BIR Ruling No. 061-12

February 9, 2012 BIR RULING NO. 061-12 Section 4 (3), Article XIV, 1987 Constitution; Tax Code, Sections 27 (D) (1), 30 (H); 101 (A) (3); 105; 109 (H); BIR Ruling No. 170-11; BIR Ruling No. 169-11; BIR Ruling No. 159-11; BIR Ruling No. 168-11; BIR Ruling No. 155-11 Guardian Angel Academy, Inc. St. Jude St., Marvin Hills, Gulod Malaya San Mateo, Rizal Attention: Jose I. Abad President Gentlemen : This refers to your letter, dated November 4, 2009, requesting on behalf of Guardian Angel Academy, Inc. for the issuance of a certificate of tax exemption enjoyed by non-stock, non-profit corporation or association organized and operated exclusively for educational purposes under Section 30 (H) of the Tax Code of 1997, as amended. It is represented that Guardian Angel Academy, Inc. , with Taxpayer's Identification Number (TIN) 004-643-912-000, is a non-stock, non-profit corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) bearing SEC Registration No. A199906722; that it is recognized by the government and permitted by the Commission on Higher Education (CHED) in accordance with Government Recognition No. 006 s. 2003 to operate Complete Secondary Course; that the purposes, among others, for which it was incorporated are the following: 1) To establish and maintain an institutional medium of education which shall conduct and carry on the operation, administration and management of private school in the Pre-elementary School, Grade Schools and Secondary levels including Vocational and Technical courses and programs, with the end in view of initiating, instructing and guiding children and the youth for their formal education through the utilization of tested and/or accepted modern pedagogical, instructional and technological methods, techniques and approaches in teaching duly approved by the Department of Education, the Technical Education and Skills Development Authority or other government agencies concerned; 2) To undertake and implement researches and develop mental activities and programs on pedagogic and instructional methodologies and approaches to suit and upgrade educational and materials designed to improve and enhance the education of children and the youth; and DcTaEH 3) To charge enrolled pupils and students entrance, tuition and matriculation fees and other charges customary in and allowed by law to educational i Edit nstitutions and to accept donations and/or legacies of properties of whatever kind and description. In support of its request, Guardian Angel Academy, Inc. has completely submitted on November 4, 2011 the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the Certificate of Registration with the SEC; 3) Certified true copy of the Articles of Incorporation which includes the following provisions: a. That the corporation is non-stock, non-profit; b. That the primary purpose for which it was created is one of those enumerated under Sec. 30 of the Tax Code of 1997; c. That no part of the net income shall inure to the benefit of any of its members; d. That the trustees do not receive any compensation; and e. In case of dissolution, assets of the corporation shall be transferred to similar institution or to the government. 4) Certified true copy of the By-Laws; 5) Certified true copy of the Annual Information Return and Financial Statements for the Taxable Years 2008 and 2009; 6) Photocopy of the DepEd's Recognition; and 7) BIR Certificate of Registration. In reply, please be informed that paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz. : "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties." Likewise, Section 30 (H) of the 1997 Tax Code, as amended, provides, viz. : "Sec. 30. Exemptions from Tax on Corporations. The following organizations shall not be taxed under this Title in respect to income received by them as such: xxx xxx xxx (H) A non-stock and non-profit educational institution; . . ." A non-stock, non-profit educational institution is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. The exemption contemplated herein refers to internal revenue taxes imposed by the National Government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. ( BIR Ruling No. 170-2011 dated May 25, 2011 ) HEcIDa From the foregoing, and since Guardian Angel Academy, Inc. is a non-stock and non-profit educational institution as contemplated under the said provisions, it is exempt from the payment of taxes and duties on all its revenues and assets used actually, directly and exclusively for educational purposes. ( BIR Ruling No. 169-2011 dated May 25, 2011 ) However, Guardian Angel Academy, Inc. shall be subject to internal revenue taxes on income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institutions of their educational purposes or functions (Sec. 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Likewise, Guardian Angel Academy, Inc.'s gross receipts from operations as a non-stock, non-profit educational institution are exempt from value-added tax (VAT) pursuant to Section 109 (H) of the 1997 Tax Code, as amended. However, other activities involving sale of goods and services not in connection with its primary purposes are subject to the 12% VAT imposed under Sections 106 and 108 of the Tax Code of 1997, as amended, or 3% percentage tax imposed under Section 116 in relation to Section 109 (V) of the same Code if the gross sales or receipts from such sale of goods and services do not exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) which tax payment may legitimately be passed on to buyers of such goods and services. The increase in the threshold amount for the sale or lease of goods or properties or the performance of services covered by Section 109 (P), (Q) and (V) of the 1997 Tax Code took effect on January 1, 2012, pursuant to Revenue Regulations No. 16-2011 dated October 27, 2011. Hence, as long as Guardian Angel Academy, Inc. will not engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, it will remain exempt from VAT. ( BIR Ruling No. 159-2011 dated May 19, 2011) Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. ( BIR Ruling No. 168-2011 dated May 25, 2011) Under Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of its purpose as an educational institution, are exempt from the 20% final tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the Tax Code of 1997, subject to compliance with the conditions that as a tax-exempt educational institution it shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly audited financial statement together with the following: TCADEc (a) Certification from their depository banks as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) (1) of the Tax Code of 1997; (b) Certification of actual utilization of the said income; and (c) Board Resolution by the school administration on proposed projects ( i.e. , construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of the money deposited in banks or placed in money markets, on or before the 15th day of the fourth month following the end of its taxable year (Sec. 4, Finance Department Order No. 137-87). Moreover, revenues derived from assets used in the operation of cafeterias/canteens and bookstores are exempt from taxation provided they are owned and operated by Guardian Angel Academy, Inc. as ancillary activities and the same are located within its premises. In addition, gifts, donations, and other contributions received by Guardian Angel Academy, Inc. as an educational institution, are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of said gift shall be used for administration purposes. Donors cannot avail of full deductibility for purposes of computing taxable income under Revenue Regulations No. 13-98 without the accreditation of Guardian Angel Academy, Inc. as a donee institution with the Philippine Council for NGO Certification (PCNC). Organizations seeking certification shall file with the PCNC Secretariat a letter of intent to apply for certification and submit the necessary documents. If the applicant NGO has met the minimum criteria for certification, the Board gives a 3-year or 5-year certification to the organization and informs this Office which then issues to said organization a certification of Donee Institution Status. Guardian Angel Academy, Inc. is advised to contact The Secretariat, Philippine Council for NGO Certification (PCNC), at tel. nos. 7821-568; 7159-594; 7152-756 or telefax 7152-783. It must be emphasized that its tax exemption does not cover withholding taxes. As an educational institution, Guardian Angel Academy, Inc. is constituted as withholding agent for the government required to withhold the tax on compensation income of its employees, or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the Tax Code of 1997, as amended. Moreover, Guardian Angel Academy, Inc. is also subject to the payment of the annual registration fee of PhP500.00 as prescribed in Section 236 (B) of the Tax Code of 1997, as amended. It is also required under Section 6 (C) in relation to Section 237 of the same Code to issue duly registered receipts or sales or commercial invoices for each sale or transfer of merchandise or for services rendered which are not directly related to the activities for which they are registered. (RMC No. 76-2003) Under Section 235 of the Tax Code of 1997, as amended, any provision of existing general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of accounts and other pertinent records of Guardian Angel Academy, Inc. to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. ( BIR Ruling No. 155-2011 dated May 17, 2011 ) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. HacADE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue