BIR Ruling No. 067-62

March 29, 1962 BIR RULING NO. 067-62 The General Manager Government Service Insurance System M a n i l a S i r : This has reference to your letter dated March 16, 1962, requesting information "as to the procedure to be taken by the System on how it shall be free from paying tax on the net reinsurance premiums to be ceded as 'tax free' to insurance companies which are not authorized to do business in the Philippines." cdt Section 255 of the National Internal Revenue Code provides: "SEC. 255. Taxes of insurance premiums . There shall be collected from every person, company, or corporation (except purely cooperative companies or associations) doing insurance business of any sort in the Philippines a tax of three per centum of the total premiums collected , whether such premiums are-paid in money, notes, credits, or any substitute for money; but premiums refunded within six months after payment on account of rejection of risk or returned for other reason to 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 non-resident, if any percentage tax on such premiums is imposed by the foreign country where the branch is established." (Emphasis supplied.) Under the aforequoted provision of the law, the premium tax of 3% is imposed on the premiums received and collected by insurance companies. In cases of reinsurance, the reinsurer is not required to pay the premium tax where the reinsured or "cading company" has already paid said tax. The Government Service Insurance System is exempt from the payment of the premium tax in accordance with section 28(c) of Commonwealth Act No. 186, as amended, which provides: "(c) Except as herein otherwise provided, the Government Service Insurance System, all benefits granted under this Act, and all its forms and documents required of the members shall be exempt from all types of taxes , documentary stamps, duties and contribution fiscal or municipal, district or indirect, established or to be established; and more specially, they shall not be subject to the provisions of Act Numbered Twenty-four hundred and twenty-seven, as amended, and no law hereafter enacted shall apply to said System unless it is provided therein that the same is applicable to the System by expressly stating the said entity ." Considering that no tax has been paid by the original insurer, the reinsurer shall have to pay the premium tax on the premiums to be paid upon reinsurance. In other words, the reinsurance premiums cannot be accepted as "tax-free" to insurance companies which are not authorized to do business in the Philippines. The facts that the property or properties subject to the reinsurance are government properties, does not in any way affect the law unless there is a specific provision of the law to the contrary. The law establishing Property Insurance, otherwise known as Republic Act No. 656, does not provide for any exemption, although in its section 3, the Government Service Insurance System is authorized to reinsure with private companies government properties covered by the Property Insurance Fund. Foreign insurance companies not doing business in the Philippines are also subject to income tax on the premiums ceded to them equivalent to 30% thereof, pursuant to section 54 of the Tax Code, as amended by Republic Act No. 2343. It is the duty of the System to deduct and withhold this tax and makes return thereof on or before the fifteenth day of April of each year, and pay the amount withheld to the officer of the Government of the Philippines authorized to receive it. (Sec. 53(c), Tax Code, as amended.) Very truly yours, BENEDICTO PADILLA Acting Commissioner of Internal Revenue