BIR Ruling

June 22, 1973 Insurance Commissioner 6th Floor, PPL Building United Nations Avenue Manila M a d a m : This refers to your letter dated March 1, 1973 requesting comment on the proposed amendment of the "Credit Agreement Clause" of insurance policies proposed by the Philippine Rating Bureau to read as follows: " CREDIT AGREEMENT The premium corresponding to the first . . . of the term of this Policy or any renewal thereof is hereby considered paid for the purpose only of making this policy valid and binding during said portion of the term. Thereafter, this Policy shall automatically become void and ineffective (without prejudiced to the obligation of the Insured to pay the corresponding short period for the said . . . ) unless prior to the expiration of said period the Insured shall have actually paid to the Company the total premium and the documentary and science stamp taxes stipulated in this Policy." As stated in your letter, the above proposed amendment comes from clients of member insurance companies, requesting for the deletion of the documentary and science stamp debits from policies issued to pioneer industries which have been awarded blanket exemption from taxes, except income tax, under Section 8(a) of Republic Act No. 5186. It is observed, however, that the proposal, as worded above, would obligate just the same the otherwise exempt pioneer industries to pay the aforesaid taxes due on the insurance policies issued to them. In this connection please be advised that under Republic Act No. 5186 pioneer industries are exempt from the payment of only those taxes for which they are directly liable; this Office has consistently ruled that where a tax exempt person is party to a taxable transaction, the tax is nonetheless due and payable, the same to be paid by the other party to the transaction. However, it has been held that an agreement regarding the designation of the party liable for the payment of the documentary stamp tax is legal and proper. (Sta. Clara Lumber Co., Inc. vs. Araas, ATA Case No. 502, June 12, 1959). Consequently, if pursuant to the insurance policy issued to the pioneer industry, which is tax exempt, the insured is designated as the party liable for the documentary stamp tax due on said policy, when such a policy would be exempt from the documentary and science stamp tax. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue