PHILIPPINE HEALTH CARE PROVIDERS, INC., vs.

COMMISSIONER OF
INTERNAL REVENUE

FACTS:
Petitioner is the Philippine Health Care Providers Incorporated, a domestic corporation
primarily engaged in the business of providing prepaid group practice health care delivery
system. On the other hand, Respondent is the Commissioner of Internal Revenue, demanding
payment of deficiency taxes including surcharges and interests, for taxable years during 1996 and
1997, against the herein petitioner. The deficiency is composed mostly of unpaid documentary
stamp tax (DST) imposed on the petitioner’s agreement within its members. The deficiency
documentary stamp tax assessment was imposed on petitioner’s health care agreement pursuant
to Section 185 of the 1997 Tax Code.
Petitioner protested before the CIR, but due to the latter’s inaction; it filed a petition for
review before the Court of Tax Appeals. The CTA rendered a decision partially granting the
petition for review. The petition was ordered to pay P53 M instead of the original 225 M.
Furthermore, The CIR was ordered to desist from collecting DST.
Respondent CIR appealed the decision before the Court of Appeals. According to him,
the petitioner’s healthcare agreement is a contract of insurance and as such is subject to DST
under 1997 Tax Code. The CA rendered a decision reversing the earlier decision of the CTA. It
ordered the petitioner to pay 123M in DST.
Petitioner appealed the decision before the Supreme Court which affirmed CA’s decision.
The SC held that the pertinent period was in the nature of non-life insurance which is a contract
of indemnity. The Court further ruled that contract between company like petitioner and its
beneficiaries under their plans are treated as insurance contract. Hence, petitioner filed a motion
for Reconsideration and asserts the following arguments:
a. Under NIRC of 1997 DST is imposed only on an insurance company. Petitioner is an HMO
and not an insurance company.
b. Petitioner cites the Court’s minute resolution of August 29, 2001 dismissing the appeal in
Philippine National Bank (G.R. No. 148680). The petitioner contends that the dismissal of said
case by minute resolution was a judgment on the merits and should apply the CA’s ruling that a
health care agreement is not an insurance contract.

ISSUES:
A. Whether or not the petitioner is a Health maintenance organization or an insurance company
and whether or not it is liable for Documentary stamp tax?
B. Constitutional Issues
1. Whether or not taxing the PHCRI will impair the right of the people to health
development guaranteed by sec 11 Article XIII and Sec 15 Art II of the present
Constitution?
2. Whether or not this court is bound by a minute resolution in the case of CIR v.
Philippine National Bank ruling that a healthcare agreement is not an insurance
contract and is thereby exempt from the payment of the DST?
C. Statutory Construction Issues
1. Whether or not it is within the intent of the legislature to impose DST on healthcare
agreements of HMDS?
2. Whether or not Section 185 of the NIRC 1997 which provides that DST…..“imposed
on all parties of insurance or obligations..or obligations of the nature of indemnity for
loss, damage, or liability..” should be liberally construed?

RULING:
A. Whether or not the petitioner is a Health maintenance organization or an
insurance company and whether or not it is liable for Documentary stamp tax?
Under RA 7875 Petitioner is admittedly an HMO and thus not covered by the
Documentary stamp tax under Section 185 of National Internal Revenue Code of 1997. It is
a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a
statute shall be considered surplusage or superfluous, meaningless, void, insignificant. To this
end, a construction which renders every word operative is preferred over that which makes
some words idle and nugatory. This principle is expressed in the maxim Ut magis valeat
quam pereat, that is, the interpretation which gives effect to the whole of the statute- its every
word. 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.
B. CONSTITUTIONAL ISSUES
1. Right to Health and Development
Art. II Sec. 15 states that, “The State shall protect and promote the right to health of the
people and instill health consciousness among them.” On the other hand, Art. XIII Sec. 11
states that, “the State shall adopt an integrated and comprehensive approach to health
development which shall endeavor to make essential goods, health and other social services
available to all the people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women and children. The State shall endeavour to
provide free medical care to paupers.”
It is a matter of common knowledge that there is a great social need for adequate medical
services at a cost which the average wage earner can afford. HMOs arrange, organize and
manage health care treatment in the furtherance of providing a more efficient and inexpensive
health care system made possible by quantity purchasing of services and economies of scale.
They offer advantages over the pay-for-service system (wherein individuals are charged a fee
each time they receive medical services), including the ability to control costs. They protect
their members from exposure to the high cost of hospitalization and other medical expenses
brought about by fluctuating economy. Accordingly, they play an important role in society as
partners of the State in achieving its constitutional mandate of providing its citizens with
affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. Its
imposition will elevate the cost of health care services. This will in turn necessitate an
increase in the membership fees, resulting in either placing health services beyond the reach
of the ordinary wage earner or driving the industry to the ground. At the end of the day,
neither side wins, considering the indispensability of the services offered by the HMOs.
2. Are Minute Resolutions are binding?
The minute resolution is not a binding precedent. A decision and a minute resolution
differ significantly from one another. The Constitution expressly states in Section 14, Article
VIII that, “No decision shall be rendered by any court without expressing therein clearly and
distinctly the facts and the law on which it is based.” This applies to decisions and not to
minute resolutions. The latter is only signed by the clerk of court by authority of the justices
unlike in decisions. Minute resolutions do not require the certification of the Chief Justice
and are not published in the Philippine Reports.
Furthermore, the proviso of Section 4(3) of Article VIII refers to decisions and as a rule,
the Court establishes doctrines or principles of law which constitute binding precedents in a
decision duly signed by members of the Court and certified by the Chief Justice.
Since petitioner was not a party in G.R. No. 148680 and that the petitioner’s liability for
DST on its health care agreement was not the issue of G.R. No. 148680, the petitioner cannot
effectively invoke the minute resolution in that case in its favor. Nevertheless, this does not
diminish the fact that petitioner’s health care agreements are not subject to DST.
C. STATUTORY CONSTRUCTION
1. Legislative Intent
There was no legislative intent to impose DST on health care agreements of HMOS, this
can be inferred in the provision’s legislative history. If it had been the intent of the legislature
to impose DST on health care agreements, it could be done so in clear and categorical terms.
Considering that Section 185 did not change since 1904(except for the rate of tax) , it would
be safe to say that healthcare agreements were never, at anytime, recognized as insurance
contracts or deemed engaged in the business of insurance within the context of the provision.
2. Construction of Sec. 185
The Court held that Section 185 of the NIRC 1997 should be construed within its clear
intent and not liberally.
In construing this provision, the Court is guided by the elementary principle in statutory
construction that tax statutes should be strictly construed against the taxing authority. This is
because taxation is a destructive power which interferes with the personal and property rights
of the people and takes from them a portion of their property for the support of the
government. Thus, tax law should not be extended by implication beyond its clear intent.

The motion for reconsideration is granted.