Basis in Determining the Amount of Withholding Tax Due on Reinsurance Premiums Ceded to Non-resident Foreign Companies

March 11, 1958 BIR RULING NO. 159-58 Messrs. Sycip, Gorres, Velayo & Co. Certified Public Accountant 490 San Luis, Manila Gentlemen : Reference is made to your letter, dated February 24, 1958, requesting, in effect, the proper basis of determining the amount of withholding tax due on reinsurance premiums ceded to non-resident foreign companies not authorized to do business in the Philippines pursuant to Section 54 of the Tax Code. You stated that "A Company, a domestic insurance company with reinsurance treaty with B Company, a non-resident foreign company not authorized to do business in the Philippines, ceded to the latter company in 1957 certain Philippine risks with premiums of P100,000. For such cession, B Company pays A Company commission of 30% or P30,000; losses on the risks assumed by B Company totalled P10,000; reserve covering risks ceded to B Company which have not yet expired amounted to P15,000; and the premium taxes for the account of B Company amounted to P3,000. "The foregoing transactions between A and B companies in 1957 are effected in the books of A Company as follows: "Reinsurance premiums due to B Company P100,000 Less: Commissions P30,000 Losses 10,000 Reserve for Unexpired Risks 15,000 Premium Taxes 3,000 58,000 Amount credited to B Company 42,000 ====== You further stated that you believe that A Company should withhold 24% of P42,000, the amount credited to B Company, or P10,080. In other words, the net credit remittable to B Company is P31,920 (P42,000-P10,080). You now request opinion of this Office as to whether the withholding tax due on the reinsurance premiums ceded abroad should be based on the net premiums after deduction of the abovementioned expenses or on the gross premiums. In reply thereto, I have the honor to inform you that the 24% withholding tax should be based on the gross reinsurance premiums ceded to B Company and not on the net premiums actually due or to be paid or remitted to the said company after deduction of the abovementioned expenses, pursuant to the provisions of Section 54 of the Tax Code, in relation to Section 53 thereof. Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue