Tax Consequences of a Group Executive Insurance Plan

March 26, 2001 BIR RULING NO. 014-01 SGV & Co . 6760 Ayala Avenue Makati City Attention: Atty . Cirilo P . Noel Gentlemen : This refers to your letter dated December 15, 2000 stating that your client, GE LIFE INSURANCE COMPANY, INC . ("GE Life") intends to offer a Group Executive Insurance Plan (the "Group Plan") to its customers composed mainly of employers; that the salient features of the proposed Group Plan are as follows: 1. It will be primarily marketed as a group permanent plan for employer-employee groups; 2. Membership of the group contract can either be compulsory or voluntary; 3. Ideally, the employer will pay for the premium; 4. The Group Plan may be granted to all employees of a single employer or only to a specific category of officers or employees; 5. The Group Plan is a Single Premium Five-Year Endowment Plan. It will be paid-up by the employer through a single premium payment. The policy holder will be entitled to an endowment payment on the fifth (5th) year; 6. There is a non-forfeiture value which is the cash surrender value ("CSV") such that after the single premium has been paid, the insured may, at any time upon written request while the policy is still in force, elect to surrender the policy for its CSV less any indebtedness to the company; 7. A policy loan of up to 90% of the CSV may be taken; 8. Individual members of the group contract may avail of the CSV or policy loan independently of each other; 9. The policy may be amended without the consent of the insured individual or beneficiaries by written notice between the policyholder and GE Life; HAECID 10. GE Life will issue to the policyholder for delivery to each insured individual a Group Permanent Contract of Individual Insurance; and 11. The individual contracts are non-assignable and the insurance and benefits are non-assignable prior to a loss. Based on the foregoing, you are requesting for confirmation of your opinion that: (1) GE Life is subject to the 5% percentage tax on its total collections of insurance premiums; (2) the policy to be issued by GE Life in support of its Group Executive Insurance Plan is subject to a documentary stamps tax; and (3) payments of insurance premium made by the prospective employers for the benefit of its employees pursuant to the Group Executive Insurance Plan constitute non-taxable fringe benefits under the Tax Code. In reply, please be informed that pursuant to Section 123 of the Tax Code of 1997 states: "SEC. 123. Tax on Life Insurance Premiums . There shall be collected from every person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines a tax of five percent (5%) of the total premium collected, whether such premiums are paid in money, notes, credits or any substitute for money; but premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason to a person insured shall not be included in the taxable receipts; nor shall any tax be paid upon reinsurance by a company that has already paid the tax; nor upon premiums collected or received by any branch of a domestic corporation, firm or association doing business outside the Philippines on account of any life insurance of the insured who is a nonresident, if any tax on such premium is imposed by the foreign country where the branch is established nor upon premiums collected or received on account of any reinsurance, if the insured, in case of personal insurance, resides outside the Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected; nor upon that portion of the premiums collected or received by the insurance companies on variable contracts (as defined in Section 232(2) of Presidential Decree No. 612), in excess of the amounts necessary to insure the lives of the variable contract workers." Consequently, GE Life, being a corporation doing life insurance business in the Philippines, is subject to the payment of 5% tax on total premiums collected, which amount would include the premiums arising from the Group Plan. Furthermore, Section 183 of the Tax Code of 1997 states: "SEC. 183. Stamp Tax on Life Insurance Policies . On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall be collected a documentary stamp tax of Fifty centavos (P0.50) on each Two hundred pesos (P200), or fractional part thereof, of the amount insured by any such policy." Thus, the policy to be issued in support of the Group Plan is subject to the payment of DST at the rate of P0.50 on each P200.00, or fractional part thereof of the amount insured by such policy. Finally, Section 33 of the Tax Code, states: "SEC. 33. Special Treatment of Fringe Benefit . . . . (C) Fringe Benefits Not Taxable . The following fringe benefits are not taxable under this Section; (1) Fringe benefits which are authorized and exempted from tax under special laws; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner." And Section 2.33 (B) of Revenue Regulations No. 3-98, otherwise known as the rules and regulations implementing the FBT, provides that the cost of group life insurance premiums borne by the employer for his employee shall be considered as a non-taxable fringe benefit. The pertinent section of the said regulation states as follows: "(10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. The cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, except the following: (a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law, such as under the Social Security System (SSS), (R.A. No. 8282, as amended) or under the Government Service Insurance System (GSIS) (R.A. No. 8291), or similar contributions arising from the provisions of any other existing law; and (b) the cost of premiums borne by the employer for the group insurance of his employees." DTaSIc Therefore, the premium payments to be made by the employees on GE Life's Group Plan constitute non-taxable fringe benefits. This ruling being issued on the basis of 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, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group