FACTS:
Upon finding some discrepancies between MEDICARD’s Income Tax Returns (ITR) and VAT Returns, the CIR issued a Preliminary Assessment Notice (PAN) against MEDICARD for deficiency VAT. It posited the taxable base of HMOs for VAT purposes is its gross receipts without any deduction under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005.
MEDICARD ratiocinated that under its contract with its corporate clients, it expressly provides that 20% of the membership fees per individual, regardless of the amount involved, already includes the VAT of 10%/20% excluding the remaining 80% because MEDICARD would earmark this latter portion for medical utilization of its members.
ISSUE(S):
Whether or not the amounts that MEDICARD earmarked and eventually paid to the medical service providers should form part of its gross receipts for VAT purposes.
HELD:
NO. By earmarking or allocating 80% of the amount, MEDICARD unequivocally recognizes that its possession of the funds is not in the concept of owner but as a mere administrator of the same. For this reason, at most, MEDICARD’s right in relation to these amounts is a mere inchoate owner which would ripen into actual ownership if, and only if, there is underutilization of the membership fees at the end of the fiscal year. Prior to that, MEDICARD is bound to pay from the amounts it had allocated as an administrator once its members avail of the medical services of MEDICARD’s healthcare providers.
