BIR Ruling No. 027-64

April 29, 1964 BIR RULING NO. 027-64 Mr. Juan B. Francisco Makati Stock Exchange Insular Life Bldg., Ayala Avenue Makati, Rizal S i r : Reference is made to your letter dated November 27, 1964, requesting the exemption of the Makati Stock Exchange under Section 27(f) of the National Internal Revenue Code. LexLib In reply thereto, I have the honor to inform you as follows: The answer to the question as to whether or not the Makati Stock Exchange falls within the purview of Section 27(f) of the Tax Code hinges principally on the validity of the allegation that it is a business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual. The records disclose that the purposes for which the above corporation was organized are as follows: to provide and maintain a convenient, economical and suitable market for the exchange, purchase and sale of stocks, bonds and other securities of established corporations; to provide, regulate and maintain suitable rooms or buildings and adequate facilities for the convenient transactions of business by its members; to establish, promote, and inculcate just and equitable principles of trade and business, and to maintain the highest standard in the commercial and financial transactions of its members among themselves and with the government and the public; to promulgate and maintain uniformity in rules, regulations and usages in their securities and stock trade; to acquire, preserve and disseminate useful information connected with the trade and; to purchase, own, hold, acquire or otherwise accept such property, real or personal, as may be necessary, convenient, or appropriate for any of the purposes set forth. The Exchange maintains its operations through contributions of the members and the commissions charged and collected upon the execution of all orders for the purchase or sale of securities admitted for dealings in the Exchange. It is noted from the foregoing that like any other stock exchange, the Makati Stock Exchange incidentally contribute to the promotion of business welfare and indirectly contribute to business prosperity, afford facilities to a limited class of people for the transaction of business. Under the circumstances, it cannot be considered an organization within the purview of Section 27(f). Authorities have already held that such stock exchanges are not business leagues, chambers of commerce, or boards of trades (CCH 61 Vol. 3, Sec. 30 3819, L.O. 1121, III-1 CB 275). And considering that it actually provides ample facilities to its members for the convenient transaction of business such as the exchange, purchase, and sale of stocks, bonds and other securities of established corporations, it may be said that its earnings inured to the benefit of its members. Thus it has been held that "Earnings may inure to the benefit of a member or members in a manner other than through the distribution of dividends. Thus, where valuable services are rendered to members it may be said that part of the net earnings do inure to the benefit of the members within the meaning of the Code." (Mertens, Law of Federal Income Taxation, Vol. 6, Sec. 34.13, General Contractors Ass'n of Milwaukee v. U.S. 44 AFTR (D.C.E.D. Wis., 1952), aff'd 202 F (2d) 633 (CA 7th, 1953). In view of the foregoing, this Office is of the opinion and so holds that the Makati Stock Exchange is not a business league, chamber of commerce, or board of trade within the purview of Section 27(f) of the Tax Code. Consequently, it should file an income tax return after every calendar or fiscal year, in accordance with Section 46 of the Tax Code, as amended, and pay income tax on its net income. As regards your other query, it is advised that the Makati Stock Exchange should keep a journal and a ledger or its equivalents, pursuant to the requirements of Section 334 of the Tax Code. aisadc Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue