BIR Ruling [DA-428-03]

November 28, 2003 BIR RULING [DA-428-03] 106 030-97 Lacson & Lacson Insurance Brokers, Inc. 15th Floor Burgundy Corporate Tower 252 Sen. Gil Puyat Avenue Makati City Attention: Mr. Salvador L. Lacson Managing Director Gentlemen : This refers to your request for clarification by this Office regarding LN No. VAT-P-983-02-03 dated March 10, 2003 issued against your company. It appears that the LN arose out of the Summary List of Purchases submitted by Astrazeneca Pharmaceuticals (Phils.), Inc. which showed that it made purchases from you in the first semester of 2002 in the total amount of P12,559,355.48 which, measured against your reported sales for the same period P9,846,412.30, yielded a discrepancy of P2,712,943.20 which was the subject of the LN. You explain, however, that you are not an insurance company but an insurance broker and that Astrazeneca is one of your clients; that part of the services you render is to collect insurance premiums from your client for transmittal to the insurance companies and that the records of Astrazeneca will show that the P12,559,355.48 were premium payments of Astrazeneca to various insurance companies which will be confirmed by the records of the latter and that while Astrazeneca was technically correct in thinking that it delivered to you the funds, still it was an error on its part to report that the funds were intended for you as a supplier as the funds were indisputably premium payments which you are not entitled to as an insurance broker but are intended to various insurance companies listed in the annex to your letter dated 13 November 2003 to Deputy Commissioner Licerio C. Evangelista. An examination of the records and your allegations leads us to the conclusion that there was indeed an error on the part of Astrazeneca in reporting its payments of the insurance premiums as payments to you when as an insurance broker you are not in the business of insurance and thus cannot collect premiums. As held in VAT Ruling No. 030-97: "2. The official receipt (OR) issued by the broker on the premiums payment by the assured cannot be used to support the assured's input tax. This is because the broker is subject to output tax only on the commission's received and not on the premium payment. It is the insurance company that is liable for the VAT on premium income and therefore such insurance company should issue the VAT receipt which can be the basis for a VAT input credit." Astrazeneca was probably just misled because the payments were coursed through you and thus it labored under the misimpression that you were the payees. It should be clear though from the practice in the insurance industry that as broker you simply liaise between your clients and the insurance companies which bill and collect the insurance premiums. It follows that LN No. VAT-P-983-02-02 arose out of an error and is also erroneous; it should be recalled and withdrawn. cSaATC This ruling is being issued based on the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group