BIR Ruling [DA-471-98]

November 3, 1998 BIR RULING [DA-471-98] Knights of Columbus Fraternal Association of the Philippines, Inc. General Luna cor. Sta. Potenciana Sts., Intramuros, Manila Attention: Hon. Congressman Isidro C. Zarraga President Gentlemen : This refers to your letter dated October 9, 1996 requesting for a ruling to the effect that the income derived by KC Philippines Foundation, Inc. in the pursuit of its activities are exempt from income tax and consequently from the withholding tax. aSEDHC It appears that in BIR Ruling dated May 5, 1978 this Office ruled that xxx xxx xxx "In reply thereto, I have the honor to inform you that since that Foundation has been determined and certified to by the National Science Development Board in NSDB Certification No. 76-F-02 dated January 21, 1976 to have been organized for scientific advancement and that its funds are dedicated to scientific pursuits within the meaning of Section 24 of Republic Act No. 2067, as amended by Republic Act No. 3589, all income of whatever kind and character which the said Foundation may derive from its properties, real or personal, or from its investments are also tax exempt. Accordingly, the interest earnings of the savings and time deposits of that Foundation are exempt from the 15% withholding tax prescribed by Presidential Decree No. 1156. ACSaHc "This serves as the authority of the depository banks to forego withholding of the 15% tax on the interest income of the funds deposited with them by that Foundation." It is represented that the KC Philippines Foundation, Inc. is a non-stock, non-profit organization duly registered with the Securities and Exchange Commission on February 9, 1971 under SEC Registration No. 43282; and that the purposes for which the corporation is formed are: 1. To undertake any public and/or private charitable, relief, educational, social welfare, cultural and scientific activities and/or researches and the results of such researches shall be available to the public on a non-discriminatory basis, unless the granting of an exclusive right is the only practicable manner in which the patent, copyright, process or formula can he utilized to benefit the public; that such researches shall also be directed toward benefitting the public; 2. To help meet the needs of the people in the socially-depressed and other areas all over the country with the end in view of assuring their total development as individuals including, but not limited to, increasing their level of income; 3. To render technical, medical, and socio-economic aid and assistance to deserving and less-privileged citizens in the rural communities; and aTEAHc 4. To assist in implementing the objectives and worthwhile projects of the government or other civic association, including that of the Knights of Columbus, such as, but not necessarily limited to, helping the transfer of technology and industrial development to the country sides. As can be gleaned from the preceding paragraph, R.A. 3589 took effect on June 22, 1963 which granted tax exemption to all income of whatever kind and character which the Foundation may derive from its properties, real or personal, or from its investments; that P.D. No. 1156, which took effect on June 3, 1977 likewise, granted tax exemption to the Foundation's interest earnings or the savings and time deposits from 15% withholding tax; that previous rulings issued by the Bureau of Internal Revenue in your favor dated May 5, 1978, granting tax exemptions to all income of whatever kind and character which the Foundation may have derived from its properties, real or personal, or from its investments and interest earnings of the savings and time deposits from 15% withholding tax are now superseded by Section 3, of Executive Order No. 93 which took effect on December 17, 1986, viz: CDcHSa "Section 3. Withdrawal of Tax and Duty Incentives. All tax and duty incentives granted to Government and Private Entities are withdrawn, the provisions of any special or general law to the contrary notwithstanding, except as provided for in the Order and Section 4 of these rules and regulations" DTCAES "Section 4. Exceptions. The withdrawal of all tax and duty incentives granted to Government and Private Entities under Section 3 of these rules and regulations does not apply to the following: a) Tax and duty incentives covered by the operation of the non-impairment of obligation provision of the Constitution; b) Tax and duty incentives conferred by effective international agreements to which the Government of the Republic of the Philippines is a signatory. For this purpose, an effective international agreement is any agreement which is operationally binding upon and in force between the Government of the Republic of the Philippines and the other parties concerned; c) Tax and duty incentives enjoyed by enterprise registered with: the Board of Investments pursuant to Presidential Decree No. 1789, as amended; the Export Processing Authority pursuant to Presidential Decree No. 66, as amended; and the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to Presidential Decree No. 538, as amended; d) Suspension of taxes and duties due from the distressed copper mining industry pursuant to Letter of Instruction No. 1416; e) Tax and duty incentives conferred under the four basic codes: the National Internal Revenue Code, as amended; the Tariff and Customs Code, as amended; the Local Tax Code as amended; and the Real Property Tax Code, as amended; and f) Tax and duty incentives that may hereafter be approved by the President upon the recommendation of the FIRB. CScTED In view thereof and considering that KC Foundation does not fall under any of the above exceptions, this Office is of the opinion as it hereby holds that interest income from Philippine currency bank deposits and yield or any other monetary benefits from deposit substitute instruments are subject to the 20% final withholding tax pursuant to Section 27 (D) (1), in relation to Section 57 (B), both of the Tax Code of 1997. Moreover, it is required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in its By-Laws, Articles of Incorporation, manner of operations and activities, as well as sources and disposition of income. (BIR Ruling No. S-26-120-96 dated November 8, 1996) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)