Systems Technology Institute

December 22, 2009 BIR RULING [DA-(C-333) 811-09] Section 27 (B); BIR Ruling No. 247-92 Systems Technology Institute 6764 Ayala Avenue Makati City Attention: Mr. Monico V. Jacob President Gentlemen : This refers to your letter dated November 11, 2009 requesting, in effect, for a revalidation of BIR Ruling No. 247-92 dated September 7, 1992. As represented, you are a private educational institution duly issued a permit to operate by the Department of Education, Culture and Sports, the Commission on Higher Education and the Technical Education and Skills Development Authority. You operate training centers, preparatory schools, grade schools, high schools, education centers and colleges. In the course of your operations, you enter into Licensing Agreements with other independent entities (Licensees) granting non-transferable privileges to use the name "Systems Technology Institute" and/or the initial "STI," and to utilize STI courseware programs, methods and systems in operating training and educational centers. For each training and educational center established by the Licensees, you provide Licensees with assistance and educational services listed in Annexes "B" and "C" respectively of the Licensing Agreement, to wit: "Annex B 1. Provide regular visits to the Licensees' Training and Educational Centers, at the expense of STI Central Office to train: 1.1 Support Services Staff; 1.2 Finance Staff; and 1.3 Faculty Staff. IDTHcA 2. Provide guidance I the preparation and implementation of marketing and promotional programs; 3. Disseminate periodic information bulletins, reports, memos and other similar documents pertaining to new trends and developments in the field of information technology, on-going programs undertaken by STI Central Office and such other activities which will have an effect on the operations of the Licensee's Training and Educational Center; 4. Assist in developing a placement program for the On-the-Job Service (OJS) trainees and Guaranteed Hire Program (GHP) qualifiers in the Training and Educational Center's Territory. In the event the OJS is done in Metro Manila by the trainee and he qualifies for the GHP, STI shall arrange his job placement; Annex C Educational Services 1. Conceptualize courses; determine course duration, distribution of lecture and laboratory hours, students to machine ratio for machine requirements; and provide Licensee, based on the schedule of release provided by the Courseware Department, with all or any of the applicable and relevant courseware; 2. Produce course materials to be used by instructors and students; 3. Conceptualize and produce student textbooks, learning guides, examples, exercises, case studies, quizzes and exams; 4. Maintain library of books, periodicals, and software to serve courseware development, instructors training and student reading requirements; 5. Determine Training and Educational Centers' library requirements; 6. Produce newsletter on technology information; 7. Hire, train and assign instructors to training and educational centers to teach regular and special courses and conduct career orientation; 8. Provide continuous in-service training to instructors; 9. Audit of training facilities/equipment; 10. Provide the use of its computer hardware to serve the program compilation and execution requirements of the training and educational centers' students." cDCaHA You undertake national advertising and promotion for the benefit of all training and educational centers using the "Systems Technology Institute and/or the initial 'STI'." The Licensees are also authorized to initiate tie-ups with any educational institution and/or company and pay STI the following: 1. License Fee; 2. Royalty Fee; 3. Reimbursements for the cost and expenses of the educational services listed in Annex "C" of the Licensing Agreement; 4. Reimbursement of Licensees' share in the advertising and promotional expenses; 5. A percentage of the revenues generated by a tie-up initiated by the Licensees with any educational institution and/or company. On September 7, 1992, this Office issued BIR Ruling No. 247-92 holding as follows: The license fee, the percentage of the revenues, you received, generated by a tie-up initiated by Licensees with any educational institution and/or company are considered as gross income derived in the exercise or performance of your educational purpose or function. The reimbursement for the cost and expenses of the educational services listed in Annex "C" of the Licensing Agreement as well as the reimbursement of the Licensees' share in the advertising and promotional expenses, you received, are also considered as gross income derived in the exercise or performance of your educational purpose or function. However, said costs and expenses shall be allowed as deductions in computing your taxable income. The royalty fee paid by Licensees to you for the non-transferable privileges to use the name "Systems Technology Institute" and/or the initial "STI" and to utilize STI courseware programs, methods and systems in operating computer training centers shall be subject to a tax of 20%. 1 The aforementioned payments by Licensees, to you, are not subject to the expanded withholding tax. However, you are subject to the 1% expanded withholding tax 2 on your gross payments to advertising agencies including the share allocated to Licensees exclusive of the amount paid or payable to media. In reply, please be informed that insofar as then Section 24 (b) of the 1977 Tax Code, as amended, (now Section 27 (B) of the Tax Code of 1997, as amended) has not been affected by the amendments to the Tax Code introduced by Republic Act No. 8424, otherwise known as the "Tax Reform Act of 1997", BIR Ruling No. 247-92 dated September 7, 1992, which was anchored on the above provision, therefore, is still valid thereby it remains in force and in effect. Accordingly, except for the rate of the withholding tax imposed on STI's gross payments to advertising agencies which is increased from 1% to 2%, this Office hereby re-affirmed BIR Ruling No. 247-92. CHcETA Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. Tax on passive income imposed under then Section 24 (e) of the 1977 Tax Code, as amended, now Section 27 (D) of the 1997 Tax Code, as amended. 2. Now at 2%, Sec. 2.57.2 (E) (4) (h) of RR No. 2-98, as amended.