BIR Ruling

February 19, 1973 Mr. Pacifico L. Bacani C/O Espiritu Associates Philippine American Life Insurance Co. United Nations, Manila S i r : This refers to your letter dated February 8, 1973 requesting opinion on the following queries: "What are the tax obligations both of the Corporation and the insured in each of these situations: "1. Each stockholder (who is also an officer of the corporation) is applicant, premium payer, irrevocable beneficiary and sole owner of an insurance policy covering the lives of his co-stockholders? 2. The Corporation is applicant, premium payer and irrevocable beneficiary of insurance policies on the lives of its stockholders?" In reply, I have the honor to inform you as follows: 1. The insurance proceeds received by the stockholders who is the applicant, premium payer, irrevocable beneficiary and sole owner of an insurance policy covering the life of his co-stockholders, are excluded from his gross income (Section 29(b)(1), Tax Code); and the premiums paid by him on such life insurance policies are not deductible from his gross income. (Section 31(a)(4), Tax Code). 2. The premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the corporation when said corporation is the beneficiary under such policy, are not deductible from the gross income of such corporation (Section 31(a)(4), Tax Code). For this purpose, stockholders are among those considered financially interested in the business of a corporation. (34 Am Jur. 2d, 1969 Ed., p. 356) The reason for the non-deductibility of such premiums if the corporation is a beneficiary is that these premiums are in the nature of investment of corporate capital; another reason is that life insurance proceeds are, when received, excluded from gross income (Section 29(a)(1), Tax Code; Mertens Vol. 4A, Chapter 25, par. 25.105, pp. 431-432). cdt Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue