AFISCO INSURANCE V. CA (TAX)

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.

Issues:

1. May the "clearing house" or "insurance pool" so formed be deemed a partnership or an association that is taxable as a corporation under the NIRC?
2. Should the pool's remittances to member companies ans to said foreign firm be taxable as dividends?
3. Has the government's right to asses and collect said tax prescribed?

Ruling: The pool is taxable as a corporation and the government's right to assess and collect taxes had not prescribed.

The term "corporation" shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participation), associations, or insurance companies, but does not include general professional partnerships or a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract without the Government.

In the case before us, the ceding companies entered into a Pool Agreement or an association that would handle all the insurance businesses covered under their quota-sharing reinsurance treaty and surplus reinsurance treaty with Munich. There are unmistakable indicators that it is a partnership or an association covered by NIRC.

The fact that the pool does not retain any profit or income does not obliterate an antecedent fact that of the pool being used in the transaction of business for profit. It is apparent, and petitioners admit that their association or coaction was indispensable to the transaction of the business. If together they have conducted business, profit must have been the object as indeed, profit was earned. Though the profit was apportioned among the members, this is one a matter of consequence as it implies that profit actually resulted.

Petitioners' reliance on Pascual v. Commissioner is misplaced, because the facts obtaining therein are not on all fours with the present case. In Pascual, there was no unregistered partnership, but merely a co-ownership which took up only 2 isolated transactions. The CA did not err in applying Evangelista, which involved a partnership that engaged in a series of transactions spanning more than 10 years, as in the case before us.