Tax Exemption Privileges of the Philippine National Red Cross

February 1, 1999 BIR RULING NO. 014-99 014-99 The Philippine National Red Cross National Headquarters Bonifacio Drive, Port Area P.O. Box 280 Manila 2803 Attention: Ms . Rosa Rosal Member , Board of Governors Gentlemen : This refers to your letter dated January 18, 1999 requesting consideration of BIR Ruling No. 026-96 dated February 27, 1996 which was reiterated in BIR Ruling No. 064-98 dated May 21, 1998 relative to the tax exemption of the Philippine National Red Cross (PNRC). It appears that in BIR Ruling No. 026-96 dated February 27, 1996 which was reiterated in BIR Ruling No. 064-98 dated May 21, 1998, this Office held as follows: (1) PNRC is subject to the 10% VAT on its importations of goods pursuant to then Section 101 of the Tax Code of 1977 (now Section 107 of the Tax Code of 1997). It is likewise subject to the 10% VAT on its procurement of materials and services for its exclusive use pursuant to then Sections 100 and 102 of the Tax Code of 1977 (now Section 106 and 108, Tax Code of 1997); (2) Interest income derived by PNRC from currency bank deposits and yield from currency bank deposits or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements shall be subject to the 20% final tax pursuant to then Section 24(e) of the Tax Code of 1977 (now Section 27(D)(1) of the Tax Code of 1997) that the legal basis of said rulings is that the privileges enjoyed by PNRC as provided for under Section 4(b) of Presidential Decree No. 1264 were already withdrawn by Executive Order No. 93 effective March 10, 1987 before the effectivity of the VAT Law (Executive Order No. 273) on January 1, 1998. Moreover, the fact that the Expanded VAT Law (R.A. 7716) later on restored the exemption of all transactions which are exempt under special laws or international agreements to which the Philippines is a signatory is of no moment because the Geneva Red Cross Convention, which is an international agreement to which the Philippines is a signatory, does not provide for any tax exemption in favor of any party. LibLex In reply thereto, please be informed that after a careful restudy of the aforementioned rulings, this Office is of the opinion as it hereby holds that 1. PNRC is exempt from the payment of the 10% VAT on its importation of goods under Section 107 of the Tax Code of 1997; 2. Local purchases by PNRC of goods or properties, services and use or lease of properties are exempt from VAT pursuant to Section 109(q) of the Tax Code of 1997; and 3. Interest income derived by PNRC from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements are exempt from the 20% final tax imposed under Section 27(D)(1) of the Tax Code of 1997. Section 4 of Presidential Decree No. 1264 otherwise known as "An Act to Incorporate the Philippine National Red Cross" provides in part as follows: "SEC. 4. In furtherance of the purposes mentioned in the preceding sub-paragraphs, the Philippine National Red Cross shall: "a. ... "b. Be exempt from payment of all duties, taxes, fees, and other charges of all kinds on all importations and purchases for its exclusive use, on donations for its disaster relief work and other Red Cross services; and in its benefits and fund raising drives all provisions of law to the contrary notwithstanding. LibLex "c. ... the aforementioned tax exemption privileges of PNRC has not been withdrawn by Executive Order No. 93 effective March 10, 1987. The "Whereas Clauses" of Executive Order No. 93 withdrawing all tax and duty incentives granted to government and private entities state as follows: "WHEREAS ... "WHEREAS ... "WHEREAS ... "WHEREAS ... "WHEREAS, the continued enjoyment of these tax and duty exemption privileges has resulted in serious tax base erosion and considerable distortions in the tax treatment of similarly situated entities; "WHEREAS, these privileges have become convenient opportunities for tax manipulation or avoidance especially in the case of interrelated entities; "WHEREAS, the availability of such privileges makes more difficult the attainment of the overall program for national economic development, considering the government fiscal exigencies; and "WHEREAS, private entities whose tax and duty exemption privileges are to be withdrawn may still remain competitive by improving on their operational capacity, and competence, rather than by relying on fiscal incentives which creates distortions in the overall pricing and market systems. xxx xxx xxx" thus, the withdrawal of all tax and duty incentives granted to private entities refers to private entities which are engaged in trade or business or an economic activity. It does not therefore apply to PNRC which is a non-profit and charitable organization. Such being the case, the tax exemption privileges of PNRC under Section 4 of Presidential Decree No. 1264 still subsists and has not been withdrawn by Executive Order No. 93. This revokes BIR Ruling No. 026-96 dated February 27, 1996 and BIR Ruling No. 064-98 dated May 21, 1998. dctai Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue