BIR Ruling No. 062-13

February 12, 2013 BIR RULING NO. 062-13 Section 30 (E) of the 1997 Tax Code of 1997, as amended; BIR Ruling No. 158-11; BIR Ruling No. 153-11; BIR Ruling No. 138-11 Christian Gospel Baptist Church of Mindoro, Inc. Block 3, Brgy. Pachoca City of Calapan, Oriental Mindoro Attention: Rev. Ralph C. Ibaes Church Administrator Gentlemen : This refers to your letter dated March 18, 2010, as indorsed by the Regional Director of Revenue Region No. 9, San Pablo City, requesting in effect, for the issuance of a certificate of tax exemption enjoyed by non-stock non-profit corporation organized and operated exclusively for religious purposes under Section 30 (E) of the Tax Code of 1997, as amended. It is represented that Christian Gospel Baptist Church of Mindoro, Inc. (formerly Christian Gospel Church of Mindoro, Inc.) with Taxpayer's Identification No. 002-031-310-000, 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) under Registration No. ANO92-02920; and that the purposes for which it was incorporated is for the administration of its affairs, properties and temporalities. In support of your request, Christian Gospel Baptist Church of Mindoro, Inc. has completely submitted on June 4, 2012 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: DSAICa a. That the corporation is Religious Corporation; and b. That the primary purpose for which it was created is one of those enumerated under Sec. 30 (E) of the Tax Code of 1997, as amended; 4) Certified true copies of the Annual Income Tax Returns and Financial Statements for the last three (3) years of operation; 5) Certificate of non-forum shopping; and 6) BIR Certificate of Registration. In reply, please be informed as follows: Income Tax Section 30 (E) 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: aDHCEA xxx xxx xxx (E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person; . . ." Under the above-quoted provision, a non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person is exempt from income taxation. (BIR Ruling No. 158 dated May 19, 2011) Based on the foregoing, this Office is of the opinion that Christian Gospel Baptist Church of Mindoro, Inc. is a corporation contemplated under Section 30 (E) of the Tax Code of 1997, as amended. Accordingly, it is exempt from the payment of tax on income received by it as such organization, provided that no part of its net income or assets shall belong to, or inure to the benefit of any member, organizer, officer or any specific person. 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 disposition thereof, which income should be returned for taxation. (BIR Ruling No. 153-11 dated May 17, 2011) Likewise, interest income from currency bank deposits and yield or any other monetary benefit from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax: Provided, however, that interest income derived by it from a depository bank under the expanded foreign currency deposit system shall be subject to 7 1/2% final withholding tax pursuant to Section 27 (D) (1) in relation to Section 57 (A), both of the Tax Code of 1997. (BIR Ruling No. 138-11 dated April 29, 2011) Moreover, it is required to file on or before the 15th day of the fourth month following the end of the accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the preceding period and a certificate showing that there has not been any change in its By-laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. (BIR Ruling No. 024-11 dated January 28, 2011) aTEHCc It is requested that a copy of this letter of exemption be attached to the aforementioned Annual Information Return. It should be understood that the said exempt corporation/association shall be constituted as withholding agent for the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the withholding tax pursuant to Section 57 of the Tax Code of 1997, also as implemented by Revenue Regulations No. 2-98, as amended. (BIR Ruling No. 153-11 dated May 17, 2011) Under Section 235 of the Tax Code of 1997, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which it has been granted tax exemptions or tax incentives, and its tax liabilities, if any. Finally, it is 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 the Association is registered [Revenue Memorandum Circular (RMC) No. 76-2003]. Value-Added Tax 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. Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders service, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. HSEcTC The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Hence, if Christian Gospel Baptist Church of Mindoro, Inc. is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall be liable for VAT. (BIR Ruling No. 153-11 dated May 17, 2011) Notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code. (BIR Ruling No. 138-11 dated April 29, 2011) 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. Revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. Donor's Tax In as much as Christian Gospel Baptist Church of Mindoro, Inc. is a religious organization, donations to it 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 thirty percent (30%) of said gift shall be used for administration purposes. (BIR Ruling No. 153-11 dated May 17, 2011) Deductibility of Donation Section 34 (H) (1) of the Tax Code of 1997, as amended, provides that for contributions or gifts actually paid or made within the taxable year to, or for the use of corporations or associations organized and operated exclusively, among other, for religious purposes, their donors shall be entitled to the limited deductions in an amount not in excess of 10% in the case of an individual and 5% in the case of corporation, from the donor's taxable income derived from trade, business or profession as computed without the benefit of this deduction and the subparagraphs of Section 34 (H) (1) of the Tax Code of 1997, as amended. 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. AIaHES Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue