Facts:
Phoenix assurance is a foreign insurance corporation organized under the laws of Great Britain, licensed to do business in the Philippines. Through its head office in London, it entered into worldwide reinsurance treaties with various foreign insurance companies. It agreed to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices around the world, in consideration for assumption by the foreign insurance companies of equivalent portion of the liability form such original insurances. Pursuant to such treaties, the company ceded portions of its premiums it earned from its underwriting business in the Philippines, upon which assessed withholding tax. The company thereafter amended its tax returns (1950-1954) excluding reinsurance premium and items of deduction attributable to such premium. The Commissioner assessed deficiency income tax against the company.
Issue:
Whether the Commissioner is justified in the assessment of deficiency tax
Ruling:
Yes. The changes and alteration embodied in the amended tax return consisted of the exclusion of reinsurance premium received from domestic insurance companies by the company’s head office, reinsurance premium ceded to foreign insurers not doing business in the Philippines and various items of deductions attributable to such excluded reinsurance premiums, thereby substantially modifying the original return. As amended return is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. The right of the Commissioner to assess the deficiency tax on the amended return has not prescribed. To hold otherwise would pave the way for taxpayer to evade the payment of taxes simply reporting in their original return heavy losses and amending the same more than 5 years later when the Commissioner has lost his authority to assess the proper tax there under. The object of the tax code is to impose taxes for the needs of the government, not to enhance tax avoidance to its prejudice.
Phoenix assurance is a foreign insurance corporation organized under the laws of Great Britain, licensed to do business in the Philippines. Through its head office in London, it entered into worldwide reinsurance treaties with various foreign insurance companies. It agreed to cede a portion of premiums received on original insurances underwritten by its head office, subsidiaries, and branch offices around the world, in consideration for assumption by the foreign insurance companies of equivalent portion of the liability form such original insurances. Pursuant to such treaties, the company ceded portions of its premiums it earned from its underwriting business in the Philippines, upon which assessed withholding tax. The company thereafter amended its tax returns (1950-1954) excluding reinsurance premium and items of deduction attributable to such premium. The Commissioner assessed deficiency income tax against the company.
Issue:
Whether the Commissioner is justified in the assessment of deficiency tax
Ruling:
Yes. The changes and alteration embodied in the amended tax return consisted of the exclusion of reinsurance premium received from domestic insurance companies by the company’s head office, reinsurance premium ceded to foreign insurers not doing business in the Philippines and various items of deductions attributable to such excluded reinsurance premiums, thereby substantially modifying the original return. As amended return is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. The right of the Commissioner to assess the deficiency tax on the amended return has not prescribed. To hold otherwise would pave the way for taxpayer to evade the payment of taxes simply reporting in their original return heavy losses and amending the same more than 5 years later when the Commissioner has lost his authority to assess the proper tax there under. The object of the tax code is to impose taxes for the needs of the government, not to enhance tax avoidance to its prejudice.
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