PHILIPPINE HEALTH CARE PROVIDERS, INC. VS. COMMISSIONER OF INTERNAL REVENUE

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I. Contract of Insurance

1) PHILIPPINE HEALTH CARE PROVIDERS, INC. VS. COMMISSIONER OF INTERNAL REVENUE

Health care agreement is in the nature of insurance contract therefore is subject to Documentary Stamp Tax

Philippine Health Care Providers, Inc., petitioner, vs. Commissioner of Internal Revenue, respondent
G.R.No. 167330. June 2008

FACTS:


Petitioner is a domestic corporation whose primary purpose is to establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health care maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly license physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it, as provided in its membership or health care agreement and which provides for the in patient, out patient, and emergency care. 

Respondent Commissioner sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of P 224,641.18. The deficiency DST assessment was imposed on petitioner's health care agreement with the members of its health care program. Petitioner protested the assessment in a letter, as the respondent did not act on the letter, petitioner filed a petition for review in the Court of Tax Appeal for the cancellation of the deficiency VAT and DST assessments. 

CTA partially granted the petition, ordering the payment of VAT but cancelling and set aside the DST assessment. Hence respondent appealed to CA  as CTA cancelled the DST. It claimed that petitioner's health care agreement was a contract of insurance subject to DST under section 185 of the 1997 Tax Code. CA ruled in favor of the Commissioner. 

Petitioner argued that health care agreement is not  a contract of insurance and  but it is a contract for the provision on a prepaid basis of medical services, including medical check up that are nit based on loss or damage. It also insists that it is a health maintenance organization regulated by the DOH, and not under the jurisdiction of the Insurance Commission therefore not subject to the documentary stamp tax.

Issue: 

Whether a health care agreement NOT in the nature of an insurance contract and therefore not subject to the documentary stamp tax (DST).

HELD:

NO. 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. It is an excise upon 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. 

A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or a consideration or liability arising from an unknown or contingent event. The event insured against must be designated in the contract and must either be known or contingent. Petitioner's health care agreement is primarily a c contract of indemnity and in the case of Blue Cross Healthcare, Inc. vs. Olivares, Court ruled that a health care agreement is in the nature of a non life insurance policy. 

Contrary to petitioner's claim, Health Care agreement is not a contract for the provision of medical services as it does not actually provide medical or hospital services but merely arranges for the same and pays for them up to the stipulated maximum amount coverage. It is also incorrect to say that the Health Care agreement, petitioner assumes the liability and indemnifies its member for the hospital, medical and related expenses. 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. 

Contract between petitioner and the beneficiaries under their plans are treated as insurance contracts.

Petition is hereby denied.  

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