BIR Ruling [DA-224-06]

April 7, 2006 BIR RULING [DA-224-06] Sections 24 (B) (1) & 27 (D) (1); BIR Ruling No. DA-87-03 SVD-St. Jude Catholic School Foundation, Inc. Catholic Trade Building 1916 Oroquieta cor. Tayuman Sta. Cruz, Manila Attention: Fr. Jerome A. Marquez, SVD Corporate Secretary Gentlemen : This refers to your letter dated March 3, 2006 requesting on behalf of SVD-St. Jude Catholic School Foundation, Inc. for exemption from the 20% final tax imposed on interest on bank deposits, particularly time deposit and other monetary placements. As represented, SVD-St. Jude Catholic School Foundation, Inc. is a non-stock, non-profit association administered by members of the religious missionary congregation of the Society of the Divine Word. The purposes of the foundation are as follows: 1. To establish, maintain, improve, develop and support the missionary activities of the Society of the Divine Word, specifically the SVD-Philippine Central Province; 2. To establish, maintain, improve, develop and support the education programs and activities of St. Jude Catholic School; 3. To promote, establish, maintain, improve, develop and support any mission endeavors of the SVD and St. Jude Catholic School for its Chinese ministries and apostolate. In reply, please be informed that pursuant to Sections 24(B)(1) and 27(D)(1) in relation to Section 57(A) of the Tax Code of 1997, interest income from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements are subject to the 20% final withholding tax. It has been the constant and uniform holding of this Office that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemptions from taxation, hence, an exempting provision should be construed strictissimi juris . ( Catholic Church vs. Hastings , 5 Phil 701; Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs , 18 SCRA 488; Phil. Acetylene vs. CIR , 20 SCRA 1056; CIR vs. Guerrero , 21 SCRA 180; and Manila Electric Co., vs. Vera , 67 SCRA 351) Moreover, Executive Order No. 93 effective March 10, 1987 withdrew all tax and duty incentives granted to government and private entities subject to certain exceptions. Even corporations organized for charitable and social welfare purposes which are exempt from the payment of income tax on income received by them as such organizations are subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 on their income derived from any of their properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. Hence, their interest income from Philippine currency bank deposits and yield or other monetary benefits from deposit substitute instruments are subject to the 20% final withholding tax pursuant to Section 27 (D)(1), in relation to Section 57 (A), both of the Tax Code of 1997. In view of the foregoing, your request for exemption from the payment of the 20% final withholding tax on bank deposits and yield or other monetary benefits from deposit substitute instruments is hereby denied for lack of legal basis. AcaEDC Very truly yours, Commissioner of Internal Revenue By: (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service