ICA Greenhills Scholarship Foundation Inc.

April 17, 2007 BIR RULING [DA-237-07] Section 30; BIR Ruling No. S-30-014-04 ICA Greenhills Scholarship Foundation Inc. No. 10 Grant St. Greenhills, San Juan Metro Manila Attention: Sr. Teresita Canivel, MIC Chairperson Gentlemen : This refers to your request on behalf of ICA Greenhills (ICA-GH) Scholarship Foundation Inc. for tax exemption from the payment of income tax including tax exemption on the 20% final withholding tax on interest income from bank deposits. Documents show that ICA-GH Scholarship Foundation Inc. (the "Foundation)" is a non-stock, non-profit charitable institution registered with the Securities and Exchange Commission (SEC) under SEC Reg. No. CN200610463 dated July 4, 2006. Its primary purpose is "to engage in fund raising or resource generating activities principally by tapping the resources of the alumnae of the Immaculate Conception Academy located at No. 10 Grant Street, Greenhills, (ICA), San Juan, Metro Manila to enable the Foundation to grant and/or extend scholarships to as many poor and deserving students of ICA." The Foundation shall be maintained primarily by means of membership fees and dues, earnings from passive investments and other ancillary services, if any; individual or corporate grants, subsidies or assistance from private or public sources and from donations and contributions. No part of its surplus or net income shall inure to the benefit of any member, trustee or officer. No part of its income shall be distributed as dividends to its members, trustees or officers. Any profit obtained by the Foundation shall be used for the furtherance of its purposes. In the event of dissolution, whatever net assets remaining after liquidation of the Foundation's liabilities shall be conveyed or transferred to (1) ICA-GH; or (2) another domestic non-stock foundation engaged in activities substantially similar to those of the dissolved Foundation; or (3) a domestic non-stock corporation to be later organized in accordance with Philippine laws; or (4) subject to the discretion of the Board of Trustees, to another domestic corporation organized, either for religious, charitable or scientific purposes, youth and sports development, educational or rehabilitation center for veterans, disabled refugees or otherwise. In the event distribution of the remaining assets is not legally possible, the assets shall be submitted to a court of justice for its proper disposition in accordance with the laws. TCcDaE In reply, please be informed that this Office can issue a temporary ruling/certificate of tax exemption only because the Foundation has to prove by actual operation for at least three (3) years that it is really an organization/association exempt from income tax under Section 30 of the Tax Code of 1997. It can file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month of the preceding accounting period following the start of its operation as an exempt organization as required under Section 24 of Revenue Regulations (Rev. Regs.) No. 2 ( Collector vs. Sinco , G.R. L-9276 dated October 23, 1956). Based on such information return, we shall conduct the necessary investigation on the activities undertaken during the period. The determination letter of exemption shall thereafter be issued depending upon the result of our investigation. On the issue of interest income from currency bank deposits, this Office had occasion to rule in the case of the case of PNB Foundation Inc. under BIR Ruling No. DA-087-2003 dated March 20, 2003 as follows: " . . . pursuant to Section 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 frown on exemptions from taxation, hence, a 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; Philippine 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 it as such organization are subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 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, hence, its 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. (BIR Ruling No. 204-90 dated October 28, 1990 and BIR Ruling No. 004-90 dated January 12, 1990) 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." Accordingly, the Foundation is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 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 (last paragraph, Section 30 of the Tax Code). Likewise, the interest income from currency bank deposits and yield or any other monetary benefits from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax provided, however, that interest income derived by it from a depository bank under the expanded foreign currency deposit system shall be subject to 7-1/2% final withholding tax pursuant to Section 27 (D) (1) in relation to Section 57 (A), both of the Tax Code of 1997. Moreover, it is required to file on or before the 15th day of the fourth month following the close of the accounting period 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. DcCEHI It should be understood that the Foundation shall be constituted as a withholding agent of the government if it acts as an employer and its employees receive compensation income subject to withholding tax under Section 79(A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Rev. Regs. No. 2-98, as amended or if it makes income payments to individuals or corporations subject to the withholding tax provided for in Section 57 of the Tax Code of 1997, also implemented by Rev. Regs. No. 2-98, as amended (BIR Ruling No. S-30-096-99 dated December 27, 1999). The books of accounts and other pertinent records of the Foundation shall be subject to examination by the Bureau of Internal Revenue for the purpose of ascertaining whether it is complying with the conditions under which it has been granted tax exemption and its tax liability, if any (RMC No. 89-78 dated October 30, 1973 publishing the amendment effected by P.D. No. 1457 to then Section 324 [now Section 235 in relation to Section 232] of the Tax Code). cIDHSC For purposes of securing a permanent exemption after the three (3)-year period, the Foundation is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 1) SEC Registration; 2) Amended Articles of Incorporation which must include the following provisions: a. that the corporation is non-stock, non-profit; b. that the primary purpose for which it was created is one of those enumerated under Sec. 30 of the Tax Code of 1997; c. that no part of the net income shall inure to the benefit of any of its members; d. that the trustees do not receive any compensation; and e. in case of dissolution, assets of the corporation shall be transferred to similar institution or to the government; 3) By-laws; 4) Annual Information Returns for the past three (3) years; and 5) Financial Statements (balance sheet) for the past three (3) years 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service