TITLE : 018 CIR vs Phil Health Care Providers, Inc.

, 522 SCRA 131

FACTS : EO 273 imposed VAT on sale of goods and services. CIR subsequently issued VAT ruling that
respondent as provider of medical services was exempth from VAT coverage. Tax code was adopted and
adopted provsion of EO 273 and RA 7716 on E-VAT.

On January 27, 2000, the respondent CIR sent petitioner assessment of deficiency taxes, both Value-
Added Tax (VAT) and documentary stamp tax (DST) in the total amount of P224,702,641.18 for taxable
years 1996 and 1997.

Petitioner protested such assessment in a letter, but the respondent did not act on the protest which led the
petitioner to file a petition in the Court of Tax Appeals (CTA) seeking the cancellation of said
assessments. CTA partially granted the petition wherein the Phil Health is ordered to pay the deficiency
VAT and set aside the DST deficiency tax.

Respondent appealed in Court of Appeals (CA) with regard to the cancellation of DST assessment. CA
granted the petition. The Court affirmed CA’s decision that DST under Sec 185 is not a tax on the
business transacted but an excise on the privilege, opportunity or facility for the transaction of business
and petitioner be subject to DST being primarily on a business of Indemnity. Hence, petitioner filed a
motion for reconsideration

ISSUE : Whether or not the petitioner is liable to pay the DST on its health care agreement pursuant to
Sec.185 of the National Internal Revenue Code of 1997

HELD : Petition granted. Petitioner is not contemplated to be included in “or other branch insurance”
covered by Section 185 of NIRC because it is a Health Maintenance Organization (HMO) and not an
insurance company. Even if a contract contains all the elements of an insurance contract, HMO’s primary
purpose is rendering service to its member by lowering prices and reducing the cost rather than the risk of
medical health. On the other hand, insurance businesses undertakes for a consideration to indemnify its
clients against loss, damage or liability arising from unknown or contingent event. The term “indemnify”
therein presuppose that a liability or claim has already been incurred. In HMOs, there is no indemnity
precisely because the member merely avails of medical services to be paid or already paid in advance at a
pre-agreed price under the agreements.

Moreover, HMOs play an important role in society as partners of the State in achieving its constitutional
mandate of providing citizens with affordable health services.

Also, the DST assessment of the petitioner for the years 1996 and 1997 became moot and academic since
it availed tax amnesty under RA 9480 on December 10, 2007. Thus, petitioner is entitled to immunity
from payment of taxes for taxable year 2005 and prior years.

Alan A Gultia