Hermano (San) Miguel Febres Cordero Medical Education Foundation, Inc.

September 15, 2008 BIR RULING [DA-(FIT-007) 222-08] DA-510-99 Sept. 3, 1999 Hermano (San) Miguel Febres Cordero Medical Education Foundation, Inc. De La Salle Health Science Campus Dasmarias, Cavite Attention: Ms. Eleonor B. So Controller Gentlemen : This refers to your letters dated February 20, 2008 and July 16, 2007 requesting for a ruling on the taxability of the interest income derived by Hermano (San) Miguel Febres Cordero Medical Education Foundation, Inc. (Hermano) from a depository bank under the expanded foreign currency deposit system, pursuant to Section 27 (D) (1) of Republic Act No. 8424. Documents submitted disclosed that Hermano (San) Miguel Febres Cordero Medical Education Foundation, Inc. is operating as a school and a teaching hospital; that BIR Ruling No. 177-88 dated May 4, 1988 has been issued in its favor, granting the same tax exemption privileges as a non-stock, non-profit educational institution; that Chinabanking Corporation-Dasmarias, Cavite (bank) withheld tax from the interest of Hermano's dollar account being maintained by the latter with the former; and that the bank did not honor the previously issued Tax Exemption Certificate and instead advised Hermano to secure another certificate specifically stating that Hermano is exempt from tax on the yields of its dollar deposits, hence this request for ruling. In reply, please be informed that paragraph 3, Section 4, Article XIV of the 1987 Philippine 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, . . ." Accordingly, the interest income derived by an educational institution from a depository bank under the expanded foreign currency deposit system shall be exempt from the 7.5% final tax imposed under Section 27 (D) of the Tax Code of 1997, subject to the compliance with the conditions that as a tax-exempt educational institution it shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly audited financial statement, together with the following: aSACED 1) Certification from their depository banks as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) of the Tax Code of 1997; 2) Certification of actual utilization of said income; and 3) Board Resolution by the school administration on proposed projects ( i.e. construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of money deposited in banks or placed in money markets, on or before the 15th day of the fourth month following the end of its taxable year. (Sec. 4, Finance Department Order No. 137-87). [BIR Ruling No. ENP8-001-99 dated January 14, 1999] However, please take note that educational institutions shall only enjoy such exemption from taxes upon proper verification that they are duly and currently accredited by the Department of Education, Culture and Sports (DECS), or by the Commission on Higher Education (CHED), or by the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing rules and regulations. Thus, an exemption certificate duly issued by this Office is a condition precedent to the grant of the said exemption. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service