NSTA-accredited Foundations and Institutions Now Subject to the 15% Final Tax

January 14, 1985 BIR RULING NO. 005-85 027-e 00-000 005-85 Gentlemen : This refers to your letter dated October 30, 1984 requesting a ruling as to whether the tax exemptions and privileges granted to the National Science and Technology Authority (NSTA) certified foundations had been withdrawn by P.D. No. 1955. In reply, please be informed that subject to certain conditions, P.D. No. 1955 which took effect on October 15, 1984, withdrew all exemptions and preferential tax treatments and/or privileges granted under special laws, executive orders and letters of instructions to private business enterprises and persons engaged in any economic activity. Accordingly, beginning October 15, 1984 all persons heretofore enjoying exemptions from or any preferential treatment in the payment of internal revenue taxes under special laws and executive orders like NSTA-accredited foundations under R.A. No. 2068 as amended by R.A. 3589 and reaffirmed by Executive Order No. 784 are now subject to the regular taxes applicable to them under the National Internal Revenue Code. (see RMC No. 25-84 dated October 12, 1984) Be that as it may, under Section 27(e) of the Tax Code as amended, a corporation or association organized and operated exclusively for scientific purposes , no part of the net income of which insures to the benefit of any stockholders or individual is still exempt from the payment of income tax in respect of 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 purposes pursuant to Section 27 of the Tax Code, as amended by P.D. No. 1457. cdta Moreover, pursuant to Sections 21(d) and 24(cc) of the Tax Code as amended by P.D. No. 1959, a final withholding tax of 15% shall now be imposed on interest income from Philippine currency bank deposits whether saving or time deposits, and yield or any other monetary profit from deposit substitutes and from trust fund and similar arrangements, amending Sections 21(d), 24(cc) and 53(d)(1) of the Tax Code, P.D. No. 1959 has abolished the provisions on : (1) the exemption from the withholding tax if the aggregate amount of the interest at any time during the taxable year does not exceed P1,000 a year or P250.00 per quarter, in the case of Philippine currency bank deposits maintained by an individual, and if the recipient (individual or corporation) of such interest income is exempt from income taxation; and (2) the imposition of the preferential tax rates if the recipient (individual or corporation) of the income as enjoying preferential tax treatment. The deletion of the exempting and preferential tax treatment provisions under the old law is a clear manifestation that the single 15% rate is imposable on all interest income from deposits, deposit substitutes, trust funds and similar arrangements, regardless as to the tax status or character of the recipients thereof. (Revenue Memorandum Circular No. 31-84) Accordingly, the authority granted by this office to depository banks to forego withholding of the tax on Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes maintained by persons or entities exempt from income taxation is deemed revoked as of October 15, 1984, the effectivity date of P.D. No. 1959. Likewise, the authority granted to depository banks to withhold a preferential tax rate, e.g., 10% final tax on the interest income of private educational institutions, on the ground that the depositor enjoys preferential income tax treatment is also deemed revoked as of October 15, 1984 ( Ibid .) Such being the case, NSTA-accredited foundations and institutions are now subject to the 15% final tax on (1) interest and/or yield on deposit substitute instruments issued to them beginning October 15, 1984; and (2) interest on their savings and time deposits earned or accrued beginning October 15, 1984. (Revenue Regulations No. 17-84) cdti Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner