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Premium Taxes Are Not Deductible Costs of Services

Premium taxes and documentary stamp taxes (DSTs) paid by Manila Bankers Life Insurance are not deductible costs of services under Philippine tax law for three reasons: 1) To be deductible, a cost must be a direct cost of producing the service, but premium taxes are incurred after the sale of insurance, so they are not a direct cost. 2) DSTs are incurred by whichever party signs the insurance contract, and Manila Bankers Life Insurance charged DSTs to clients as part of premiums, so they did not necessarily incur the cost. 3) Like premium taxes, DSTs are incurred after the insurance service is rendered, so they are not direct costs of providing the

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53 views1 page

Premium Taxes Are Not Deductible Costs of Services

Premium taxes and documentary stamp taxes (DSTs) paid by Manila Bankers Life Insurance are not deductible costs of services under Philippine tax law for three reasons: 1) To be deductible, a cost must be a direct cost of producing the service, but premium taxes are incurred after the sale of insurance, so they are not a direct cost. 2) DSTs are incurred by whichever party signs the insurance contract, and Manila Bankers Life Insurance charged DSTs to clients as part of premiums, so they did not necessarily incur the cost. 3) Like premium taxes, DSTs are incurred after the insurance service is rendered, so they are not direct costs of providing the

Uploaded by

CJ Hernandez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Manila Bankers Life Insurance vs CIR

PREMIUM TAXES ARE NOT DEDUCTIBLE COSTS OF SERVICES

While we agree that the enumeration in the provision is not exhaustive, the CTA paid little to no
attention to one of the express requirements for deductibility - that the claimed deduction should be
a direct cost or expense. A cost or expense is deemed "direct" when it is readily attributable to the
production of the goods or for the rendition of the service.

Measured against this standard, it is then easy to discern that premium taxes, though payable
by MBLIC, are not direct costs within the contemplation of the phrase "cost of services," incurred as they
are after the sale of service had already transpired. This cannot therefore be considered as the
equivalent of raw materials, labor, and manufacturing cost of deductible "cost of sales" in the sale of
goods.

DSTs ARE NOT DEDUCTIBLE COSTS OF SERVICES

DST is incurred "by the person making, signing, issuing, accepting, or transferring" the document
subject to the tax. And since a contract of insurance is mutual in character, either the insurer or the
insured may shoulder the cost of the DST.

In this case, it was duly noted by the CTA that MBLIC never disputed charging DSTs from its
clients as part of their premiums. Hence, it cannot readily be said that it was MBLIC who "necessarily
incurred" the expense.36 Moreover, DSTs cannot also qualify as direct costs "to provide the services
required by the customers and clients" since, just like premium taxes, they are incurred after the service
had been rendered. No error is then attributable to the CTA in this regard.

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