32 MEDICARD V.

CIR
G.R. No. 222743, April 5, 2017
FACTS: MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and
medical insurance coverage to its clients. Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and curative medical services
provided by duly licensed physicians, specialists, and other professional technical staff participating in
the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.
CIR found discrepancies between MEDICARD’s Income Tax Returns (ITR) and VAT Returns. CIR issued a
Letter Notice. Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN) against
MEDICARD for deficiency VAT.
Issue: WoN the MEDICARD exempted from the VAT and in the absence of Letter of Authority (LOA) the
assessment is void.
Ruling: SC ruled that HMOs are exempted from the VAT cited Section 109(G) of the Tax Code which
states that medical, dental, hospital and veterinary services, except those rendered by professionals, are
exempt from the value-added tax.
As such, Medicard, as an entity and independent contractor, renders two types of services: 1) medical,
dental and hospital services and 2) services to members.
According to the high court, for purposes of determining the VAT liability of an HMO, the amounts
earmarked and actually spent on medical utilization of members should not be included in the
computation of gross receipts.
The SC also found that the VAT deficiency assessment issued against Medicard had no prior approval and
authorization from the BIR commissioner or his duly authorized representatives, thus violating the
HMO's right to due process.
Not having authority to examine Medicard in the first place, the assessment issued by the CIR is
inescapably void.