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REPUBLIC v. SUNLIFE ASSURANCE COMPANY OF CANADA

FACTS:

Sun Life, a mutual life insurance company registered and authorized to operate in the Philippines, filed tax returns and paid premium tax and documentary stamp tax (DST) for the specified periods. However, after the Court of Tax Appeals (CTA) ruled in Insular Life Assurance Co. Ltd. v. CIR that mutual life insurance companies are exempt from paying premium tax and DST, Sun Life filed an administrative claim for tax credit. The CTA granted the claim and ordered the CIR to refund the erroneously paid taxes. The CIR appealed to the Court of Appeals (CA), but the CA upheld the CTA's ruling and granted the tax refund. Dissatisfied, the CIR filed a petition for review before the Supreme Court, arguing that Sun Life did not qualify for tax exemption and should have registered with the Cooperative Development Authority.

ISSUES:

  1. Whether the respondent is a cooperative.

  2. Whether the respondent is conducted for the mutual protection of its members and not for profit.

  3. Whether the dividend received by member-policyholders of a mutual life insurance corporation is a portion of profits set aside for distribution to stockholders.

  4. Whether registration with the Cooperative Development Authority (CDA) is necessary for a mutual life insurance company to enjoy exemption from certain taxes.

  5. Whether the respondent cooperative is required to be registered with the Cooperative Development Authority (CDA).

  6. Whether the respondent cooperative is exempted from premium taxes and documentary stamp taxes (DST).

RULING:

  1. The Court ruled in favor of the respondent on both issues.

  2. The dividend received by member-policyholders of a mutual life insurance corporation is not a portion of profits set aside for distribution to stockholders. It is an overpayment, a benefit to which the member-policyholders are equitably entitled. The mutual life insurance corporation operates for the mutual benefit of its member-policyholders and not for profit. The economic benefits obtained from the corporation are distributed among the members in correlation with the resources of the association utilized.

  3. Registration with the Cooperative Development Authority (CDA) is not necessary for a mutual life insurance company to enjoy exemption from specific taxes. The Tax Code does not require such registration, and no tax provision mandates registration with the CDA in order for a mutual life insurance company to be exempt from taxes. Additionally, the provisions of the Cooperative Code of the Philippines do not apply to mutual life insurance companies, as they are separate and distinct entities with different purposes.

  4. The respondent cooperative is not required to be registered with the CDA. It does not fall under any of the types of cooperatives required to be registered under the laws on cooperatives. Since the respondent was not required to be registered under the old law, it is also not required to be registered under the new law. Additionally, only cooperatives formed or organized under the Cooperative Code need registration with the CDA. The respondent already existed before the passage of the new law, and it was not required to organize under the Cooperative Code because it performed different functions and operated to serve different objectives.

  5. The respondent cooperative is exempted from both premium taxes and DST. Section 121 of the Tax Code exempts cooperative companies from the percentage tax on insurance premiums, while Section 199 exempts policies of insurance or annuities made or granted by cooperative companies from DST. As a cooperative, the respondent is entitled to these exemptions.

PRINCIPLES:

  • A cooperative is defined as an association conducted by its members with money collected from among themselves and solely for their own protection and not for profit.

  • A mutual life insurance company is conducted for the benefit of its member-policyholders, who pay into its capital by way of premiums.

  • A mutual company relies solely on premiums to meet unexpected losses, contingencies, and expenses.

  • The premiums pooled into a mutual company's fund are earmarked for the payment of indemnity and benefit claims.

  • The member-policyholders of a mutual company contribute to its capital and are also its owners, entitled to a proportionate share in its profits and surplus.

  • A mutual company uses a contribution method to distribute divisible surpluses among its member-policyholders based on their contributions.

  • Dividends on a policy in a mutual company reduce the cost of insurance to the policyholder.

  • A mutual life insurance corporation operates for the mutual benefit of its member-policyholders and not for profit.

  • The dividend received by member-policyholders of a mutual life insurance corporation is an overpayment and an equitable entitlement.

  • Registration with the Cooperative Development Authority (CDA) is not necessary for a mutual life insurance company to enjoy tax exemptions.

  • The provisions of the Cooperative Code of the Philippines do not apply to mutual life insurance companies.

  • The distinguishing feature of a cooperative enterprise is the mutuality of cooperation among its members united for a common purpose.

  • Exemption, when granted, cannot prevail over administrative convenience.

  • The provisions of the Insurance Code primarily govern insurance contracts, and only if a particular matter is not specifically provided for shall the provisions of the Civil Code on contracts and special laws govern.

  • The tax exemptions for cooperative companies under the Tax Code remain applicable despite the amendment of the Code.