Philippine Guaranty Co. contended that reinsurance premiums paid to foreign companies were not taxable in the Philippines due to the absence of business operations or offices. The Court of Tax Appeals ruled against the company, requiring payment of withholding taxes for 1953 and 1954, which was upheld by the Supreme Court, stating that the premiums were indeed income from sources within the Philippines. The Supreme Court emphasized that the reinsurance activities were conducted in the Philippines, thus making the premiums subject to corporate income tax under the Tax Code.
Philippine Guaranty Co. contended that reinsurance premiums paid to foreign companies were not taxable in the Philippines due to the absence of business operations or offices. The Court of Tax Appeals ruled against the company, requiring payment of withholding taxes for 1953 and 1954, which was upheld by the Supreme Court, stating that the premiums were indeed income from sources within the Philippines. The Supreme Court emphasized that the reinsurance activities were conducted in the Philippines, thus making the premiums subject to corporate income tax under the Tax Code.
Philippine Guaranty Co. contended that reinsurance premiums paid to foreign companies were not taxable in the Philippines due to the absence of business operations or offices. The Court of Tax Appeals ruled against the company, requiring payment of withholding taxes for 1953 and 1954, which was upheld by the Supreme Court, stating that the premiums were indeed income from sources within the Philippines. The Supreme Court emphasized that the reinsurance activities were conducted in the Philippines, thus making the premiums subject to corporate income tax under the Tax Code.
Philippine Guaranty Co. contended that reinsurance premiums paid to foreign companies were not taxable in the Philippines due to the absence of business operations or offices. The Court of Tax Appeals ruled against the company, requiring payment of withholding taxes for 1953 and 1954, which was upheld by the Supreme Court, stating that the premiums were indeed income from sources within the Philippines. The Supreme Court emphasized that the reinsurance activities were conducted in the Philippines, thus making the premiums subject to corporate income tax under the Tax Code.
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1.
Company's Defense:
a. Philippine Guaranty Co. argued that these reinsurance premiums were not taxable in the Philippines because the foreign insurance companies were not doing business here and had no offices in the country.
2. CTA Decision:
a. The Court of Tax Appeals disagreed with Philippine Guaranty Co., ruling that the company had to pay the withholding taxes for 1953 and 1954, along with penalties for late payment.
3. Appeal:
a. Philippine Guaranty Co. appealed this decision, maintaining that the foreign reinsurers' lack of physical presence or business operations in the Philippines meant the premiums were not subject to Philippine income tax laws.
ISSUEs
4. W/N the reinsurance premiums in question did not constitute income from sources within the Philippines because the foreign reinsurers did not engage in business in the Philippines, nor did they have office here.
5. W/N the reinsurance premiums are not income from sources within the Philippines because they are not specifically mentioned in Section 37 of the Tax Cede. Section 37 is not an all inclusive enumeration, for it merely directs that the kinds of income mentioned therein should be treated as income from sources within the Philippines but it does not require that other kinds of income should not be considered likewise.
6. W/N the withholding tax should be computed from the amount actually remitted to the foreign reinsurers instead of from the total amount ceded. And since it did not remit any amount to its foreign insurers in 1953 and 1954, no withholding tax was due.
DECISION OF THE SUPREME COURT
7. The reinsurance contracts however show that the transactions or activities that constituted the undertaking to reinsure Philippine Guaranty Co., Inc. against losses arising from the original insurances in the Philippines were performed in the Philippines.
a. Section 24 of the Tax Code subjects foreign corporations to tax on their income from sources within the Philippines. The word "sources" has been interpreted as the activity, property or service giving rise to the income. The reinsurance premiums were income created from the undertaking of the foreign reinsurance companies to reinsure Philippine Guaranty Co., Inc. against liability for loss under original insurances. Such undertaking, as explained above, took place in the Philippines. These insurance premiums therefore came from sources within the Philippines and, hence, are subject to corporate income tax.
8. The power to lax is an attribute of sovereignty. It is a power emanating from necessity. It is a necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public improvements designed for the enjoyment of the citizenry and those which come within the State's territory, and facilities and protection which a government is supposed to provide.
