Cebu State College of Science and Technology System

June 23, 2009 BIR RULING [DA-(DT-035) 315-09] B.P. 412; Sections 30 (I) & 109 (K); R.A. 8292; 021-90 Cebu State College of Science and Technology System SciTech Main Campus MJ Cuenco Ave. & R. Palma Street Cebu City Attention: Mr. Bonifacio S. Villanueva, Ed. D. SUC President IV Gentlemen : This refers to your letter dated September 18, 2008 requesting, in effect, for tax exemption on the activities/transactions of the Cebu State College of Science and Technology System ("CSCSTS"), as follows: 1) On the income derived from its educational activities pursuant to Section 4 (3), Article XIV of the Philippine Constitution; and 2) On the donation of imported technological equipments in its favor by Hitachi Global Storage Technologies Singapore, Pte. Ltd. ("Hitachi-Singapore"), pursuant to Section 4 (c) of Republic Act (R.A.) No. 8292. Documents submitted show that the CSCSTS is a government educational institution created pursuant to Batas Pambansa (B.P.) Blg. 412, an Act converting the Cebu School of Arts and Trades in Cebu City into a Chartered College to be known as the Cebu State College of Science and Technology, expanding its jurisdictions and curricular programs. Section 1 of B.P. Blg. 412, provides viz. : ESTAIH "Section 1. The present Cebu School City, is hereby converted into the Cebu State College of Science and Technology (CSCST) with extension system that includes Sud-lon Agricultural College in Cebu; Abellana National School Cebu City; Danao Vocational School, Tuburan, Cebu, Moalboal School of Fisheries, Moalboal Cebu; Argao Agro-Industrial School, Argao, Cebu; and Quirino School of Fisheries. Carmen Cebu; Manuel A. Roxas Memorial School of Fisheries, Daanbantayan, Cebu; and Magsaysay School of Fisheries, San Francisco, Cebu are likewise converted as part of the state college, herein after referred to as the Cebu State College of Science and Technology System, with the CSCST, (formerly CSAT), in Cebu City as the State College proper." CSCST and its extensions derive income from the educational services they rendered. CSCST, in two occasions, received donations of personal properties from Hitachi-Singapore, consisting of technology equipments which will be used exclusively for educational purposes. The said technological equipments are now held in abeyance by the Bureau of Customs pending determination if such importation of donated educational equipments is subject to tax, specifically, from value-added tax (VAT). In reply, please be informed as follows: DACaTI (1) Income Tax Exemption of CSCSTS The tax exemption contemplated under Section 4 (3), Article XIV of the Philippine Constitution applies to revenues and assets of non-stock, non-profit corporation/association duly registered under Philippine law, and operated exclusively for educational purposes, maintained and administered, by private individuals or groups, and offering formal education, issued a permit to operate by the Department of Education, Culture and Sports (DECS) in accordance with existing laws and regulations (Department Order No. 137-87). In other words, said Constitutional tax exemption provision applies only to private non-stock, non-profit educational institutions subject to the administrative control and supervision of DECS which is not so in the case of CSCSTS. Besides, the CSCSTS Charter (B.P. Blg. 412), does not provide for such exemption from taxes. However, under Section 30 (I) and the last paragraph of the Tax Code of 1997, as amended, pertinent portion of which is quoted hereunder as follows: aCSDIc "Sec. 30. Exemption from Tax on Corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such . . . (I) Government educational institution; xxx xxx xxx Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code." as a government educational institution, CSCSTS is exempt from the payment of income tax on income received by it as such institution, 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 Tax 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. (BIR Ruling No. 021-90 dated February 28, 1990) (2) Tax Exemption of Donations of Imported Technological Equipments in favor of CSCSTS Section 4 (c) of Republic Act (R.A.) No. 8292, otherwise known as the "Higher Education Modernization Act of 1997", cited as basis for the application by CSCSTS for exemption from taxes on the importation of technological equipments, provides viz. : "(c) to receive in trust legacies, gifts and donations of real and personal properties of all kinds, to administer and dispose the same when necessary for the benefit of the university or college, subject to limitations, directions and instructions of the donors, if any. Such donations shall be exempt from all taxes and shall be considered as deductible items from the income tax of the donor : Provided, however, That the rights, privileges and exemptions extended by this Act shall likewise be extended to non-stock, non-profit private universities and colleges: Provided, finally, That the same privileges shall also be extended to city colleges and universities with the approval of the local government to city colleges and universities with the approval of the local government unit concerned and in coordination with the CHED;" (Emphasis supplied) The above cited provision exempts from taxes donations made in favor of educational institutions, whether private or publicly owned. The said tax exemption does not include taxes imposed on the importation of donated articles as the exemption granted under Section 4 (c) of R.A. 8292 is specific only to the transfer of ownership over properties given in favor to educational institutions. Accordingly, Section 4 (c) of R.A. 8292 cannot be used as basis for CSCSTS' claim of exemption from VAT on the importation of technological equipment donated in its favor by Hitachi-Singapore. However, Section 109 (K) of the Tax Code of 1997, as amended, provides as follows: "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529;" (Emphasis supplied) On the other hand, Article I (1) (b) of the Florence Agreement, an international agreement to which the Philippines is a signatory, provides as follows: "ARTICLE I 1. The contracting States undertake not to apply customs duties or other charges on, or in connection with, the importation of: a. Books, publications and documents, listed in Annex A to this Agreement; b. Educational, scientific and cultural materials, listed in Annexes B, C, D and E to this Agreement; CTSHDI which are the products of another contracting States, subject to the conditions laid down in those annexes." Annex D of the Florence Agreement provides: "Scientific instruments or apparatus, intended exclusively for educational purposes or pure scientific research, provided: a. That such scientific instruments or apparatus are consigned to public or private scientific or educational institutions approved by the competent authorities of the importing country for the purpose of duty-free entry of these types of articles, and used under the control and responsibility of these institutions;" DAESTI From the foregoing, and since in the instant case, the imported technological equipments are donated to CSCSTS to be used for educational purposes, this Office therefore rules that the importation of the same is exempt from VAT. 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, or that the requirements herein stated are not complied with, then this ruling shall be considered null and void. cDCSET Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner