BIR Ruling

August 26, 1976 This refers to your letter dated July 30, 1976 requesting clarification on the payment of documentary and science stamp taxes, as provided in Section 220 of the Tax Code, particularly on the application of BIR Ruling dated April 16, 1941 (40 O. G. No. p. 396) interpreting the aforesaid section in this manner: "Where a policy is reissued to take the place of an old policy, but the amount has not been increased, the life on the insured remains unchanged ,and the parties to the contract are the same, the reissued policy is not subject to the DST." to the case stated as follows: "1. Philamlife issued a Group Life Insurance Policy covering 8,346 medical and nursing graduates participating in the Rural Health Practice Program for P10,000 each effective January 1974 to June 1974 or a period of six months. The Department of Health paid P215,174 in premiums; and the amount of P13,356 for documentary and science stamp taxes. "2. On January 1975, Philamlife insured a different group of nursing and medical graduates under the same policy, but for another term of six months, this time from January 1975 to June 1975. " Question : Were documentary and science stamps duties due and supposed to be paid for this second and different batch of insureds or not? This batch of medical and nursing graduates were distinctly different from those that served in 1974. "3. In mid June 1976, the Department of Health, after conducting a bidding participated in by several insurance companies, awarded the life insurance to Alpha Bankers Life Insurance who submitted the lowest bid of P10.00 as against Omegalife's P10.20 per participant for a coverage of P10,000. "However, discussions with representatives of the above-mentioned companies revealed that Alpha Bankers Life Insurance was to collect documentary and science stamps taxes on their policy, whereas Omegalife was not going to collect documentary and science stamps duties if they (Omegalife) were to issue the policy. Again, it should be noted that this group is different from that of the preceding group of insured participants, the persons listed being entirely different from those on the preceding list of graduates participating in the program. " Question : Are documentary and science duties to be paid by the Department of Health or not? Alpha Bankers Life Insurance says 'yes',Omegalife says 'no'.Which is to be followed? "This inconsistency in the practices of those two insurance companies in charging documentary and science stamps duties compels us to ask for your opinion and ruling on the matter." In reply, I have the honor to inform you as follows: BIR Ruling dated April 16, 1941 (40 O. G. No. 20, p. 3961) interpreting the provisions of Section 220 of the Tax Code, does not apply to the insurance policies by that Office covering the medical and nursing graduates participating in the Rural Health Practice Program of the Department of Health. Under the aforesaid ruling where a policy is reissued to take the place of an old policy but the amount has not been increased, the life of the insured remains unchanged and the parties to the contract are the same, the reissued policy is not subject to documentary stamp tax. Here the parties are the same. In the case of the medical and nursing graduates whom that Department insured, the persons insured are not the same, the persons insured change every six months. Consequently, the group policy covering each batch of medical and nursing graduates who participate in the Rural Health Practice Program of that Department must have to be affixed with the corresponding documentary and science stamp taxes. aisadc With regard to the question as to whether that Department is required to pay the documentary and science stamp taxes, which Manila Bankers Life Assurance answered in the affirmative, and which Philamlife answered in the negative, please advised that as stated in our letter to you dated July 14, 1976, the documentary and science stamp taxes leviable on life insurance policies as prescribed by Section 220 of the Tax Code is the liability of the insurance company which issued such insurance policies. In such cases, the insurance company absorbs the tax burden. (Negative answer of Philamlife.) However, the documentary and science stamp taxes are excise taxes and it is inherent characteristic of an excise tax that it is suceptible of being passed or shifted to another who is not primarily liable for the payment thereof. Thus, the tax burden may be passed or shifted to that Department. (Affirmative answer of Manila Bankers Life Assurance). In the light of the foregoing, we hope that we have clarified the matter. cdasia