BIR Ruling [DA-384-98]

August 24, 1998 BIR RULING [DA-384-98] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . E . C . Alcantara Gentlemen : This refers to your letter dated August 12, 1996 stating that your client, the Philippine Foundation for Cultural and Educational Development (PFCED) is a private non-stock, non-profit corporation; that the BIR Regional Office of Quezon City rendered a ruling declaring it to be a tax-exempt corporation under Section 26 (e) of the Tax Code, as amended; that its purpose, among others, under its Articles of Incorporation, is to build, improve, enlarge, equip, subsidize or similarly assist technical schools, libraries, laboratories, workshops and other educational accessories, be it run by the foundation; that in pursuit of such purpose it renders administrative services to other foundations with aims similar to its own; and that it receives reimbursements for costs incurred on a time/activity sharing business. cd Based on the foregoing representations, you now request for a ruling that reimbursements received by PFCED from such organizations are not subject to income tax. In reply, please be informed that your opinion is hereby confirmed. By its very nature, reimbursements of costs are not income for they are mere returns of capital. Accordingly, said reimbursements are not subject to the withholding tax prescribed under Revenue Regulations No. 2-98. (BIR Rulings Nos. UN-262-95 dated July 11, 1995; UN-245-95 dated July 5, 1995; 1-90 dated January 4, 1990; 345-88 dated July 20, 1988; 202-81 dated October 22, 1981 and 061-79 dated July 23, 1979) Moreover, in the case of COMASERCO vs . Commissioner of Internal Revenue , C. A. G. R. Sp. No. 34032, it was held that a domestic corporation not existing for profit, but to provide technical assistance to its affiliates on a reimbursement-of-cost-basis, without any intention of profit is not subject to VAT as no profit was gained thereby. Hence, it could be concluded that the receipt of reimbursements does not constitute receipt of income to make it subject to income tax. The reimbursements of costs incurred by PFCED in rendering administrative services to foundations with aims similar to its own, is not income and therefore not subject to income tax. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group