Philippine Council for NGO Certification

July 27, 2007 BIR RULING [DA-426-07] R.R. 13-98 BIR Ruling No. 015-95 Philippine Council for NGO Certification 6/F SCC Bldg., CFA-MA Compound 4427 Interior Old Sta. Mesa Road Sta. Mesa, Manila Attention: Ms. Fely I. Soledad Executive Director Gentlemen : This refers to your letter dated January 4, 2007 requesting for a ruling on whether NGOs and other non-stock, non-profit corporations/organizations whose purposes may include any of the following: religious, charitable, scientific, athletic, cultural, rehabilitation of veterans and social welfare, but are also engaged in micro-credit/lending activities as a strategy to support their programs and sustain their projects' benefits to their beneficiaries, are still covered by Revenue Regulations (RR) No. 13-98, thus, may still qualify for donee institution status and therefore can be evaluated by PCNC for possible certification. In reply, please be informed that Section 10 (a) of RR No. 13-98 provides, viz: "SEC. 10. Prohibited Transactions . any accredited non-stock, non-profit corporation/NGO enjoying the benefits provided for under Sec. 4 of these Regulations is prohibited from undertaking any of the following transactions: (a) Lending any part of its income or property without adequate security and/or a reasonable rate of interest unless the institution has a formal micro-credit or micro-finance program as approved by their Board of Trustees; HICSaD xxx xxx xxx" In one case, a non-stock, non-profit foundation is engaged in social development and welfare work in different barangays and municipalities. It was granted a Certificate of Registration as a donee institution. Among its projects is a micro-enterprise development program where it extends assistance to small business undertakings. The various groups being assisted are in need of additional funds to augment its small self-generated capital. The foundation plans to borrow or solicit funds from government and private sources and relend it to the assisted groups with interest a little higher than the cost of funds. The BIR ruled as follows: "In reply, please be informed that under Section 26(g) of the Tax Code, as amended (now Section 30(G) of the Tax Code of 1997, as amended), civic league or organization not organized for profit but operated exclusively for the promotion of social welfare shall not be taxed under Title II of the Tax Code. Accordingly, and since it appears from your representation that you are a non-stock, non-profit social welfare foundation your income tax exemption as such organization will not be affected if you undertake a borrowing and relending activity with higher interest for the benefit of the micro business group you are assisting. However, under the last paragraph of Section 26 (now Section 30) of the same Code, the income of whatever kind or character of such organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition of such income, shall be subject to tax imposed under the Tax Code. Also, as a lending investor, you shall be subject to the value-added tax (VAT) under Section 102 of the Tax Code, as amended by R.A. No. 7716 (now Section 108 of the Tax Code of 1997, as amended by R.A. No. 9337)." [BIR Ruling No. 015-95 dated February 9, 1995] Applying the above provision, if accredited non-stock, non-profit corporations/organizations are not prohibited from engaging in lending activities provided they have a formal micro-credit or micro-finance program approved by their Board of Trustees, it follows that NGOs and non-stock, non-profit corporations/organizations applying for accreditation may be covered by RR No. 13-98 and qualified for donee institution status. Hence, they may be evaluated by PCNC for possible certification. aCTADI 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service