FACTS
Local insurance company The Philippine Guaranty Co., Inc., entered into reinsurance contracts with several foreign insurance companies not doing business in the Philippines.
In its income tax returns for the years 1953 and 1954, Philippine Guaranty did not include the amount ceded to its foreign partners, arguing that said amount is not subject to withholding tax because foreign reinsurers did not engage in business in the Philippines, nor did they have office here.
Consequently, the CIR slapped the company with a tax assessment amounting to P230,673 and P234, 364, which represented withholding tax and surcharges on the ceded reinsurance premiums for the years 1953 and 1954, respectively. Philippine Guaranty's appeal before the Court of Tax Appeals was denied.
RULING
The Court ruled in favor of the CIR and CTA.
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 against liability for loss under original insurances.
Such undertaking took place in the Philippines. These insurance premiums, therefore, came from sources within the Philippines and, hence, are subject to corporate income tax.
