Whether Archbishop Gabriel M. Reyes Memorial Foundation, Inc. Will Continue to Enjoy Its Tax Exempt Privilege if you Undertake a Borrowing and Relending Activity with Interest for the Benefit of Micro Business Groups

February 9, 1995 BIR RULING NO. 015-95 102 000-00 015-95 Archbishop Gabriel M. Reyes Memorial Foundation, Inc. Rm. 221 Pius XII Catholic Center 1175 United Nations Avenue Manila Attention: Mr . Indefonso G . Lauz President Gentlemen : This refers to your letter dated May 27, 1994 requesting in effect a ruling as to whether or not you will continue to enjoy your tax exempt privilege if you undertake a borrowing and relending activity with interest for the benefit of the micro business group you are assisting. LLphil It is represented that your Foundation is a non-stock, non-profit corporation engaged in social development and welfare work in different barangays and municipalities of Aklan; that it was grated a Certificate of Registration No. 1219 by this Office on November 16, 1988 as a donee institution in accordance with the provisions of BIR-NEDA Regulations No. 1-81; that among the projects now being undertaken is a micro-enterprise development program where your Foundation extends assistance to small business undertaking to enable them to attain some degree of stability and profitability; that at present, your assistance has been confined to group organizing and strengthening and to capability building of its leaders in organizational and business management. That, however, the various groups being assisted are in need of additional funds to augment its small self-generated capital; that since there are government and private sources of grants or loans for this purpose, your Foundation plans to borrow or solicit funds form these sources and relend it to the assisted groups with interest a little higher than the cost of funds; that interest differential that will accrue to the Foundation will cover the cost of assisting the groups or other similar groups and also additional services/assistance to them; and that no trustee, officer of member of the Foundation will financially benefit from this interest differential, as a matter of fact, they also donate funds for its various services matter of fact, they also donate funds for its various services to the poorer sector of the Aklan population. In reply, please be informed that under Section 26(g) of the Tax Code, as amended, civic league or organization not organized for profit but operated exclusively for the promotion of social welfare shall not be taxed under Title 11 of the Tax Code. Accordingly, and since it appears from your representation that you are a non-stock, non-profit social welfare foundation your income tax exemption as such organization will not be affected if you undertake a borrowing and relending activity with higher interest for the benefit of the micro business group you are assisting. However, under the last paragraph of Section 26 of the same Code, the income of whatever kind or character of such organizations form any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition of such income, shall be subject to tax imposed under the Tax Code. LexLib Also, as a lending investor, you shall be subject to the value-added tax (VAT) under Section 102 of the Tax Code, as amended, R.A. No. 7716. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue