gr_112675_1999

PANGANIBAN, J.:

Pursuant to "reinsurance treaties," a number of local insurance firms formed themselves into a "pool" in order to facilitate the handling of business contracted with a nonresident foreign insurance company.

May the "clearing house" or "insurance pool" so formed be deemed a partnership or an association that is taxable as a corporation under the National Internal Revenue Code (NIRC)?

Should the pool's remittances to the member companies and to the said foreign firm be taxable as dividends? Under the facts of this case, has the goverment's right to assess and collect said tax prescribed? The Case These are the main questions raised in the Petition for Review on Certiorari before us, assailing the October 11, 1993 Decision1 of the Court of Appeals2 in CA-GR SP 25902, which dismissed petitioners' appeal of the October 19, 1992 Decision 3 of the Court of Tax Appeals4 (CTA) which had previously sustained petitioners' liability for deficiency income tax, interest and withholding tax.

The Court of Appeals ruled: WHEREFORE, the petition is DISMISSED, with costs against petitioner5 The petition also challenges the November 15, 1993 Court of Appeals (CA) Resolution6 denying reconsideration. The Facts The antecedent facts,7 as found by the Court of Appeals, are as follows: The petitioners are 41 non-life insurance corporations, organized and existing under the laws of the Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and Contractors' All Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance corporation.

The reinsurance treaties required petitioners to form a [p]ool. Accordingly, a pool composed of the petitioners was formed on the same day.

On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an "Information Return of Organization Exempt from Income Tax" for the year ending in 1975, on the basis of which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners, respectively. These assessments were protested by the petitioners through its auditors Sycip, Gorres, Velayo and Co. On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the petitioners, assessed as "Pool of Machinery Insurers,"

to pay deficiency income tax, interest, and with [h]olding tax, itemized as follows: Net income per information return P3,737,370.00 ============= Income tax due thereon P1,298,080.00 Add: 14% Int. fr. 4/15/76 to 4/15/79 545,193.60 TOTAL AMOUNT DUE & COLLECTIBLE