BIR Ruling [DA-458-04]

August 27, 2004 BIR RULING [DA-458-04] Section 30; BIR Ruling No. DA-089-2004 Hellenic Orthodox Foundation, Inc. Makati Central Post Office Box 510 Makati City Attention: Mr. Milton A. Adamson President Gentlemen : This refers to your letter dated February 19, 2004 requesting for exemption from the payment of taxes on the transfer of real property to another religious organization. It is represented that Hellenic Orthodox Foundation, Inc. (HOFI) is a non-stock, nonprofit religious corporation of Christian Greek Orthodoxy under the Orthodox Patriarchate situated in Istanbul, Turkey; that it is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 164344 issued on June 2, 1989; that its primary purpose is to administer its affairs, properties and temporalities and to establish and build the church known as "Annunciation of Theotokos"; that HOFI desires to transfer the ownership of the "Anunciation of Theotokos" church located at Lot 1 Blk2 Filipinas Ave., United Paraaque 5 Subd., Sucat, Paraaque, to Exarchate of the Ecumenical Patriarchate in the Philippines, Inc., likewise a religious corporation under the spiritual and administrative jurisdiction of the Metropolitanate (Archdiocese) of Hong Kong and Southeast Asia; and that Exarchate of the Ecumenical Patriarchate in the Philippines, Inc. is also registered with the SEC under SEC Registration No. A199704552 issued on April 1, 1997. In reply, please be informed that the tax exemption granted to religious organizations under Section 28(3), Article VI of the 1987 Constitution of the Republic of the Philippines (Constitution for short) is limited to exemption from payment of property taxes only. Also, the last paragraph of Section 30 the Tax Code of 1997 (then Section 26 of the Tax Code, as amended), clearly subjects to tax the income of whatever kind and character derived by any organization otherwise exempt under the same section, from any of its properties or activities conducted for profit, regardless of the disposition made of such income. Specifically, the Tax Code provides thus: "SEC. 30. Exemptions from Tax on Corporations . The following organizations shall not be taxed under this Title in respect to income received by them as such: xxx xxx xxx "(E) Nonstock corporation or association organized and operated exclusively for religious, . . ., no part of its net income or assets shall belong to or inure to the benefit of any member, organizer, officer or any specific person; xxx xxx xxx "Notwithstanding, the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any properties, real or personal, or from any of the activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code." The above-quoted provision is literal in its language and plain and categorical in its meaning. The last paragraph of Section 30 (then Section 26), particularly, does not leave any room for interpretation; the income from any of the organization's properties is subject to tax under the Tax Code, regardless of the disposition made of such income. In relation to this, Section 30 of Revenue Regulations No. 2, as amended, provides, among others, that the income of such tax-exempt corporation which is considered as income from their properties, real or personal, includes profits from the sale of property. The Constitution mandates that "charitable institutions, churches, and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation." [Section 28(3), Article VI, Constitution] Although the above-quoted constitutional provision seems to grant a sweeping tax exemption, the Supreme Court of the Philippines, in the case of Lladoc vs. Commissioner of Internal Revenue (L-19201) decided on June 16, 1965, held that the phrase "exempt from taxation" similarly contained in the 1935 Constitution should not be interpreted to mean exemption from all kinds of taxes. Thus, although in that case the cash received was actually spent by the parish priest for the intended purpose of constructing a new Catholic church, the Court nevertheless ruled against the exemption applied for in view of the interpretation it has given the Constitutional provision. The Highest Tribunal ruled that the exemption provided by the Constitution is only from the payment of taxes assessed on such properties enumerated as property or realty taxes. Finally, it held that there was no clear, positive or express grant of exemption privilege by law in favor of petitioner therein, hence, the denial (BIR Ruling No. 121-91 dated June 25, 1991). Moreover, real property used by an exempt corporation in its exempt operations, such as a corporation included in the enumeration of Section 30 of the Code, shall not be considered used for business purposes, and therefore, considered as capital asset under these Regulations (Section 3(b) of Revenue Regulations No. 7-2003). In view of the foregoing, the contemplated sale, disposition or transfer of property owned by Hellenic Orthodox Foundation, Inc. to Exarchate of the Ecumenical Patriarchate in the Philippines, Inc. is subject to the final tax of six percent (6%) based on the gross selling price or current fair market value as determined in accordance with Section 6(E) of the Tax Code of 1997, whichever is higher, imposed upon the capital gains presumed to have been realized pursuant to Section 27(D)(5) of the same Code, as implemented by Revenue Regulations No. 7-2003, the same falling within the contemplation of the last paragraph of Section 30 of the same Tax Code. Moreover, the Deed of Sale and/or Conveyance of said property shall be subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. DTcHaA 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group