Congregation of Dominican Sisters of Saint Catherine of Siena, Inc.

March 31, 2010 BIR RULING [DA-(DT-008) 044-10] Sections 30 (E) and 101 (A) (3); BIR Ruling No. 180-89 dated August 24, 1989; 252-93 dated June 17, 1993; 452-93 dated November 19, 1993; S30-27-2003 dated November 21, 2003; DA-043-2004 dated February 4, 2004 Congregation of Dominican Sisters of Saint Catherine of Siena, Inc. 127 Sta. Catalina St., cor. Biak-na-Bato Quezon City 1114 Attention: Mother Teresa Examen, O.P. Prioress General Gentlemen : This refers to your letter dated November 9, 2009 requesting for exemption from the payment of donor's tax on the donation of a parcel of land by Sr. Teresita M. Medalle, O.P. to the Congregation of Dominican Sisters of Saint Catherine of Siena, Inc. Documentary evidence submitted disclosed that Congregation of Dominican Sisters of Saint Catherine of Siena, Inc. (formerly Congragacion De Religiosas Dominicas De Santa Catalina De Sena) is a corporation sole and religious congregation duly established and existing under Philippine Laws, registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 3107 dated September 8, 1947 with Taxpayer Identification Number (TIN) 117-077-862-000; and that as the Superior General of the said Pontifical Congregation, Sister Teresa Examen, O.P. is charged with the administration of the temporalities and the management of the estates and properties of the Congregation of Dominican Sisters of Saint Catherine of Siena, Inc. in the Philippines. It is further represented that Sr. Teresita M. Medalle, O.P. is the registered owner of a parcel of land located at Tres Padres Borces St., Mabolo Proper, Cebu City as covered by Transfer Certificate of Title (TCT) No. 106670 of the Registry of Deeds of Cebu City, with an area of 499 square meters more or less; that a Deed of Donation of Real Property dated July 29, 2009 was executed between Sr. Teresita M. Medalle, O.P., as donor, and the Congregation of Dominican Sisters of Saint Catherine of Siena, Inc., as donee, wherein the donor cedes, transfers and convey by way of donation unto the donee the aforementioned property, including all her rights, interests and participation over the same, in favor of the donee; and that the said Congregation has no financial capacity to pay said donor's tax, nor has the donor, since she is also a member of the Congregation and has no other means to pay said tax. cSITDa In reply, please be informed as follows: Income Tax Based on the foregoing, this Office is of the opinion and so holds that Congregation of Dominican Sisters of Saint Catherine of Siena, Inc. is a corporation organized for religious purposes as contemplated under Section 30 (E) of the Tax Code of 1997, as amended. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. Likewise, interest income from currency bank deposits and yield or any other monetary benefits from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax: provided, however, that interest income derived by it from a depository bank under the expanded foreign currency deposit system shall be subject to 7-1/2% final withholding tax pursuant to Section 27 (D) (1), in relation to Section 57 (A), both of the Tax Code of 1997, as amended. Moreover, it is required to file on or before the 15th day of the fourth month following the end of the accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the preceding period and a certificate showing that there has not been any change in its By-laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. (BIR Ruling No. 180-89 dated August 24, 1989) It is requested that a copy of this letter of exemption be attached to the annual information return which the corporation will file on or before the 15th day of the fourth month of each year. Under Section 235 of the Tax Code of 1997, as amended, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liabilities, if any (RMC No. 89-78 dated October 30, 1973 publishing the amendment effected by P.D. No. 1457 to then Section 324 now Section 235 in relation to Section 232 of the Tax Code, as amended). It should be understood that the said corporation shall be constituted as withholding agent of the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as amended, and as implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax provided for in Section 57 (B) of the same Code, also as implemented by Rev. Regs. No. 2-98, as amended. Finally, it is subject to the payment of the annual registration fee of PhP500.00 as prescribed in Section 236 (B) of the Tax Code of 1997, as amended. It is also required under Section 6 (C) in relation to Section 237 of the same Code to issue duly registered receipts or sales or commercial invoices for each sale or transfer of merchandise or for services rendered which are not directly related to the activities for which the corporation is registered [Revenue Memorandum Circular (RMC) No. 76-2003]. aTcESI Value-Added Tax (VAT) Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. Accordingly, if Congregation of Dominican Sisters of Saint Catherine of Siena, Inc. is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 & DA-043-2004 dated February 4, 2004). Likewise, revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. Hence, notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code (VAT Ruling No. 119-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004). aSTECA Donor's Tax Inasmuch as Congregation of Dominican Sisters of Saint Catherine of Siena, Inc. being a religious organization, donations to it are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes (BIR Ruling No. 252-93 dated June 17, 1993 and BIR Ruling No. 452-93 dated November 19, 1993) Deductibility of Donation Section 34 (H) (1) of the Tax Code of 1997, as amended, provides that for contributions or gifts actually paid or made within the taxable year to, or for the use of corporations or associations organized and operated exclusively, among others, for religious purposes, their donors shall be entitled to the limited deductions in an amount not in excess of 10% in the case of an individual and 5% in the case of a corporation. 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, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner