Whether the Foundation for Sustainable Development, Inc. is Exempt from Internal Revenue Taxes Withheld by the DBM from Income Payments for Its Services

January 26, 1995 BIR RULING NO. 012-95 26 102 00-00 012-95 Hon. Emilia T. Boncodin Undersecretary Department of Budget and Management Malacaang, Manila M a d a m : This refers to your letter dated September 1, 1994 requesting for a ruling on whether the Foundation for Sustainable Development, Inc. (FSDS) is exempt from the corresponding internal revenue taxes withheld by the Department of Budget and Management (DBM) from its income payments to FSDI for its services for the development of DBM Manuals. cdtech It appears that FSDI is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission; that FSDI formed in general, to promote, encourage, pursue, and/or assist in community development through the development and/or utilization of natural, human and information resources as well as technologies, strategies and facilities particularly those related to the effective management of the environment and economic development; that the corporation shall be maintained through membership fees, donations, grants, and other legitimate means of raising funds; and, that no part of its net income shall inure to the benefit of any private individual or member. Based on the foregoing, in a letter dated October 24, 1988, this Office held that FSDI falls within the purview of a corporation operated for scientific purposes as contemplated under Section 26(e) of the Tax Code, as amended. Accordingly, it is exempt from the payment of income tax on 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 . In reply, please be informed that despite FSD's exemption form income tax pursuant to Section 26(e) of the Tax Code, as amended, it is liable to business tax if it engages in an economic activity that is subject to business tax. Developing DBM Manual for a fee constitutes sale of taxable service which is subject to 10% VAT under Section 102 of the Tax Code, as amended. Such being the case, income payments to FSDI are also subject to the 6% creditable withholding VAT pursuant to Revenue Regulations No. 10-93, implementing R.A. No. 7649. Moreover, as income derived from an activity or transaction subject to business tax, the fees paid by DBM to FSDI for the development of DBM Manuals shall be subject to the corporate income tax of 35% imposed under Section 24 (a) of the Tax Code, as amended. The foregoing rules shall likewise apply to the income payments of the Department of Agrarian Reform (DAR), Department of Environment & Natural Resources (DENR) and National Mapping Resource Information Authority (NAMRIA), for similar services respectively rendered by FSDI to them. llcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue