BIR Ruling No. 420-61

September 13, 1961 BIR RULING NO. 420-61 8th Indorsement Respectfully returned to the Chief, Business Tax Division, thru the Revenue Operations Executive (Assessment), B. I. R., Manila, the entire docket relative to the proposed assessment of P18,156.10 as broker's tax, surcharge and compromise against the UNNO COMMERCIAL ENTERPRISES, for the period from 1953 to June 30, 1958. It appears that the aforementioned corporation is engaged primarily in the "indent" business. However, it has been appointed as general agents for the MALAYAN INSURANCE, NEW INDIA and SOUTH SEA SURETY, which are all domestic corporations engaged in the insurance business. As such agent, it negotiates and/or enters into insurance contracts involving fire, marine, accident and motor car risks and collects the corresponding premiums for and in behalf of its principals for which it received a commission. On June 19, 1953, this Office promulgated a ruling (File No. 105.08), which stated among other things that "a domestic insurance company which is also acts as agent of another domestic insurance company is not liable for the payment of the occupation tax imposed on insurance agents, the tax being imposed only on natural persons". In view of this ruling, the investigating examiner obviously believed that as the agent-corporation was not subject to the tax as an insurance agent, it became subject to the broker's tax by simple process of elimination. LexLib It may be noted that the aforequoted ruling was promulgated in line with the general principle that "the provisions of revenue statutes are not to be extended beyond the clear import of the language used, and in case of doubt are to be construed against the government and in favor of the taxpayer". (30 Am. Jur. p. 109). Considering that the occupation tax on insurance agents and sub-agents are imposed only on natural persons, this Office deemed it wise not to extent the provision of the Code to juridical persons as distinguished from natural persons. The exemption, however, did not make the contract entered into between the two insurance companies illegal or void; in the same manner that it did not destroy the relationship of agent and principal created by the contract. Section 195 of the Tax Code imposes as tax of 6% on brokers. The classes or kinds or brokers are enumerated in said section. Is an insurance broker deemed included in any one of those classes enumerated in Section 195 of the Code? The determination as to whether an insurance broker may be deemed to be included or not in any one of the specific class of brokers enumerated in the Code is not material to the issue involved in this case. Suffice it to say that the term "broker" as taxed under Section 195 pertains to a particular line of activity or endeavor. The question to be resolved is whether or not an insurance agent may be considered as a broker. If their activities are similar in nature, then the necessity of taxing the UNNO COMMERCIAL ENTERPRISES as a broker arises. But if there is a marked difference between them, an insurance agent for the simple reason that it is not a natural person, should not be made to shoulder an imposition that is not covered by the particular activity subject to the broker's tax. cdpr "An insurance agent, so far as the insurer is concerned, is a person expressly or impliedly authorized to represent it in dealing with third persons in matters relating to insurance, while an insurance broker is one who acts as a middle-man between the assured and the insurer, and who solicits insurance from the public under no employment from any special company, but having secured an order, either places by the insurance with a company selected by the assured, or in the absence of any selection by him, then with a company selected by such broker." (29 Am. Jur. p. 110; Emphasis Supplied). "Every broker is in a sense an agent, but every agent is not a broker. The chief feature which distinguishes a broker from other classes of agents is that he is an intermediary, or middlemen, and, in accepting applications for insurance, acts in a certain sense as the agent of both parties to the transaction. Another distinction is that the idea of exclusiveness enters into an employment of agency, while in respect to a broker there is a holding out of oneself generally for employment in securing insurance." (Gay vs. Lavina State Bank, 18 A. L.R. 1204-1209). as agent by the domestic insurance companies in question, an aura of exclusiveness entered into their relationship; this aside from the principal-agent relationship as contra-distinguished from that of a broker who holds himself out to the public as not representing any particular insurance company. prcd Considering that the activity of the said commercial enterprise does not partake of the nature of a broker, then it could not be subject to the 6% broker's tax provided under Section 195 of the Code on the commissions it received as agent of the MALAYAN INSURANCE, NEW INDIA and SOUTH SEA SURETY. The proposed assessment in the total amount of P18,256.10 as broker's tax, surcharge and compromise should not, therefore, be given due course. (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue