Revision of "Insurance Premium Tax Return" Form (BIR Form 2001) and Corresponding Premium Tax Procedures to Conform with the Provisions of the Premium Tax Law

May 20, 1986 REVENUE MEMORANDUM CIRCULAR NO. 11-86 SUBJECT : Revision of "Insurance Premium Tax Return" Form (BIR Form 2001) and Corresponding Premium Tax Procedures to Conform with the Provisions of the Premium Tax Law TO : All Insurance Companies Authorized to Transact Business in the Philippines and All Internal Revenue Officers Concerned It has been observed that in computing the premium tax payable by insurance companies (domestic or resident foreign corporations), reinsurance premiums ceded to a domestic insurance company is deducted from total premiums collected. The more apparent reason for this practice may be traced to the "Insurance Premium Tax Return" from (BIR FORM 2001) where this item is shown as allowable deduction in computing the tax base. acd This tax procedure has no authority in law. The tax procedure outlined in Section 223 of the National Internal Revenue Code, as amended, does not allow deduction of reinsurance premiums ceded to another insurance company. Rather, the law provides that the taxable base, for premium tax purposes, shall be "Gross Premium collected" after deduction of the following items: 1. Premiums refunded within six (6) months after payment on account of rejection of risk or returned for other reason to a person insured; 2. Reinsurance premiums received from another insurance company which has already paid premium tax on the premiums being ceded; 3. 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 tax on such premium is imposed by the foreign country where the branch is established; 4. Premiums collected or received on account of any reinsurance, if the risk insured against covers property located outside the Philippines, or 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; and 5. Portion of the premiums collected or received by the insurance company on variable contracts (as defined in Sec. 232(2), PD 612) in excess of the amounts necessary to insure the lives of the variable contract owners. It has also been observed that some insurance companies withhold premium tax on reinsurance premiums ceded to other insurance companies and such reinsuring companies in turn deduct the premium taxes withheld in computing their premium tax liabilities. aisa dc Likewise, this practice has no legal authority. The premium tax law (Sections 223 to 226, Chap. II, Title VIII, NIRC, as amended) provides no authority for the withholding of premium taxes. Considering the foregoing premises: 1. The "Insurance Premium Tax Return" form (BIR FORM 2001) is hereby revised to conform with the provisions of Section 223 of the National Internal Revenue Code, as amended. cd i 2. The Chief, Personnel and Administrative Services, is hereby instructed to cause the immediate printing of the revised "Insurance Premium Tax Return" form (BIR FORM 2001) which is attached herewith and marked "ANNEX" "A". 3. The practice of deducting reinsurance premiums ceded in computing the premium tax due is hereby ordered to be immediately stopped. aisa dc 4. The practice of some insurance companies withholding premium taxes on reinsurance premiums ceded shall likewise be immediately stopped . (SGD.) BIENVENIDO A. TAN, JR. Commissioner