Dominican Daughters of the Immaculate Mother, Inc.

April 20, 2007 BIR RULING [DA-246-07] NSNP; RMC 14-2001 S30-27-03 Dominican Daughters of the Immaculate Mother, Inc. 872 St. Joseph Street, Brgy. Commonwealth Commonwealth Avenue Quezon City Attention: Sr. Ma. Ercilla Barrozo, O.P. Superior General Mesdames : This refers to your letter dated December 4, 2006 requesting for a certificate of tax exemption in favor of Dominican Daughters of the Immaculate Mother, Inc. ("DDIM"). As represented, DDIM is a religious congregation of the Order of the Preacher of the Roman Catholic Faith. It is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 83632 issued on December 22, 1978. It is a non-stock, non-profit corporation, organized and existing exclusively for religious, charitable and educational purposes. All temporalities and properties held and owned by this religious congregation are exclusively intended and used for its church, charitable, benevolent and educational purposes. No part of its income or assets belong or inure to the benefit of any member, officer or any specific person. In reply, please be informed that paragraph 3, Section 28, Article VI of the 1987 Constitution provides, viz.: "(3) Charitable institutions, churches and parsonages or convents appurtenant thereto, non-profit cemeteries, and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation." Paragraph 3, Section 4, Article XIV of the 1987 Constitution, on the other hand, provides, viz: "(3) All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. . . ." The exemption above conferred by the Constitution refers to internal revenue taxes and customs duties, in appropriate cases, imposed by the national government on all revenues and assets of non-stock, non-profit charitable, religious and educational institutions used actually, directly and exclusively for charitable, religious and educational purposes. As a non-stock, non-profit charitable, religious and educational institution, DDIM is therefore exempt from tax on all revenues derived in pursuance of your purpose as a charitable, religious and educational institution and used actually, directly and exclusively for charitable, religious and educational purposes. DDIM is, however, subject to internal revenue taxes on income from trade or business or other activity the conduct of which is not related to the exercise or performance of its purposes or functions. Moreover, under Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of the educational purpose of the institution is exempt from the 20% final tax and 7-1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the Tax Code of 1997 subject to compliance with the conditions that as a tax-exempt educational institution it shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly audited financial statement together with the following: a) Certification from its depository bank as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax and 7-1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) (1) of the 1997 Tax Code; aSITDC b) Certification of actual utilization of the said income; and c) Board Resolution by the school administration on proposed projects (i.e., construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of the money deposited in banks or placed in money markets, on or before the 15th day of the fourth month following the end of its taxable year (Sec. 4, Finance Department Order No. 137-87; ENPS-012-98 dated November 25, 1998; and BIR Ruling No. 46-00 dated September 26, 2000) Such being the case, the interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of the educational purpose of DDIM is exempt from the 20% final tax and 7-1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the Tax Code of 1997 subject to compliance with the conditions above set forth. In the case of investments in shares of stock, the conduct of said activity is not related to the performance of DDIM's purpose as an educational institution, the gains derived from the sale, exchange or disposition thereof is subject to the capital gains tax imposed under Section 27 (D) of the 1997 Tax Code (BIR Ruling No. 130-90 dated July 4, 1990). As a non-stock, non-profit educational institution, DDIM is also exempt from payment of the 20% final tax on interest earnings derived from time deposit accounts (BIR Ruling No. 46-00 dated September 26, 2000), treasury bonds, treasury bills and other bank notes which also form part of its assets used for educational purposes (BIR Ruling No. DA-13-02 dated January 30, 2002). Likewise, gross receipts from DDIM's operations as a non-stock, non-profit educational institution are exempt from the 10% VAT pursuant to Section 109 (m) of the Tax Code of 1997 provided that it is accredited as such by the Department of Education or by the Commission on Higher Education. However, this exemption does not extend to its other activities involving sale of goods and services which are subject to the 10% VAT imposed under Section 106 of the same Code. Hence, as long as DDIM engages in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, it is subject to VAT (BIR Ruling No. 248-88 dated June 6, 1988; BIR Ruling No. DA-40-02 dated March 7, 2002; and BIR Ruling No. S30-27-2003 dated November 21, 2003). This ruling is subject to the condition that DDIM shall submit photocopies of its Department of Education (DepEd) or Commission on Higher Education (CHED) recognition, as the case may be, Annual Information Returns and Financial Statements (balance sheet) for the past three (3) years in compliance with Revenue Memorandum Circular No. 14-2001. Otherwise, it shall be given a temporary exemption instead. HEacDA 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service