THE Bureau of Internal Revenue lost its tax-evasion case against health care provider Medicard Philippines after the Supreme Court granted its appeal to reverse the Court of Appeals’ order to it to pay P660 million in deficiency taxes in 2007.
The high court ruled that for the purpose of determining the VAT liability of a health care provider, the amounts earmarked and actually spent for the medical use of its members should not be included in the computation of its gross receipts.
The high court’s Third Division granted the petition filed by Medicard Philippines Inc. seeking to overturn the decision issued by the Court of Tax Appeals on Sept. 2, 2015 ordering the health care provider to pay the BIR the deficiency VAT assessment totaling P660 million, including 20-percent interest per year starting January 2007.
Medicard is a Health Maintenance Organization that provides prepaid health and medical insurance coverage to its clients.
‘‘The Decision dated September 2, 2015 and resolution dated January 29, 2016 issued by the Court of Tax Appeals en banc… are reversed and set aside, the high court said.
“Further, the Value-Added Tax deficiency assessment issued against Medicard Philippines Inc. is hereby declared unauthorized for having been issued without a Letter of Authority by the Commissioner of Internal Revenue or his duly authorized representatives.”
In its September 2015 decision, the Court of Appeals en banc affirmed the ruling of the Court of Tax Appeals that declared the gross receipts of an HMO for VAT purposes shall be the total amount of money or its equivalent actually received from members undiminished by any amount paid or payable to the owners/operators of hospitals, clinics and medical and dental practitioners.
In its petition, Medicard said its business as an HMO involved two different although interrelated contracts”•one between a corporate client and Medicard, with the corporate client’s employees being considered as its members and the other between the health care institutions/health care professionals and Medicard.
Under the first, Medicard said it undertakes to make arrangements with health care institutions and health care professionals for the coverage of its members under specific health-related services for a specified period of time in exchange for the payment of a more or less fixed membership fee.
Under its contract with its corporate clients, MEDICARD expressly provides that 20 percent of the membership fees per individual, regardless of the amount involved, already includes the VAT of 10 percent/20 percent excluding the remaining 80 percent because Medicard would earmark the portion for medical utilization of its members.
The company also assailed the BIR’s inclusion in its gross receipts of its earnings from medical services, which it actually and directly rendered to its members.
However, the BIR asserted that the taxable base of HMOs for VAT purposes was its gross receipts without any deduction under Section 4.108.3(k) of Revenue Regulation 16-2005.
The agency insisted that since Medicard does not actually provide medical and/or hospital services, but merely arranges for the same, its services are not VAT exempt.
But the high court ruled that the CTA en banc overlooked that the definition of gross receipts under RR No. 16-2005 merely presumed that the amount received by an HMO as membership fee is the HMO’s compensation for their services.
As a mere presumption, an HMO is thus allowed to establish that a portion of the amount it received as membership fee does not actually compensate it but some other person, which in this case are the medical service providers themselves.