Tax Exemption Granted to UST

January 31, 1990 BIR RULING NO. 009-90 24 605-88 009-90 Gentlemen : This refers to your letters dated September 19 and November 29, 1989 requesting exemption from the 35% tax on your revenues from hospital operations and customs duties and value-added tax on your importation of hospital materials and equipment to be actually, directly and exclusively used for your hospital/educational purposes. It is represented that the University of Santo Tomas was granted tax exemption in accordance with the New Constitution which was ratified on February 2, 1987; that your reason for requesting this Office to grant the same tax exemption privilege for the Santo Tomas University Hospital is based on the fact that the Hospital is part of the University and as such it performs coordinated and interrelated functions with the University for the furtherance of its educational purposes by providing: 1. clinical training for students of the Faculties of Medicine and surgery, Nursing, Pharmacy (Medical Technology), Education (Dietetic interns) and other units of the UST which may need clinical training for their students; 2. facilities and opportunities for postgraduate studies such as internship, residency, fellowship etc; and 3. opportunities and facilities for research to both students and faculty within the limits of its resources under the University's overall Research Program. and that the University of Santo Tomas Hospital is a non-stock, non-profit university and learning hospital. The fact that, that Hospital performs coordinated and interrelated functions with the University of Santo Tomas has been certified to by the Department of Education, Culture and Sports in its letter dated September 27, 1989 and confirmed by this Office in its letter dated January 7, 1983 to Andres R. Narvasa and Associates, as counsel of the University. In reply thereto, I have the honor to inform you that under BIR Ruling No. 539-88 dated November 14, 1988, this Office has ruled that the University of Santo Tomas being a non-stock, non-profit educational institution is exempt from taxes, pursuant to paragraph 3, Section 4, Article XIV of the 1987 Constitution which provides, viz: "(3) 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 . . . ." As regards the revenues derived from and assets used in the operations of hospitals, the same are exempt from taxation provided they are owned and operated by the educational institution as an indispensable requirement in the operation and maintenance of its medical school/college/institute. (Sec. 2.3, Finance Department Order No. 137-87 as amended) Such being the case, the University of Santo Tomas Hospital being a non-stock, non-profit educational institution which appears to be owned and operated by the University of Santo Tomas, being a part thereof, and an indispensable requirement in the operation and maintenance of its medical school/college/institute, among others, is exempt from taxes and duties on all its revenues and assets used actually, directly and exclusively for educational purposes as of February 2, 1987, which necessarily includes exemption from the 35% tax on its revenues from hospital operations and customs duties and value added tax on its importation of hospital materials and equipment to be actually, directly and exclusively used for educational purposes (BIR Ruling No. 605-88). However, while its interest income from Philippine currency bank deposits is exempt from the 20% final withholding tax, earnings or yield realized from its passive investments arising from deposit substitute instruments, e.g., money market placements, treasury bills, etc., not being derived in pursuance of its purpose as an educational institution are subject to the 20% final tax. (BIR Ruling No. 180-89 dated August 24, 1989). Furthermore, it is understood that the University of Santo Tomas Hospital shall be subject to internal revenue taxes on its income from trade, business and other activity the conduct of which is not related to the exercise or performance of such educational institution of its educational purpose or function. Finally, as a tax-exempt educational institution, it shall file an annual information return on or before the 5th day of the 4th month following the end of its taxable year. (Sec. 4, Finance Department Order No. 137-87, as amended). cd (SGD.) JOSE U. ONG Commissioner