Tax Exemption and Liability of UP

February 28, 1990 BIR RULING NO. 021-90 24 & 26 00-000 021-90 Gentlemen : This refers to your letter dated January 30, 1989 requesting a certificate of tax exemption in your favor pursuant to Section 4, Article XIV of the 1987 Philippine Constitution which you will present to your depository banks and trust or investment managers. cdta It is represented that the University of the Philippines (UP) is a government educational institution and that the administration and the exercise of its corporate powers are vested exclusively in the U.P. Board of Regents pursuant to Act No. 1870, as amended, otherwise known as the UP Charter; that it operates independently, and is not under the administrative control and supervision of the Department of Education, Culture and Sports. In reply, please be informed that the tax exemption contemplated under Section 4(3), Article XIV of the Philippine Constitution applies to revenues and assets of non-stock, non-profit corporation/association duly registered under Philippine law, and operated exclusively for educational purposes, maintained and administered , by private individuals or groups, and offering formal education, issued a permit to operate by the Department of Education, Culture and Sports (DECS) in accordance with existing laws and regulations (Department Order No. 137-87). In other words, said Constitutional tax exemption provision applies only to private non-stock, non-profit educational institutions subject to the administrative control and supervision of DECS which is not so in the case of UP. Besides, the UP Charter (Act No. 1870, as amended), does not provide for such exemption from taxes. However, under Section 26(1) of the National Internal Revenue Code, pertinent portion of which is quoted hereunder as follows: "Sec. 26. Exemption from Tax on Corporations . "The following organizations shall not be taxed under this Title in respect to income received by them as such "(1) Government educational institution . (As added by E.O. No. 37) . . . Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code." (As amended by PD No. 1457) as a government educational institution, the University of the Philippines is exempt from the payment of income tax on income received by it as such institution, 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 . Such being the case, since the University of the Philippines is a government educational institution, its interest income from Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes, trust fund and similar arrangements shall be subject to the final tax of 20% prescribed under Section 24(e)(1) of the Tax Code as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner