Myline Cordial

Philippine Health Care Providers, Inc. vs. Commissioner of Internal Revenue
G.R. No. 167330, September 18, 2009
600 SCRA 413

FACTS:
Petitioner Philippine Health Care Providers, Inc. is a domestic corporation engaged in providing the medical services enumerated below to individuals who enter into health care agreements with it:
– Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation and advices on diet, exercise and other healthy habits, and immunization;
– Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood count, and the like and
– Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an injury or sickness on the part of the enrolled member.

On January 27, 2000, respondent Commissioner of Internal Revenue (CIR) 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 P224,702,641.18.

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

CTA’s decision: Cancelled the DST assessment. Ordered the payment of VAT deficiency.

CIR appealed the decision to the CA contending that petitioner’s health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.

CA’s decision: The health care agreement was in the nature of a non-life insurance contract subject to DST.

SC’s decision on Petition for Review: Denied on the ground that petitioner’s health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v. Olivares and Philamcare Health Systems, Inc. v. CA. It ruled that petitioner’s contention that it is a health maintenance organization (HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for the transaction of the business.

Petitioner filed a motion for reconsideration and supplemental motion for reconsideration.

ISSUES:
1. Whether or not petitioner as an HMO is engaged in an insurance business.
2. Whether or not petitioner is liable for the payment of DST on Health Care Agreement of HMOS in accordance with Section 185.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) – Stamp tax on fidelity bonds and other insurance policies. – 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), and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other public body or organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part thereof, of the premium charged.

RULING:
1. No. Health Maintenance Organizations are not engaged in the insurance business. Under RA 7875 (or “The National Health Insurance Act of 1995”), an HMO is an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid premium. To determine whether an HMO is an insurance business or not, one test – principal object and purpose test – may be applied, that is to determine whether the assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance. HMO’s principal object and purpose is service rather than indemnity.
Additionally, petitioner is not supervised by the Insurance Commission but by the Department of Health.

2. No. Health care agreements are not subject to DST. From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be 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).

NOTES:

• Even if a contract contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it is not a contract of insurance.
• Distinctions between a minute resolution and a decision
  The constitutional requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of the Court and certified by the Chief Justice.

Related Jurisprudence:
In Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of a health service provider to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly against the HMO. For this reason, SC’s ruling in Blue Cross and Philamcare are applicable in the present case.

Full Text : Philippine Health Care Providers, Inc. vs. CIR G.R. No. 167330, September 18, 2009