This case involves a petition filed by Philippine Health Care Providers (petitioner) challenging tax deficiency assessments imposed by the Commissioner of Internal Revenue (CIR), including the documentary stamp tax (DST). The CIR assessed DST on petitioner's health care agreements with its members, considering them to be insurance contracts. Petitioner argues the agreements are not insurance contracts but contracts for prepaid medical services. The Supreme Court rules that petitioner's health care agreements are not insurance contracts subject to DST under the tax code. While earlier cases held similar agreements were like non-life insurance policies, those cases did not involve interpretation of tax provisions and thus are not applicable. Petitioner's primary purpose is providing medical services, not indemnifying members against loss or liability
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InsuJKJLrance Dilimangest (Last AssiHJKAHSJgned C''ase) David Phil Health Care Providers v CIR
This case involves a petition filed by Philippine Health Care Providers (petitioner) challenging tax deficiency assessments imposed by the Commissioner of Internal Revenue (CIR), including the documentary stamp tax (DST). The CIR assessed DST on petitioner's health care agreements with its members, considering them to be insurance contracts. Petitioner argues the agreements are not insurance contracts but contracts for prepaid medical services. The Supreme Court rules that petitioner's health care agreements are not insurance contracts subject to DST under the tax code. While earlier cases held similar agreements were like non-life insurance policies, those cases did not involve interpretation of tax provisions and thus are not applicable. Petitioner's primary purpose is providing medical services, not indemnifying members against loss or liability
This case involves a petition filed by Philippine Health Care Providers (petitioner) challenging tax deficiency assessments imposed by the Commissioner of Internal Revenue (CIR), including the documentary stamp tax (DST). The CIR assessed DST on petitioner's health care agreements with its members, considering them to be insurance contracts. Petitioner argues the agreements are not insurance contracts but contracts for prepaid medical services. The Supreme Court rules that petitioner's health care agreements are not insurance contracts subject to DST under the tax code. While earlier cases held similar agreements were like non-life insurance policies, those cases did not involve interpretation of tax provisions and thus are not applicable. Petitioner's primary purpose is providing medical services, not indemnifying members against loss or liability
CIR June 12, 2008 Corona, J SUMMARY: Petitioner, a health maintenance organization, was assessed by the CIR with tax defciencies, which include the DST for the years !!" and !!#$ The DST was im%osed on %etitioner&s health care agreements with its members, which were considered by the CIR as insurance contracts$ Petitioner argues that such agreements are not contracts of insurance but contracts for the %ro'ision on a %re%aid basis of medical ser'ices, and thus, not sub(ect to DST$ DOCTRINE: )nder the law, a contract of insurance is an agreement whereby one underta*es for a consideration to indemnify another against loss, damage or liability from an un*nown or contingent e'ent$ Contracts between com%anies li*e %etitioner and the benefciaries under the %lans are treated as insurance contracts$ FACTS: Petitioner is a domestic cor%oration whose %rimary %ur%ose is +to establish, maintain, conduct and o%erate a %re%aid grou% %ractice health care deli'ery system or a health maintenance organization to ta*e care of the sic* and disabled %ersons enrolled in the health care %lan and to %ro'ide for the administrati'e, legal, and fnancial res%onsibilities of the organization$ ,or an annual membershi% fee, indi'idual members are entitled to 'arious %re'enti'e, diagnostic, and curati'e medical ser'ices %ro'ided by the licensed %hysicians of the %etitioner cor%oration$ -n .anuary /000, res%ondent Commission on Internal Re'enue 1CIR2 sent a formal demand letter to %etitioner and the corres%onding assessment notices demanding the %ayment of defciency taxes 134T and DST2 for !!" and !!#$ The defciency DDST assessment was im%osed on %etitioner&s health care agreements with the members of its health care %rogram %ursuant to Section 56 of the !!# Tax Code$ Petitioner %rotested the assessment, but since res%ondent did not act, %etitioner fled a %etition for re'iew in the Court of Tax 4%%eals 1CT42 see*ing the cancellation of the defciency assessments$ The CT4 ordered %etitioner to %ay a reduced defciency 34T but cancelled the defciency DST assessment for !!" and !!#$ Res%ondent a%%ealed, claiming that %etitioner&s health care agreement was a contract of insurance sub(ect to DST$ In /007, the Court of 4%%eals held that %etitioner&s health care agreements was in the nature of non8life insurance contracts sub(ect to DST$ Petitioner argued that its health care agreement is not a contract of insurance but a contract for the %ro'ision on a %re%aid basis of medical ser'ices$ It said that it is a health maintenance organization regulated by the De%artment of 9ealth, not an insurance com%any under the (urisdiction of the Insurance Commission$ ISSUE: Is a health care agreement in the nature of an insurance contract and therefore sub(ect to the documentary stam% tax 1DST2 im%osed under Section 56 of R4 57/7 1Tax Code of !!#2: RATIO: ;<S$ 8 )nder the law, a contract of insurance is an agreement whereby one underta*es for a consideration to indemnify another against loss, damage or liability from an un*nown or contingent e'ent$ 8 Petitioner&s health care agreement is %rimarily a contract of indemnity$ Blue Cross Healthcare Inc., vs. Olivares holds that a healthcare agreement is in the nature of a non8life insurance %olicy$ 8 The term +loss= or +damage= is broad enough to co'er the monetary ex%ense or liability a member will incur in case of illness or in(ury$ 4lso in case of ex%osure of a member to liability, he would be entitled to indemnifcation by %etitioner$ ,urthermore, the fact that %etitioner must relie'e its member form liability by %aying for ex%enses arising from the sti%ulated contingencies belies its claim that its ser'ices are %re%aid$ 8 Petitioner does not bear the costs alone but distributes or s%reads them out among a large grou% of %ersons bearing a similar ris*, that is, among all the other members of the health care %rogram$ This is insurance$ 8 The case of Philamcare Health Systems, Inc. v CA also holds that +the health care agreement was in the nature of a non8life insurance, which is %rimarily a contract of indemnity=$ 8 Petitioner&s contention that it is a health maintenance organization and not a n insurance com%any is irrele'ant$ Contracts between com%anies li*e %etitioner and the benefciaries under the %lans are treated as insurance contracts$ 8 The DST is not a tax on the business transacted but an excise on the %ri'ilege, o%%ortunity, or facility o>ered at exchanges for the transaction of the business$ PHILIPPINE HEALTH CARE PROVIDERS v. CIR Setem!er 18, 200" Corona, J. SUMMARY: This case is a resolution on the motion for reconsideration fled by %etitioner in the /005 case$ DOCTRINE: +Princi%al ob(ect and %ur%ose test=? whether the assum%tion of ris* and indemnifcation of loss are the %rinci%al ob(ect and %ur%ose of the organization or whether they are merely incidental to its business$ If these are the %rinci%al ob(ects, the business is that of insurance$ @ut if they are merely incidental and ser'ice is the %rinci%al %ur%ose, then the business is not insurance$ In our (urisdiction, e'en if a contract contains all the elements of an insurance contract, if its %rimary %ur%ose is the rendering of ser'ice, it is not a contract of insurance$ FACTS: 1same facts as the /005 case2 ISSUE: Is a health care agreement in the nature of an insurance contract and therefore sub(ect to the documentary stam% tax 1DST2 im%osed under Section 56 of R4 57/7 1Tax Code of !!#2: RATIO: A-$ 8 9ealth maintenance organizations are not engaged in the insurance business o It is a cardinal rule of statutory construction that no word, clause, sentence, %ro'ision or %art of a statute shall be considered sur%lusage or su%erBuous, meaningless, 'oid and insignifcant$ ,rom the language of Section 56, two reCuisites must concur before the DST can a%%ly? 12 the document must be a %olicy of insurance or an obligation in the nature of indemnity and 1/2 the ma*er should be transacting the business ofD insurance$ o Petitioner is an 9E-, an entity that %ro'ides, o>ers or arranges for co'erage of designated health ser'ices needed by %lan members for a fxed %re%aid %remium$ The %ayments do not 'ary with the extent, freCuency or ty%e of ser'ice %ro'ided$ Petitioner, as an 9E-, was not engaged in the business of insurance during !!" and !!#$ o Section /1/2 of the Insurance Code enumerates what constitutes +doing an insurance business=? 12 Ea*ing or %ro%osing to ma*e, as insurer, any insurance contract 1/2 Ea*ing or %ro%osing to ma*e, as surety, any contract of suretyshi% as a 'ocation and not as merely incidental to any other legitimate business or acti'ity of the sirety 1F2 Doing any *ind of business, including a reinsurance business, s%ecifcally recognized as constituting the doing of an insurance business within the meaning of this Code 172 Doing or %ro%osing to do any business in substance eCui'alent to any of the foregoing in a manner designed to e'ade the %ro'isions of this Code o )S courts? 9E-s are not in the insurance business$ o +Princi%al ob(ect and %ur%ose test=? whether the assum%tion of ris* and indemnifcation of loss are the %rinci%al ob(ect and %ur%ose of the organization or whether they are merely incidental to its business$ If these are the %rinci%al ob(ects, the business is that of insurance$ @ut if they are merely incidental and ser'ice is the %rinci%al %ur%ose, then the business is not insurance$ o )S Courts? the main di>erence between an 9E- and an insurance com%any is that 9E-s underta*e to %ro'ide or arrange for the %ro'ision of medical ser'ices through %artici%ating %hysicians while insurance com%anies sim%ly underta*e to indemnify the insured for medical ex%enses incurred u% to a %re8 agreed limit$ o ,or the %ur%oses of determining what +doing an insurance business= means, was ha'e to scrutinize the o%erations of the business as a whole and not its mere com%onents$ 8 4 health case agreement is not an insurance contract contem%lated under Section 56 of the !!# Tax Code o Section 56 of the !!# Tax Code, as a tax statute, must be strictly construed against the taxing authority$ o Since the Blue Cross and Philamcare cases cited in the /005 decisions did not in'ol'e the inter%retation of tax %ro'isions, they are not a%%licable in the case at bar$ o Section /12 of the Insurance Code defnes a contract of insurance as an agreement whereby one underta*es for a consideration to indemnify another against loss, damage, or liability arising from an un*nown or contingent e'ent$ The following are its elements? $ The insured has an insurable interest /$ The insured is sub(ect to a ris* of loss by the ha%%ening of the designed %eril F$ The insurer assumes the ris* 7$ Such assum%tion of ris* is %art of a general scheme to distribute actual losses among a large grou% of %ersons bearing a similar ris* 6$ In consideration of the insurer&s %romise, the insured %ays a %remium$ o Aot all the necessary elements of a contract of insurance are %resent in %etitioner&s agreements$ There is no loss, damage or liability on the %art of the member that should be indemnifed by %etitioner as 9E-$ o 4lthough ris* is a %rimary element of an insurance contract, it is not necessarily true that ris* alone is suGcient to establish it$ 4lmost anyone who underta*es a contractual obligation always bears a certain degree of fnancial ris*$ Insurance ris*, or actuarial ris*, is the ris* that the cost of insurance claims might be higher than the %remiums %aid$ o In our (urisdiction, e'en if a contract contains all the elements of an insurance contract, if its %rimary %ur%ose is the rendering of ser'ice, it is not a contract of insurance$ 8 There was no legislati'e intent to im%ose DST on health care agreements of 9E-s o The DST history and the 9E- history clearly show that when the law im%osing the DST was frst %assed, 9E-s were un*nown in the Phili%%ines$ 9owe'er, when the 'arious amendments to the DST law were enacted, they were already in existence in the Phili%%ines$ If it had been the intent of the legislature to im%ose DST on health care agreements, it could ha'e done so in clear and categorical terms$ It had many o%%ortunities to do so$ @ut it did not$ 8 Petitioner&s tax liability was extinguished under R4 !570, by their a'ailing of the tax amnesty thru %ayment of 6H of their net worth as of the year /006$
PHIL HEALTH CARE PROVIDERS V. COMMISSIONER OF INTERNAL REVENUE G.R. NO. 167330 (09/1/09! ,4CTS? Petitioner is a domestic cor%oration whose %rimary %ur%ose is Ito establish, maintain, conduct and o%erate a %re%aid grou% %ractice health care deli'ery system or a health maintenance organization to ta*e care of the sic* and disabled %ersons enrolled in the health care %lan and to %ro'ide for the administrati'e, legal, and fnancial res%onsibilities of the organization$I Indi'iduals enrolled in its health care %rograms %ay an annual membershi% fee and are entitled to 'arious %re'enti'e, diagnostic and curati'e medical ser'ices %ro'ided by its duly licensed %hysicians, s%ecialists and other %rofessional technical sta> %artici%ating in the grou% %ractice health deli'ery system at a hos%ital or clinic owned, o%erated or accredited by it$ Res%ondent Commissioner of Internal Re'enue JCIRK sent %etitioner a formal demand letter and the corres%onding assessment notices demanding the %ayment of defciency taxes, including surcharges and interest, for the taxable years !!" and !!#$ The defciency Jdocumentary stam% tax 1DST2K assessment was im%osed on %etitioner&s health care agreement with the members of its health care %rogram$ Res%ondent a%%ealed the CT4 decision to the JCourt of 4%%eals 1C42K insofar as it cancelled the DST assessment$ 9e claimed that %etitioner&s health care agreement was a contract of insurance sub(ect to DST under Section 56 of the !!# Tax Code$ -n 4ugust ", /007, the C4 rendered its decision$ It held that %etitioner&s health care agreement was in the nature of a non8life insurance contract sub(ect to DST$ Petitioner mo'ed for reconsideration but the C4 denied it$ 9ence, %etitioner fled this case$
ISSUE: Is the %etitioner engaged in the insurance business:
SC RULING:
The mere %resence of ris* would be insuGcient to o'erride the %rimary %ur%ose of the business to %ro'ide medical ser'ices as needed, with %ayment made directly to the %ro'ider of these ser'ices$/! In short, e'en if %etitioner assumes the ris* of %aying the cost of these ser'ices e'en if signifcantly more than what the member has %re%aid, it ne'ertheless cannot be considered as being engaged in the insurance business$ In our (urisdiction, a commentator of our insurance laws has %ointed out that, e'en if a contract contains all the elements of an insurance contract, if its %rimary %ur%ose is the rendering of ser'ice, it is not a contract of insurance? It does not necessarily follow howe'er, that a contract containing all the four elements mentioned abo'e would be an insurance contract$ T"# $%&'(%) $*%$+,# +- ."# $(%.&#, &/ '(0&/1 ."# 2+/.%(2. '() /#1(.# ."# #3&,.#/2# +- (/ &/,*%(/2# 2+/.%(2.$ ,or exam%le, a law frm which enters into contracts with clients whereby in consideration of %eriodical %ayments, it %romises to re%resent such clients in all suits for or against them, is not engaged in the insurance business$ Its contracts are sim%ly for the %ur%ose of rendering %ersonal ser'ices$ -n the other hand, a contract by which a cor%oration, in consideration of a sti%ulated amount, agrees at its own ex%ense to defend a %hysician against all suits for damages for mal%ractice is one of insurance, and the cor%oration will be deemed as engaged in the business of insurance$ )nli*e the lawyer&s retainer contract, the essential %ur%ose of such a contract is not to render %ersonal ser'ices, but to indemnify against loss and damage resulting from the defense of actions for mal%ractice$ 4lthough ris* is a %rimary element of an insurance contract, it is not necessarily true that ris* alone is suGcient to establish it$ 4lmost anyone who underta*es a contractual obligation always bears a certain degree of fnancial ris*$ ConseCuently, there is a need to distinguish %re%aid ser'ice contracts 1li*e those of %etitioner2 from the usual insurance contracts$