200
1,257,388.00
1 ,000,000.00
257,388.00 Jz-
DECISION
C.T.A. CASE NO. 6774
Page 7 of 12
Add: 25% Surcharge
20% Interest p.a. up to 1-24-03
Total Amount Due & Collectible
The Court disagrees.
625,000.00
1,498,588.75
4,623,588.75
154,287.50
411,675.50
An obligation such as that of taxes is extinguished by its payment.
12
The Certifications issued by Carmelita SJ. Pascual , Chief of the Revenue
Accounting Division of the BIR,
13
show that petitioner indeed paid the DST
due and that such payment was in fact remitted to the BIR. Both parties even
stipulated that on May 6, 1998, petitioner filed its DST returns and paid
P2,500,000.00 for its original issue of shares of stocks and on various dates
in 1999, petitioner filed its DST returns and paid an aggregate amount of
P1 ,400,000.00 for its life insurance policies,
14
even exceeding its payment of
DST thereon by P142,612.00.
Furthermore, BIR Examiner Samilo A. Cortuna noted that the DST due
thereon had been fully paid by petitioner.
15
In fact , the cancellation of the DST
assessments was even recommended by BIR Examiner Alfred Manodon to
whom the petitioner's case was originally assigned.
16
Indubitably, all these prove that petitioner paid its DST due on its
original issue of shares of stocks and life insurance policies; thus no
deficiency DST is due.
Respondent also assessed petitioner of deficiency premium tax based
on cash collections and accounts receivables written off by petitioner and
treated as bad debts, computed as follows: ?
12
Article 123 1 (I), New Civi l Code.
13
Exhibi ts "A" and "B"; Rollo, pages 167-1 68.
14
Paragraphs 2 to 8, 10 of Additional Facts Jointly Stipul ated, Joint Stipul ation of Facts, Rollo, pages
71 to 72.
15
Exhibit "C"; Rollo, page 170.
16
TSN, July 26, 2006, pages 9 to 12.
DECISION
C.T.A. CASE NO. 6774
Page 8 of 12
Cash collected per O.R.
Add: NR written off
Total
Less: Receivable end
Total collections
Premium tax due
Less: Allowable tax credits/taxes already paid
Deficiency Tax Due
Add: 20% Interest p.a. up to 1-24-03
Total Amount Due & Collectible
8,422,797.88
7,864,722.00
16,287,519.88
306,578.00
15,980,941 .88
799,047.09
383,868.13
415,178.96
248,873.00
664,051.96
On the other hand, petitioner claims that cash collected per official
receipts did not comprise entirely of premiums collected because these
collections also included advance payments from the policyholders and non-
policy related collections.
17
Petitioner also claims that accounts receivables
written off as bad debts cannot be subject to premium tax because these
were not collected.
The Court partly disagrees with petitioner.
Section 123 of the NIRC states:
"Section 123. Tax on Life Insurance Premiums. - There
shall be collected from every person, company or corporation
(except purely cooperative companies or associations) doing life
insurance business of any sort in the Philippines a tax of five
percent (5%) of the total premium collected, whether such
premiums are paid in money, notes, credits or any substitute for
money; but premiums refunded within six (6) months after
payment on account of rejection of risk or returned for other
reason to a person insured shall not be included in the taxable
receipts; nor shall any tax be paid upon reinsurance by a
company that has already paid the tax; nor upon premiums
collected or received by any branch of a domestic corporation,
firm or association doing business outside the Philippines on
account of any life insurance of the insured who is a
nonresident, if any tax on such premium is imposed by the
foreign country where the branch is established nor upon
premiums collected or received on account of any reinsurance,
if the insured, in case of personal insurance, resides outside the
Philippines, if any tax on such premiums is imposed by the
foreign country where the original insurance has been issued or 9t--
17
TSN, June 30, 2004, page 9; BIR Records, page 8.
DECISION
C.T.A. CASE NO. 6774
Page 9 of 12
perfected; nor upon that portion of the premiums collected or
received by the insurance companies on variable contracts (as
defined in Section 232(2) of Presidential Decree No. 612) , in
excess of the amounts necessary to insure the lives of the
variable contract workers. xxx" (Emphasis supplied)
The mere claim of petitioner that its cash collections did not comprise
entirely of premiums collected cannot be given credence. Petitioner should
have presented supporting documents to prove such claim. Since petitioner
failed to present a scintilla of evidence to that effect, this Court sustains
respondent's basis of cash collections.
As for accounts receivables written off as bad debts, the Court agrees
that the same should not be subject premium tax. First, respondent is not
sure whether the accounts receivables consisted entirely of premiums. In fact,
petitioner explained in its protest that the Bad Debts arose from Allstate's
agreement with TF Consulting Company which did not push through and the
money was not refunded to Allstate.
18
That explanation was not squarely
disputed nor refuted by respondent. Second, assuming arguendo that the
receivable consisted entirely of premiums, no premium tax can be imposed
precisely because these receivables were uncollected. As pointed out in the
nfore-cited provision, only the total premiums collected may be subject to
premium tax.
The same observation was also made by BIR Examiner Samilo
Cortuna in his memorandum report to the Revenue District Officer
19
in this
wise:
"From the same case-docket, the nature of premium tax
deficiency relates to the claimed accounts receivable written off
in the amount of P7,864,722.00 for which 5% premium tax was
18
BIR Records, page 9.
19
Exhibit "C"; Rollo, pages 169- 170.
DECISION
C.T.A. CASE NO. 6774
Page 10 of 12
imposed pursuant to Section 123 of the Tax Code. Again, the
claim for deduction on this particular account for income tax
purposes was disallowed by the examiner originally handling the
case. Despite the disallowance as a deduction from gross
income/loss, this bad debts written off was treated as if this was
premium already collected resulting in its being subject to
premium tax as aforesaid. But since by its very nature this
account was not collected, there is doubt as to the validity of
the premium tax because Section 123 of NIRC is very clear that
premium tax accrues only from the moment the premium on
insurance are collected. And since bad debts claimed appears
(sic) to be uncollected during the 1999 taxable year, it means
that no premium tax becomes due. x x x" (Emphasis supplied)
Assessments should not be based on presumptions no matter how
b gical the presumption might be. In order to stand the test of judicial scrutiny,
the assessment must be based on actual facts.
20
All told, the premium tax
assessment should be re-computed as follows:
Cash collected per O.R.
Less: Receivable end
Total collections
Premium tax due
Less: Allowable tax credits/taxes already paid
Deficiency Tax Due
Add: 20% Interest p.a. up to 1-24-03
Total Amount Due & Collectible
8,422,797.88
306,578.00
8,116,219.88
405,810.99
383,868.13
21 ,942.86
13,153.33
35,096.20
IN VIEW OF THE FOREGOING, the instant petition is hereby
PARTIALLY GRANTED. Accordingly, the assessment for deficiency
documentary stamp tax as well as interest in the total amount of
P5,035,264.25 and compromise penalties in the total amount of P57,000.00
against petitioner for taxable year 1999 is CANCELLED and SET ASIDE.
However, petitioner is ORDERED to PAY respondent P35,096.20 for
deficiency premium tax as well as interest, plus twenty percent (20%) fk--
2
Commissioner of Internal Revenue vs. Island Garment Manufacturing Corp. (G.R. No. L-46644.
September 11 , 1987) citi ng Collector of Internal Revenue vs. Benipayo (L- 13656. January 31, 1962).
DECISION
C.T.A. CASE NO. 6774
Page II of 12
delinquency interest commencing from February 24, 2003 for taxable year

SO ORDERED.
WE CONCUR:
QL:>__.1f;;-G SJ..,
qUANITO c. CASTANEDA, -
Associate Justice

OLGA PALANCA-ENRIQUEZ
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.
Q __
O".JUA'NITO C. CASTANEDA, JR.
Associate Justice
Chairperson
DECISION
C.T.A. CASE NO. 6774
Page 12 of 12
CERTIFICATION
Pursuant to Article VIII , Section 13 of the Constitution, and the Division
Chairperson's Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Court.
t - - ~ : o . ~
ERNESTO D. ACOSTA
Presiding Justice