BIR Ruling [DA-292-03]

September 2, 2003 BIR RULING [DA-292-03] Padilla Law Office 232 Juan Luna Street Binondo, Manila Attention: Atty. Sabino Padilla, Jr. Gentlemen : This refers to your letter dated July 30, 2003 requesting for reconsideration of the opinion of Revenue Regional Director, Mr. Leonardo Q. Sacamos, that St. Agnes Academy of Legaspi City, a non-stock, non-profit educational institution, is subject to the 20% and 7.5% final withholding tax on its interest on currency bank deposit and under the expanded foreign currency deposit system, respectively, on the ground that such income is not an educational activity. It is represented that on September 4, 2002, a BIR Ruling No. 78-02 was issued by Regional Director, Mr. Leonardo Q. Sacamos, of Revenue Region No. 10, Legaspi City, that St. Agnes Academy's, a non-stock, non-profit educational institution, interest income on bank deposits is subject to the 20% final withholding tax with respect to its peso deposits and 7.5% on its foreign currency. In reply thereto, please be informed that under Department Order No. 149-95 dated November 24, 1995 amending Finance Department Order No. 137-87, interest income from Philippine currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of the school's purpose as an educational institution, are exempt from 20% final tax imposed by Section 24(e)(1) of the Tax Code, as amended [now 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 statements, together with the following: a) Certification from its depository banks as to the amount of interest income earned from passive investments not subject to the 20% final tax imposed by Section 24(e)(1) of the Tax Code, as amended [now Section 27(D)(1) of the Tax Code of 1997]; 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 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) SUCH BEING THE CASE, your request for reconsideration is hereby granted. Accordingly, interest income from currency bank deposits and yield from deposit substitute instruments and under the expanded foreign currency deposit system derived by St. Agnes Academy in pursuance of its purpose as an educational institution is respectively exempt from the payment of the 20% and 7.5% final tax. ( BIR Ruling No. S-26-103-96 dated October 3, 1996 ) 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, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service