MANILA, Philippines - The Supreme Court abandoned its earlier ruling stating that health care agreements are contracts of indemnity, thus, considered as insurance contracts subject to the imposition of documentary stamp tax (DST) under the 1997 Tax Code.

In a 40-page resolution, the high court?s Special First Division granted the motion for reconsideration filed by Philippine Health Care Providers, Inc.

The appeal sought a reversal of the high court's June 12, 2008 ruling ordering them to pay the Bureau of Internal Revenue (BIR) more than P376 million representing deficiency DST, including surcharges and interest for 1996 and 1997.

?The 1996 and 1997 deficiency DST assessment against petitioner is hereby cancelled and set aside. Respondent is ordered to desist from collecting the said tax,? the high court said.

The High Court admitted they wrongly adopted its decisions in Blue Cross and Philamcare where it pronounced that a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.

It clarified that those cases did not involve the interpretation of a tax provision as they dealt with the liability of a health service provider to a member under the terms of their health care agreement.

The High Court added that under Section 2 (1) of the Insurance Code, an insurance contracts exists when the insured has an insurable interest; the insured is subject to a risk of loss by the happening of the designed peril; the insurer assumes the risk; such assumption of risk is part of a general schemed to distribute actual losses among a large group of persons bearing a similar risk; and in consideration of the insurer?s promise, the insured pays a premium.

The high court added that HMO industry could collapse if DST would be imposed on its members. The rate of DST under Section 185 is equivalent to 12.5 percent of the premium charged.