BIR Ruling [DA-414-05]

October 4, 2005 BIR RULING [DA-414-05] BIR Ruling No. DA-292-03 & DA-40-02 St. Jude Catholic School 327 Ycaza Street San Miguel, Manila Attention: Rev. Fr. Jerome A. Marquez, SVD Director Gentlemen : This refers to your letter dated September 14, 2005 requesting for a ruling that St. Jude Catholic School is exempt from payment of the 20% final tax on interest earnings derived from time deposit accounts and monetary placements with the banks. As represented, St. Jude Catholic School is a non-stock, nonprofit educational institution, owned and operated by the Society of the Divine Word, a religious congregation. It is registered with the Securities and Exchange Commission under SEC Registration No. 26619 dated February 17, 1965. The purpose for which it was established is "to give a sound, complete and Catholic education to children and youth in the Philippines and to promote their intellectual and moral development, by establishing, operating and maintaining a school for the purpose." The religious priests like yourself, do not receive stipend or salary from the school. The school is maintained by means of tuition, entrance, matriculation and other fees that it may collect from students enrolling therein which is used for educational purposes such as the salaries of your teachers and staff. In reply, please be informed that 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; 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) As a non-stock, non-profit educational institution, you are 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 your assets used for educational purposes (BIR Ruling No. DA-13-02 dated January 30, 2002). In view of the foregoing, interest income from currency bank deposits and yield from deposit substitute instruments and under the expanded foreign currency deposit system derived by St. Jude Catholic School in pursuance of its purpose as an educational institution is respectively exempt from the payment of the 20% and 7.5% final tax. Moreover, your school is likewise exempt from payment of the 20% final tax on interest earnings derived from time deposit accounts, treasury bonds, treasury bills and other bank notes. 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. HEaCcD Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service