BIR Ruling

December 12, 1972 Mr. R. J. Morris Manager, The Manufacturers Life Insurance Company 5th Floor, PPL Bldg. United Nations Avenue, Manila S i r : This refers to your letter dated November 15, 1972, referred to this Office by the Insurance Commissioner, which requests information on a query stated as follows: "In view of the fact that we are fast approaching the year end we would be most grateful if you could obtain an outline as to how we should determine our taxable income and what costs would be deductible operational expenses and so forth. Would we be taxed purely on our Philippines results or would our tax be on a performance ratio of our Philippine business relative to our world business?" It is represented that the Manufacturers Life Insurance company is a foreign corporation with head office at Toronto, Canada and has a Philippine branch duly licensed to do life insurance business. In reply thereto, I have the honor to quote hereunder Section 24(c)(2) of the Tax code. "(2) Foreign life insurance companies . A foreign life insurance company engaged in the life insurance business in the Philippines shall pay the rate of tax provided in paragraph (1) of this sub-section upon the net investment income received during each taxable year from all sources within the Philippines. For purposes of this paragraph, the "net investment income from all sources within the Philippines" of a foreign life insurance company engaged in the life insurance business in the Philippines is that portion of its gross world investment income which bears the same ratio to that income as their total Philippine reserve bears to their total world reserve, less that portion of their total world investment expenses which bears the same ratio to those expenses as their total Philippine investment income bears to their total world investment income. acd For purposes of paragraphs (1) and (2) of this subsection, "gross investment income" means income received during the taxable year from rents, dividends, interest, and income from any other business than the life insurance business conducted by the company, including net capital gains as defined in Section 34 of this Code; "investment expenses" means real estate expenses, depreciation (except to the extent that property is used in or connected with its underwriting business), interest paid or accrued within the taxable year on indebtedness (except on indebtedness incurred to purchase or carry obligations the interest upon which is wholly exempt from taxation under existing laws), and such investment expenses paid or accrued during the taxable year as are ordinary and necessary in the conduct of its investment or in the conduct of its business other than the life insurance business." Section 2 and 3 of Revenue Regulations No. 12-72 dated December 1, 1972 implementing "Supplement B" to Title II (Income Tax) of the Tax Code, which was added by Presidential Decree No. 30, dated October 27, 1972, reads as follows: "SEC. 2. General Provisions . A return of net taxable income shall be filed for each quarter of the taxable year by every corporation subject to income tax under Section 24, Title II of the National Internal Revenue Code. "SEC. 3. What should be declared . (a) The net taxable income for the quarter and the income tax due thereon, computed in accordance with the provisions of Title II of the National Internal Revenue Code, shall be declared in the quarterly return. Only the total gross income and deductions for the quarter shall be shown on the quarterly return to determine the net taxable income." Accordingly, the net taxable income of that insurance company shall be determined in accordance with the foregoing provisions of Section 24(c)(2) of the Tax Code. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue