BIR Ruling [DA-417-98]

September 14, 1998 BIR RULING [DA-417-98] International Montessori Center Rufina Homes, Sta. Isabel Malolos, Bulacan Attention: Ms . Rufina P . Proximo President Gentlemen : This refers to your letter requesting for exemption from the 20% tax imposed on interest on bank deposits, such as savings and time deposits and/or yield on deposit substitute instruments. cdta It is represented that you are a non-stock and non-profit educational institution; that at present, you have time deposits with BPI Family Bank, Greenhills branch; that some of these deposits are due and maturing; that you are making these deposits for purposes of safeguarding the salaries of your teachers and staff and that you are actually using the proceeds thereof exclusively for educational purposes and also for other types of investment of placements that are exempt from withholding tax. In reply, 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 Sec. 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; (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 137-87). Accordingly, interest income from Philippine currency bank deposits and yield from deposit substitute instruments derived by the school in pursuance of its purpose as an educational institution is exempted from the payment of the 20% final 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. (S-26-103-96 dated October 3, 1996) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)