BIR Ruling [DA-392-06]

June 26, 2006 BIR RULING [DA-392-06] Section 107 The Philippine National Red Cross Bonifacio Drive, Port Area Manila Attention: Ms. Corazon Alma G. De Leon Secretary General Gentlemen : This refers to your letter dated April 19, 2006 requesting for amendment to BIR Ruling No. 014-99 dated February 1, 1999 in view of the increase in the VAT rate in order to update your withholding tax transactions. In reply, please be informed that in BIR Ruling No. 014-99 dated February 1, 1999 wherein the Commissioner reconsidered the denial of the Philippine National Red Cross' (PNRC) request for tax exemption, this Office ruled as follows: "In reply thereto, please be informed that after a careful restudy of the aforementioned rulings, this Office is of the opinion as it hereby holds that 1. PNRC is exempt from the payment of the 10% VAT on its importation of goods under Section 107 of the Tax Code of 1997; 2. Local purchases by PNRC of goods or properties, services and use or lease of properties are exempt from VAT pursuant to Section 109(q) of the Tax Code of 1997; and 3. Interest income derived by PNRC from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements are exempt from the 20% final tax imposed under Section 27(D)(1) of the Tax Code of 1997. Section 4 of Presidential Decree No. 1264 otherwise known as 'An Act to Incorporate the Philippine National Red Cross' provides in part as follows: 'SEC. 4. In furtherance of the purposes mentioned in the preceding sub-paragraphs, the Philippine National Red Cross' provides in part as follows: a. . . . b. Be exempt from payment of all duties, taxes, fees, and other charges of all kinds on all importations and purchases for its exclusive use, on donations for its disaster relief work and other Red Cross services; and in its benefits and fund raising drives all provisions of law to the contrary notwithstanding. DcAEIS c. . . . .' the aforementioned tax exemption privileges of PNRC has not been withdrawn by Executive Order No. 93 effective March 10, 1987. The "Whereas Clauses" of Executive Order No. 93 withdrawing all tax and duty incentives granted to government and private entities state as follows: 'WHEREAS . . . WHEREAS . . . WHEREAS . . . WHEREAS . . . WHEREAS, the continued enjoyment of these tax and duty exemption privileges has resulted in serious tax base erosion and considerable distortions in the tax treatment of similarly situated entities; WHEREAS, these privileges have become convenient opportunities for tax manipulation or avoidance especially in the case of interrelated entities; WHEREAS, the availability of such privileges makes more difficult the attainment of the overall program for national economic development, considering the governmental fiscal exigencies; and WHEREAS, private entities whose tax and duty exemption privileges are to withdrawn may still remain competitive by improving on their operational capacity, and competence, rather than by relying on fiscal incentives which create distortions in the overall pricing and market systems xxx xxx xxx.' thus, the withdrawal of all tax and duty incentives granted to private entities refers to private entities which are engaged in trade or business or an economic activity. It does not therefore apply to PNRC which is a non profit and charitable organization. Such being the case, the tax exemption privileges of PNRC under Section 4 of Presidential Decree No. 1264 still subsists and has not been withdrawn by Executive Order No. 93. This revokes BIR Ruling No. 026-96 dated February 27, 1996 and BIR Ruling No. 064-98 dated May 21, 1998." In view of the foregoing, the first paragraph of BIR Ruling No. 014-99 dated February 1, 1999 is hereby amended to read as follows: "In reply thereto, please be informed that after a careful restudy of the aforementioned rulings, this Office is of the opinion as it hereby holds that 1. PNRC is exempt from the payment of the 12% VAT on its importation of goods under Section 107 of the Tax Code of 1997 as amended by Republic Act (RA) No. 9337; aICHEc 2. . . . " This revokes BIR Ruling No. 014-99 dated February 1, 1999. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service