St. Joseph Academy of Saravia, Inc.

December 12, 2008 BIR RULING [DA-(TSF-015) 524-08] DOF Order No. 149-95 St. Joseph Academy of Saravia, Inc. F. Marvilla St., Brgy. III, E.B. Magalona, Negros Occidental Attention: Ms. Georgina T. Gulmatico Principal Gentlemen : This refers to your letter dated April 14, 2008, received by this Office by 2nd Indorsement dated September 16, 2008 from Revenue Region No. 12, Bacolod City, requesting for exemption from withholding tax on interest income from bank deposits pursuant to DOF Order No. 149-95. It is represented that ST. JOSEPH ACADEMY OF SARAVIA, INC. ("ST. JOSEPH") is a non-stock, non-profit educational institution registered with the Securities and Exchange Commission (SEC) under SEC Reg. No. 27278 dated May 31, 1965; that ST. JOSEPH has been earning interest on its bank accounts maintained with Metrobank and Landbank but has been subjected to the 20% withholding tax up to the present; that revenues from tuition and other fees are barely enough to meet the school's operating expenses and all bank interest income earned are fully utilized to augment school operations. In reply, please be informed that under Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of the educational purpose of the institution is exempt from the 20% final tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the Tax Code of 1997 subject to compliance with the conditions that as a tax-exempt educational institution, it shall on an Annual Information Return and duly audited financial statement together with the following: CcTHaD 1) Certification from its depository bank 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 under Section 27 (D) (1) 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 the 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; ENPS-012-98 dated November 25, 1998; and BIR Ruling No. 46-00 dated September 26, 2000). Accordingly, as a non-stock, non-profit educational institution, ST. JOSEPH is exempt from payment of the 20% final tax on interest earnings derived from time deposit accounts (BIR Ruling No. 46-00 dated September 26-00), treasury bonds, treasury bills and other bank notes which also form part of its assets used for educational purposes (BIR Ruling No. DA-13-02 dated January 30, 2002) subject to its compliance with the foregoing conditions. Likewise, in the case of investments in shares of stock, the conduct of said activity is related to the performance of its purpose as an educational institution, the gains derived from the sale, exchange or disposition thereof is not subject to the capital gains tax imposed under Section 27 (D) (2) of the Tax Code of 1997, as amended (BIR Ruling No. 130-90 dated July 4, 1990) subject to compliance with the conditions under Department Order No. 149-95 dated November 24, 1995 amending Department Order 137-87. HESIcT This serves as authority for depository banks to forego the withholding of the 20% tax imposed on interest income from bank deposits and interest and/or yield from deposit substitute instruments maintained by ST. JOSEPH with them. The books of accounts and other pertinent records of ST. JOSEPH shall be subject to examination by the Bureau of Internal Revenue for the purpose of ascertaining whether it is complying with the conditions under which it has been granted tax exemption and its tax liability, 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). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service