Philippine Health Care Providers v CIR G.R. No. 167330 June 12, 2008

J. Corona

Facts:

The petitioner, a prepaid health-care organization offering benefits to its members. The CIR found that the organization had a deficiency in the payment of the DST under Section 185 of the 1997 Tax Code which stipulated its implementation:

“On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance)”

The CIR sent a demand for the payment of deficiency taxes, including surcharges and interest, for 1996-1997 in the total amount of P224,702,641.18.

The petitioner protested to the CIR, but it didn’t act on the appeal. Hence, the company had to go to the CTA. The latter declared judgment against them and reduced the taxes. It ordered them to pay 22 million pesos for deficiency VAT for 1997 and 31 million deficiency VAT for 1996.

CA denied the company’s appeal an d increased taxes to 55 and 68 million for 1996 to 1997.

Issues: WON a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of 1997)

Held: Yes. Petition dismissed.

Ratio:

The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments.

The DST is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the business. In particular, the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or liability.

Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v. Olivares, this Court ruled that a health care agreement is in the nature of a non-life insurance policy.

Its health care agreement is not a contract for the provision of medical services. Petitioner does not actually provide medical or hospital services but merely arranges for the same

It is also incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.

Philamcare Health Systems, Inc. v. CA.- The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.

Similarly, the insurable interest of every member of petitioner's health care program in obtaining the health care agreement is his own health. Under the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingency to the extent agreed upon under the contract.