Premiums Paid by the Company are Deductible Expense to it

November 3, 1959 BIR RULING NO. 581-59 Mr. Augusto Piccio, Jr. Underwriter The Philippine American Life Insurance Co. Sagay, Negros Occidental S i r : Reference is made to your letter of May 11, 1959, requesting a ruling on the following queries: cdtech "A manufacturing concern in this municipality wished to hold one of its old keymen for another ten years with their company. In this regard, the company intends to get a ten-year permanent life insurance on the life of this key-man with his wife (key-man's) as the beneficiary. "There would be a contract, however, that in the event the key-man resigns without a legitimate excuse within the ten years period, the proceeds of his insurance, which is being paid by the company, will be forfeited to the company to cover business losses as result of his separation; on the other hand, should this key-man be able to fulfill the ten years stay with the company, proceeds of his insurance will be considered as owned by him permanently. "How then would the premiums of this key-man's insurance be treated in the books of the company? 1. Would it be treated as deductible expense? 2. Would it be treated as income to the key-man?" In reply to the aforesaid queries, I have the honor to inform you that the premiums paid by the company are deductible expense to it, it appearing that the company is not directly or indirectly a beneficiary under the policy. (Sec. 31(a)(4), Tax Code) However, the premiums paid by the company partake the nature of additional compensation to the key-man and therefore taxable income to him. On maturity of the insurance, the total proceeds received by the key-man are not taxable income to him. The same holds true if the proceeds are received by the beneficiary in the event the key-man (insured) dies before the maturity of the insurance (Sec. 29(b)(1), Ibid). Should the proceeds of the insurance be forfeited in favor of the company, the same is considered as taxable income to it because the premiums paid on the life insurance of the key-man were already previously deducted as expense in its return. aisadc Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue