BIR Ruling [DA-323-05]

July 19, 2005 BIR RULING [DA-323-05] RMC 76-2003; ENPS-017-2003 Gideon Academy, Inc . 2633 F. B. Harrison St. Pasay City Attention: Ms. Teresa Magcamit Administration Supervisor Gentlemen : This refers to your letter dated November 9, 2004 requesting for a confirmation of your opinion that Gideon Academy, Inc. is exempt from the following: "1. Per DOF Order no. 149-95, interest income and/or yield on deposit substitute instruments on your school's savings and time deposit should not be subjected to withholding tax since they are totally used for school operation; 2. Per 1987 Constitution, Art. VI Sec. 28, all lands, buildings and improvements actually, directly and exclusively used for educational purposes should be exempt from taxes and duties. To improve on its facilities, the school is undertaking construction of an extension to its existing school building. The school believe that the payments to suppliers of services, equipment and materials should not be subject to any output tax or import duties as all these payments are intended for improvement of facilities fully dedicated to educational use; and 3. Per BIR Ruling No. 159-98, the school should be exempt also from the following: 1) registration of business name; 2) payment of Annual Registration Fee of P500.00; and 3) securing permit from the BIR to print official receipts and having them stamped." HIaSDc It is represented that Gideon Academy, Inc. is a non-stock, non-profit educational institution duly recognized by the Department of Education Culture and Sports (DECS) with Government Recognition No. S-008 series of 1999; that it is duly registered with the Securities and Exchange Commission under SEC Registration No. 142831 dated July 27, 1987; and that the main objective for which the corporation was formed are the following: "1. To establish a non-stock, non-profit school which will offer Pre-Elementary, Elementary and Secondary Course; "2. To acquire, own, administer, sell and transfer such real estate and personal property as may be necessary for the use of the Corporation; and "3. To support and enforce all existing policies of government as enumerated under the Manual of Regulations for Private Schools and of the National Education Act of 1982, and to comply with all other laws of the Republic of the Philippines that are related thereto." In reply, please be informed as follows: 1. Interest income from currency bank deposit and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of its purpose as an educational institution, are exempt from the 20% final tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27(D)(1) of the Tax Code of 1997, subject to the compliance with the conditions that as a tax-exempt educational institution it shall on 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 their depository banks 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 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). 2. Gideon Academy, Inc. shall be exempt from value-added tax (VAT) pursuant to Section 109(m) of the Tax Code of 1997, provided they are accredited as such either by the Department of Education, Culture and Sports or by the Commission on Higher Education. Accordingly, gross receipts from its operation are exempt from the 10% VAT, however, this exemption does not extend to its other activities involving sale of goods and services pursuant to Revenue Memorandum Circular No. 76-2003. The payment of VAT is the direct liability of the seller of goods, properties, or services or of the importer, unless the seller or importer is exempt from payment thereof or the transaction is one of those exempt from VAT pursuant to Section 109 of the Tax Code of 1997. However, this exemption does not cover the VAT that are being passed on to you by your suppliers of services, equipment and the materials or the VAT being assessed/paid on your importation. Pursuant to Section 105 of the Tax Code, VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. Considering that your exemption from VAT is limited only to sale of services as an educational institution, the amount of tax passed on or shifted to you shall be considered as merely part of the cost of the goods, properties or services purchased. HDICSa Hence, notwithstanding that you are non-stock, non-profit educational institution, your purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 10% VAT pursuant to Sections 106, 107 and 108 of the Tax Code of 1997. 3. Under Section 235 of the Tax Code of 1997, any provision of existing general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of accounts and other pertinent records of Gideon Academy, Inc . to determine compliance with the conditions set forth in the certificate of tax exemption and tax liability, if any. Likewise, under Section 236 of the Tax Code of 1997, persons subject to any internal revenue tax are required to register with the BIR their business names. Furthermore, pursuant to Revenue Memorandum Circular No. 76-2003, educational institutions are subject to the payment of the Annual Registration Fee of P500.00 as prescribed in Section 236(B) of the Tax Code of 1997. They are also required under Section 6(C) in relation to Section 237 of the same Code to issue duly registered receipts or sales or commercial invoices for each sale or transfer of merchandise or for service rendered which are not directly related to the activities for which they are registered. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service