BIR Ruling [DA-716-99]

December 28, 1999 BIR RULING [DA-716-99] Alba Romeo & Company 7/F Don Chua Lamko Bldg. H.V. dela Costa St., Salcedo Village Makati City Attention: Mr . Alba Romeo Gentlemen : This refers to your undated letter in behalf of your client, Philippine Center for Advanced Maritime Simulation & Training, Inc. [(PHILCAMSAT) formerly PTC Training Center, Inc.] requesting for exemption from the payment of income tax and the filing of the corresponding income tax return and Value-Added Tax under Sections 30(11) and 109(m) of the Tax Code of 1997. Documentary evidence submitted disclosed that PHILCAMSAT is a non-stock, non-profit educational institution registered with the Securities and Exchange Commission (SEC) under SEC Registration No. ANO92-1901; and that the purpose for which the corporation is organized are as follows: "To establish, administer and operate an institution for the instruction and training of maritime officers and ratings, in accordance with the minimum requirements of the International Maritime Organization and of the 1978 International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, in refresher and upgrading courses relating to the safe operation and maintenance of ships and vessels; and for the instruction of professional and managerial courses for managers and office personnel relating to ship owning, ship management, chartering and manning of vessels." In reply, please be informed that paragraph 3, Section 4, Article XIV of the Constitution provides, viz: "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. As a non-stock, non-profit educational institution, PHILCAMSAT is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution. The exemption herein contemplated refers to internal revenue taxes and customs duties, in appropriate cases, imposed by the National Government and in certain cases to local taxes imposed by local government units under the Local Tax Code on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. They shall, however, be subject to internal revenue taxes on income from trade, business or other activity the conduct of which is not related to the exercise or performance by such educational institution of its educational purpose or function. (Section 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 2-88). cdlex Such being the case, the PHILCAMSAT being a non-stock, non-profit educational institution is exempt from taxes on all its revenues and assets used actually, directly and exclusively for educational purposes. However, it shall be subject to internal revenue taxes on its income from trade, business, and other activity the conduct of which is not related to the exercise or performance by such educational institution of its educational purposes or functions. It may not be amiss to state that under Department Order No. 145-95 dated November 4, 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 its purpose as an educational institution, are exempt from the 20% final tax imposed by Section 27(D)(1) of the Tax Code of 1997 and the seven and one-half percent (7 1/2 %) interest income under the expanded foreign currency deposit system imposed by Section 24(B)(1) of the same Tax Code, subject to the compliance with conditions that as a tax-exempt educational institution it shall on 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 their depository banks as to the amount of interest income earned from passive investments not subject to the 20% final tax imposed by Section 27 (D) of the Tax Code of 1997. (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 equipments, books and like) to be funded out of money deposited in banks or placed in money markets. Likewise, as a non-stock, non-profit educational institution, PHILCAMSAT is exempt from value-added tax on its sale and importation of books actually, directly, and exclusively used for educational purposes pursuant to Section 109(y) of the Tax Code of 1997. It must be emphasized, however, that as an educational institution, it is constituted as a withholding agent for the government so that it is required to withhold the tax on compensation income from its employees, or the expanded withholding tax on income payments to persons subject to tax pursuant to Section 57 (B) of the Tax Code, as amended, and as implemented by Revenue Regulations No. 6-85, as amended. Finally, as a tax-exempt educational institution, it shall file an annual information return on or before the 15th day of the 4th month following the end of your taxable year. (Section 4, Finance Department Order No. 130-90 dated July 4, 1990) together with the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives which shall be subject to examination by the Bureau of Internal Revenue for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liability, if any. (BIR Ruling No. ENPS 004-96 dated February 7, 1996.) llcd 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)