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PHILIPPINE HEALTH CARE PROVIDERS v. CIR

FACTS:

The petitioner, Philippine Health Care Providers, Inc., is a domestic corporation that operates a prepaid group practice health care delivery system or a health maintenance organization. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various medical services. The health care agreement between the petitioner and its members provides for in-patient services, out-patient services, preventive health care, and emergency care.

On January 27, 2000, the respondent, Commissioner of Internal Revenue, sent the petitioner a demand letter and assessment notices for deficiency taxes for the years 1996 and 1997. The assessment included deficiency value-added tax (VAT) and documentary stamp tax (DST). The deficiency DST assessment was imposed on the petitioner's health care agreement with its members, in accordance with Section 185 of the 1997 Tax Code. The petitioner believes that the health care agreement is not subject to DST and challenges the assessment.

ISSUES:

  1. Whether petitioner's health care agreement is a contract of insurance subject to documentary stamp tax (DST) under Section 185 of the 1997 Tax Code?

  2. Whether the health care agreement between the petitioner and its members is a form of insurance.

  3. Whether the documentary stamp tax (DST) is applicable to the health care agreement.

RULING:

  1. Yes, petitioner's health care agreement is a contract of insurance subject to documentary stamp tax (DST) under Section 185 of the 1997 Tax Code. The DST is levied on the privilege of making or renewing any policy of insurance, bond, or obligation in the nature of indemnity for loss, damage, or liability. Petitioner's health care agreement is primarily a contract of indemnity, and the Supreme Court has previously ruled that a health care agreement is in the nature of a non-life insurance policy.

  2. Yes, the health care agreement between the petitioner and its members is a form of insurance. The agreement grants the member the right to receive medical services in case of illness, injury, or other stipulated contingencies, and the petitioner assumes the liability and indemnifies the member for the expenses incurred. This arrangement is similar to a non-life insurance contract of indemnity, where the insurer pays for the expenses arising from the covered contingencies.

  3. Yes, the documentary stamp tax (DST) is applicable to the health care agreement. The DST is not a tax on the business transacted but an excise on the privilege, opportunity, or facility offered at exchanges for the transaction of the business. It is imposed on the facilities used in the transaction of the business, separate and apart from the business itself. Therefore, the petitioner is required to pay the deficiency DST for the years 1996 and 1997, along with the surcharge and interest.

PRINCIPLES:

  • Documentary stamp tax (DST) is imposed on the privilege of making or renewing any policy of insurance, bond, or obligation in the nature of indemnity for loss, damage, or liability.

  • A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage, or liability arising from an unknown or contingent event.

  • A health care agreement can be considered a non-life insurance policy.

  • The insurable interest of a member in obtaining a health care agreement is their own health, and the agreement is akin to a non-life insurance contract of indemnity.

  • Contracts between health maintenance organizations and the beneficiaries under their plans are treated as insurance contracts.

  • Documentary stamp tax (DST) is not a tax on the business transacted but an excise on the privilege, opportunity, or facility offered at exchanges for the transaction of the business.