BIR Ruling [DA-071-96]

February 14, 1996 BIR RULING [DA-071-96] Vibrant Earth Foundation, Inc. 1043 Aurora Boulevard Quezon City Attention: Sr . Rosalie G . Enriquez, RGS President Gentlemen : This refers to your request for tax exemption pursuant to the provisions of Batas Pambansa Blg. 45, as implemented by BIR-NEDA Regulations No. 1-81. Documentary evidence submitted disclosed that the Vibrant Earth Foundation, Inc. is a non-stock, non-profit domestic corporation, organized and registered with the Securities and Exchange Commission on July 4, 1994 under SEC Reg. No. ANO94-002521; that the purpose for which the corporation is formed is "to establish and promote a private institutional medium that will enable farm folks in Jangdong 1, Sariaya, Quezon to develop and integrate themselves with the farm development and then to the wider environment through sustainable and wholistic development." that its trustees do not receive any compensation; and that no part of its funds and income shall inure the benefit of any of its members. cdtech Based on the foregoing, this Office is of the opinion and so holds that Vibrant Earth Foundation, Inc. is a corporation organized for scientific purposes as contemplated under Section 26(e) of the National Internal Revenue Code, as amended. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation . Accordingly, interest income from Philippine currency bank deposits and yield or any other monetary benefit from deposit substitute instruments are subject to the 20% final withholding tax pursuant to Section 24(e) in relation to Section 50(a) both of the Tax Code, as amended. Moreover, it 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 year and a certificate showing that there has not been any change in its By-Laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. Furthermore, as a corporation organized and operated for scientific purposes, donations in favor of the Vibrant Earth Foundation, Inc. are exempt from the payment of donor's tax pursuant to Section 94(a)(3) of the Tax Code, as amended, subject to the condition that not more than 30% of the said gifts shall be used by the donee, Vibrant Earth Foundation, Inc. for administration purposes. On the otherhand, Section 29(h)(2)(C) of the Tax Code, as amended by Batas Pambansa Blg. 45; as implemented by BIR-NEDA Regulations No. 1-81, as amended by Revenue Regulations Nos. 1-82 and 10-82 provides that donations to a private foundation which means a non-profit domestic corporation or association organized and operated exclusively for scientific, research, educational character building and youth and sports development, health, social welfare, cultural or charitable purposes or a combination thereof, no part of the net income of which inures to the benefit of any private individual shall be deductible in full from the taxable business income of the donor. Under Section 29 of the Tax Code as amended by Republic Act No. 7496 (an Act Adopting the Simplified Net Income Taxation Scheme [SNITS] for the Self-Employed and Professionals Engaged in the Practice of Their Profession), and as implemented by Revenue Regulations No. 2-93, effective July 28, 1992, individuals engaged in business or practice of profession shall only be allowed as deduction from gross income, among others, contributions made to the Government and accredited relief organizations for the rehabilitation of calamity-stricken areas declared by the President . Pure compensation income earners are allowed to deduct from their gross compensation income only their personal and additional exemptions. (Sec. 29, Tax Code) It is requested that a copy of this letter of exemption be attached to the annual information return which you will file on or before April 15 of each year. It should be understood that the said exempt organization/foundation shall be constituted as withholding agent for the government if it acts as an employer and its employees received compensation income subject to the withholding tax under Section 72 (a); Chapter 10, Title II of the NIRC as implemented by Revenue Regulations No. 6-82 as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax pursuant to Section 50 (b) of the NIRC, as amended; and as implemented by Revenue Regulations No. 6-85, as amended. In view thereof, this Office is of the opinion as it hereby holds that for income tax purposes, contributions and donations in favor of Vibrant Earth Foundation, Inc. by individual donors/contributors shall not be deductible from their gross income; and that since Vibrant Earth Foundation, Inc. is a private foundation organized and operated for scientific purposes, contributions and donations in its favor shall be deductible in full from the gross income of corporate donors/contributors. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. (BIR Ruling No. 517-A-93 dated December 23, 1993) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Asst. Director II, Legal Service