June 27, 2005

BIR RULING [DA-288-05]

006-89 dtd Jan. 20, 1989
Pioneer Insurance & Surety Corporation
Pioneer House Makati
108 Paseo de Roxas, Legaspi Village
Makati City
Attention: Sally Coyukiat-Ong Pac
Senior Vice President Accounting
Gentlemen :
This refers to your letter dated April 5, 2005 requesting confirmation of your opinion
that no documentary stamp tax (DST) is due on insurance policies issued in Hong
Kong by your Hong Kong Branch Office. SHacCD
It is represented that your company, Pioneer Insurance & Surety Corporation
(hereinafter referred to as "Pioneer") is a domestic corporation engaged in the
business of general insurance, including statutory insurance and acceptance of
reinsurance; that in 1960, Pioneer was authorized by the Insurance Commission to
operate a branch office in Hong Kong; that the branch has been in operation since
1963; that the branch office in Hong Kong is duly registered under the Hong Kong
Companies Ordinance and is duly authorized to write certain categories of the
general insurance business in Hong Kong; that pursuant to such registration, the
Hong Kong Branch Office issues insurance policies and earns direct premiums on
such insurance policies issued in Hong Kong to its Hong Kong clients involving
properties situated outside the Philippines; that a previous BIR ruling, BIR Ruling No.
006-89 dated January 20, 1989, directly addresses the DST implications of the
insurance contracts issued by Pioneer's Hong Kong branch; that the said ruling,
issued to the Insurance Commissioner, states that since "the non-life insurance
policies and bonds are issued in Hong Kong, the same are not subject to the
documentary stamp tax; that this is so because the documentary stamp tax, being
an excise tax, is applicable only to transactions effected and consummated within
the Philippines;" and that in 1994, Republic Act No. 7660 amended Section 173 of
the Tax Code to impose DST wherever the document is made, signed, issued,
accepted, or transferred "when the obligation or right arises from Philippine sources
or the property is situated in the Philippines."

It is, therefore, in this context that you request for confirmation of your opinion that
despite the foregoing amendment, no DST shall be imposed on policies of property
insurance issued by your Hong Kong Branch in Hong Kong to its Hong Kong clients
covering property situated outside the Philippines.
In reply, please be informed that the general rule is still that DST is in the nature of
an excise tax. It is not imposed upon the business transacted, but upon the
privilege, opportunity or facility offered at exchanges for the transaction of the
business. (Commissioner of Internal Revenue vs. Heald Lumber Co., L-16340,
February 29, 1964) Thus, DST is imposed on the privilege of conducting a particular
transaction or executing a particular document within the Philippines, since the
parties to the said transaction or document exercise the privilege, opportunity or
facility offered at exchanges for the transaction of the business in the Philippines.
DAHEaT
R.A. No. 7660, however, introduced an exception to the general rule by inserting in
Section 173 of the Tax Code the phrase "wherever the document is made, signed,
issued or accepted or transferred when the obligation or right arises from Philippine
sources or the property is situated in the Philippines." The present Section 173 of
the Tax Code provides:
"Sec. 173. Stamp taxes upon documents, instruments, loan agreements, and
papers. Upon documents, instruments, loan agreements, and papers, and upon
acceptances, assignments, sales and transfers of the obligation, right, or property
incident thereto, there shall be levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding documentary stamp taxes
prescribed in the following sections of this Title, by the person making, signing,
issuing, accepting, or transferring the same wherever the document is made,
signed, issued, accepted, or transferred when the obligation or right arises from
Philippine sources or the property is situated in the Philippines, and at the same
time such act is done or transaction had: Provided, That whenever one party to the
taxable document enjoys exemption from the tax herein imposed, the other party
thereto who is not exempt shall be the one directly liable for the tax." (Emphasis
ours)
The amendment is meant to plug the loophole in the law which enabled the parties
to a contract to simply go outside the Philippines to sign the document and lawfully
avoid payment of DST. With the amendment, DST will be payable regardless of
where the document is signed, issued, accepted, or transferred, for as long as the
said document pertains to (a) obligations or rights arising from sources within the
Philippines or (b) property situated in the Philippines. Thus, deeds of conveyance
covering real property situated in the Philippines will be liable to DST regardless of
where the deed is executed. cCTaSH

Similarly, insurance policies covering property situated in the Philippines shall be

liable to DST even if the policy is issued abroad. Section 184 of the Tax Code
provides:
"SEC. 184. Stamp Tax on Policies of Insurance Upon Property. On all policies of
insurance or other instruments by whatever name the same may be called, by
which insurance shall be made or renewed upon property of any description,
including rents or profits, against peril by sea or on inland waters, or by fire or
lightning, 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 amount of premium
charged: Provided, however, That no documentary stamp tax shall be collected on
reinsurance contracts or on any instrument by which cession or acceptance of
insurance risks under any reinsurance agreement is effected or recorded."
Applying the afore-quoted Section 184 in relation to Section 173 of the Tax Code to
the case of Pioneer's Hong Kong Branch, the property insurance policies issued by
the said Hong Kong branch will be subject to DST imposed under Section 184 of the
Tax Code, even if such policies are signed or issued abroad, for as long as the
properties which are the object of insurance are situated in the Philippines.
Conversely, where the property insured is situated outside the Philippines, the DST
imposed on property insurance under Section 184 will not apply.
While it may be true that Pioneer's Head Office is considered the same juridical
entity as its Hong Kong branch office under the single-entity concept, such fact is
not relevant in determining liability for DST on property insurance policies which
depend solely on the location of the subject property.
In view of the foregoing, this Office therefore hereby confirms your opinion that the
insurance contracts issued by Pioneer Hong Kong Branch, being in the nature of
property insurance covering properties situated outside the Philippines are not
subject to DST. SAHaTc
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different, then
this ruling shall be considered void.
Very truly yours,
(SGD.) JOSE MARIO C. BUAG
Deputy Commissioner
Legal and Inspection Group

C o p y r i g h t 2 0 0 8 C D T e c h n o l o g i e s A s i a, I n c.

06-24-2005 BIR Ruling [DA-287-05]