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G.R. No. 158085 October 14, 2005 On November 12, 2002, the CTA ruled that a mutual life insurance company is a
REPUBLIC OF THE PHILIPPINES, Represented by the COMMISSIONER OF INTERNAL purely cooperative company; thus, exempted from the payment of premium and
REVENUE, Petitioner, documentary stamp taxes. Petitioner Sun Life is without doubt a mutual life
vs. insurance company
SUNLIFE ASSURANCE COMPANY OF CANADA, Respondent.
Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life
FACTS: ought to have registered, foremost, with the Cooperative Development Authority
before it could enjoy the exemptions from premium tax and DST extended to purely
Sun Life is a mutual life insurance company organized and existing under the laws of cooperative companies or associations and for its failure to register, it could not
Canada. It is registered and authorized by the SEC and the Insurance Commission to avail of the exemptions prayed for. Moreover, the CIR alleged that Sun Life failed to
engage in business in the Philippines as a mutual life insurance company with prove that ownership of the company was vested in its members who are entitled to
principal office at Paseo de Roxas, Legaspi Village, Makati City. vote and elect the Board of Trustees among them. The CTA denied the CIR’s motion
for reconsideration.
On October 20, 1997, Sun Life filed with the CIR its insurance premium tax return
for the third quarter of 1997 and paid the amount of P31,485,834.51. For the period Ruling of the Court of Appeals
covering August 21 to December 18, 1997, petitioner filed with the CIR its
documentary stamp tax (DST) declaration returns and paid P30,000,000.00. In upholding the CTA, the CA reasoned that respondent was a purely cooperative
corporation duly licensed to engage in mutual life insurance business in the
On December 29, 1997, the CTA rendered its decision in Insular Life Assurance Co. Philippines. Thus, respondent was deemed exempt from premium and
Ltd. v. CIR, which held that mutual life insurance companies are purely cooperative documentary stamp taxes, because its affairs are managed and conducted by its
companies and are exempt from the payment of premium tax and DST. Sun Life members with money collected from among themselves, solely for their own
surmised that being a mutual life insurance company, it was likewise exempt from protection, and not for profit. Its members or policyholders constituted both
the payment of premium tax and DST. Hence, Sun Life filed with the CIR an insurer and insured who contribute, by a system of premiums or assessments, to
administrative claim for tax credit of its alleged erroneously paid premium tax and the creation of a fund from which all losses and liabilities were paid. The dividends
DST for the aforestated tax periods. it distributed to them were not profits, but returns of amounts that had been
overcharged them for insurance. For having satisfactorily shown with substantial
For failure of the CIR to act upon the administrative claim for tax credit and with the evidence that it had erroneously paid and seasonably filed its claim for premium
2-year period to file a claim for tax credit or refund was about to expire, Sun Life and documentary stamp taxes, respondent was entitled to a refund, the CA ruled.
filed with the CTA a petition for review on August 23, 1999. It prayed for the
issuance of a tax credit certificate in the amount ofP61,485,834.51 ISSUE:
representing P31,485,834.51 of erroneously paid premium tax and P30,000,000.00
of DST. Sun Life stood firm on its contention that it is a mutual life insurance Whether or not respondent is a purely cooperative company or association
company vested with all the characteristic features and elements of a cooperative under Section 121 of the NIRC and a fraternal or beneficiary society, order
company or association as defined in Section 121 of the Tax Code. Primarily, the or cooperative company on the lodge system or local cooperation plan and
management and affairs of Sun Life were conducted by its members; secondly, it is organized and conducted solely by the members thereof for the exclusive
operated with money collected from its members; and, lastly, it has for its purpose benefit of each member and not for profit under Section 199 of the NIRC.
the mutual protection of its members and not for profit or gain.
HELD:
In its answer, the CIR, then respondent, raised as special and affirmative defenses.
The Petition has no merit.
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The Tax Code defines a cooperative as an association "conducted by the members A mutual life insurance company is conducted for the benefit of its member-
thereof with the money collected from among themselves and solely for their policyholders,23 who pay into its capital by way of premiums. To that extent, they
own protection and not for profit."8 Without a doubt, respondent is a cooperative are responsible for the payment of all its losses. 24 "The cash paid in for premiums
engaged in a mutual life insurance business. and the premium notes constitute their assets x x x."25 In the event that the
company itself fails before the terms of the policies expire, the member-
First, it is managed by its members. Both the CA and the CTA found that the policyholders do not acquire the status of creditors. 26Rather, they simply become
management and affairs of respondent were conducted by its member- debtors for whatever premiums that they have originally agreed to pay the
policyholders.9 company, if they have not yet paid those amounts in full, for "[m]utual companies x
x x depend solely upon x x x premiums."27 Only when the premiums will have
A stock insurance company doing business in the Philippines may "alter its accumulated to a sum larger than that required to pay for company losses will the
organization and transform itself into a mutual insurance company." 10 Respondent member-policyholders be entitled to a "pro rata division thereof as profits."28
has been mutualized or converted from a stock life insurance company to a
nonstock mutual life insurance corporation11 pursuant to Section 266 of the Contributing to its capital, the member-policyholders of a mutual company are
Insurance Code of 1978.12 On the basis of its bylaws, its ownership has been vested obviously also its owners.29Sustaining a dual relationship inter se, they not only
in its member-policyholders who are each entitled to one vote; 13 and who, in turn, contribute to the payment of its losses, but are also entitled to a proportionate
elect from among themselves the members of its board of trustees. 14Being the share30 and participate alike31 in its profits and surplus.
governing body of a nonstock corporation, the board exercises corporate powers,
lays down all corporate business policies, and assumes responsibility for the Sharing in the common fund, any member-policyholder may choose to withdraw
efficiency of management.15 dividends in cash or to apply them in order to reduce a subsequent premium,
purchase additional insurance, or accelerate the payment period. Although the
Second, it is operated with money collected from its members. Since respondent is premium made at the beginning of a year is more than necessary to provide for the
composed entirely of members who are also its policyholders, all premiums cost of carrying the insurance, the member-policyholder will nevertheless receive
collected obviously come only from them.16 the benefit of the overcharge by way of dividends, at the end of the year when the
cost is actually ascertained. "The declaration of a dividend upon a policy
The member-policyholders constitute "both insurer and insured"17 who "contribute, reduces pro tanto the cost of insurance to the holder of the policy. That is its
by a system of premiums or assessments, to the creation of a fund from which all purpose and effect."34
losses and liabilities are paid."18 The premiums19 pooled into this fund are
earmarked for the payment of their indemnity and benefit claims. A stipulated insurance premium "cannot be increased, but may be lessened
annually by so much as the experience of the preceding year has determined it to
Third, it is licensed for the mutual protection of its members, not for the profit of have been greater than the cost of carrying the insurance x x x."35 The difference
anyone. between that premium and the cost of carrying the risk of loss constitutes the so-
called "dividend" which, however, "is not in any real sense a dividend."36 It is a
technical term that is well understood in the insurance business to be widely
As early as October 30, 1947, the director of commerce had already issued a license
different from that to which it is ordinarily attached.
to respondent -- a corporation organized and existing under the laws of Canada -- to
engage in business in the Philippines.20Pursuant to Section 225 of Canada’s
Insurance Companies Act, the Canadian minister of state (for finance and The so-called "dividend" that is received by member-policyholders is not a portion
privatization) also declared in its Amending Letters Patent that respondent would of profits set aside for distribution to the stockholders in proportion to their
be a mutual company effective June 1, 1992. 21 In the Philippines, the insurance subscription to the capital stock of a corporation. 37 One, a mutual company has no
commissioner also granted it annual Certificates of Authority to transact life capital stock
insurance business, the most relevant of which were dated July 1, 1997 and July 1, to which subscription is necessary; there are no stockholders to speak of, but only
1998.22 members. And, two, the amount they receive does not partake of the nature of a
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profit or income. The quasi-appearance of profit will not change its character. It
remains an overpayment, a benefit to which the member-policyholder is equitably
entitled.38

Verily, a mutual life insurance corporation is a cooperative that promotes the

welfare of its own members. It does not operate for profit, but for the mutual
benefit of its member-policyholders. They receive their insurance at cost, while
reasonably and properly guarding and maintaining the stability and solvency of the
company.39 "The economic benefits filter to the cooperative members. Either equally
or proportionally, they are distributed among members in correlation with the
resources of the association utilized."40

It does not follow that because respondent is registered as a nonstock corporation

and thus exists for a purpose other than profit, the company can no longer make
any profits.41 Earning profits is merely its secondary, not primary, purpose. In fact, it
may not lawfully engage in any business activity for profit, for to do so would
change or contradict its nature42 as a non-profit entity.43 It may, however, invest its
corporate funds in order to earn additional income for paying its operating
expenses and meeting benefit claims. Any excess profit it obtains as an incident to
its operations can only be used, whenever necessary or proper, for the furtherance
of the purpose for which it was organized.44

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and
Resolution are AFFIRMED.