BIR Ruling

July 23, 1969 Mr. F. J. Fitzwilliam P.O. Box 1893, Manila S i r : This is in reply to your request for tax exemption in behalf of the Faith Academy, Manila. cdlex It appears that the Faith Academy, Inc. (hereinafter referred to as the School), was organized on February 28, 1957 and incorporated under Philippine law on March 5, 1957 as a non-stock corporation exclusively for religious and educational purposes, i.e.," to maintain a day school and boarding school in Manila which shall provide a sound education in a Christian atmosphere primarily for the children of missionaries"; that the School is financed and maintained by means of voluntary contributions, donations, charitable and educational trusts, fees which it may collect from the students as well as an initial amount of P10,000.00; that the income of the School is used exclusively in the conduct of its educational affairs, payment of the salaries of its employees, supplies, books, utilities, and other expenses which are ordinary and necessary in the operation thereof; that the teachers of the School are paid for their services not out of such income, but out of contributions received from individuals in the United States; that it is managed by a Board of Trustees composed of fifteen members, all of whom are evangelical missionaries; that no member of the said Board shall have any private interest in the assets of the School; and that no part of its net income inures to the benefit of any individual. Based on the foregoing facts, this Office believes and so holds that the School, is exempt from the payment of income tax under Section 27(e) of the Tax Code. The School is, however, subject to income tax on income derived from any of its properties, real or personal, or from any activity conducted for profit, regardless of the disposition made of such income. If its has not earned any taxable income, it is also exempt from the filing of income tax returns. Moreover, the School is required to file on or before April 15 of each year, a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the preceding year and a certificate showing that there has not been any substantial change in its By-Laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income pursuant to Revenue Regulations No. 7-64 dated November 1964. However, the School is liable to pay the basic residence tax (Class A) of five pesos and the additional residence tax (Class B) pursuant to Section 2 of Commonwealth Act No. 465 otherwise known as the Residence Tax Law. The income to be received by the employees of the School is subject to the withholding tax on wages under Article, Supplement A of the Tax Code which requires every employer making payment of wages to deduct and withhold upon such wages a tax determined in accordance with a withholding table prepared by the Secretary of Finance. The School as withholding agent should likewise withhold and deduct from the salaries of its teachers even if as reported, they are paid out of individual contributions from the United States. Since they are paid and received in consideration of services rendered in the Philippines, such remuneration are nevertheless subject to Philippine income tax and consequently to the withholding tax. Voluntary contributions or donations received by the School from donors in the Philippines or from abroad are subject to the gift taxes. Equipments imported in this country for the exclusive use of the School are likewise subject to the compensating tax. The School is not subject to the payment of privilege taxes. Finally, the determination of the liability of the School for the payment of real property tax, is not within the jurisdiction of this Office. LexLib Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue