BIR Ruling No. 066-13

February 12, 2013 BIR RULING NO. 066-13 Section 30 of the 1997 Tax Code; City of Iloilo, et al. vs. Smart Communications, Inc. G.R. No. 167260 Ma. Janice R. Tejano Attorney and Counselor at Law 1100 88 Corporate Center, Valero cor. Sedeo Sts. Salcedo Village, Makati City Dear Atty. Tejano, This refers to your letter dated September 17, 2012 requesting on behalf of Grid Management Committee (GMC), Inc. the issuance of a Certificate of Tax Exemption enjoyed by non-stock, non-profit corporation organized exclusively for purposes under Section 30 of the Tax Code of 1997, as amended. DcHaET Background: 1. Grid Management Committee ("GMC"), with Taxpayer's Identification No. (TIN) 240-586-994-000 is a non-stock, non-profit corporation duly organized under the laws of the Philippines and registered with the Securities and Exchange Commission (SEC) under Registration No. CN200512901. Its principal place of business is located at 20F Pacific Center Building, San Miguel Avenue, Ortigas Center, Pasig City. 2. To provide a framework for the restructuring of the electric power industry, Republic Act 9136 also known as the "Electric Power Industry Rationalization Act" or "EPIRA" was signed into law on June 08, 2001 and became effective on June 02, 2001. Its Implementing Rules and Regulations took effect on March 22, 2002; 3. EPIRA created the Energy Regulatory Commission ("ERC") to act as an independent, quasi-judicial regulatory body of the electric power industry, and to succeed the Energy Regulatory Board ("ERB"). Section 43 (b) Chapter IV of the EPIRA mandated the ERC to promulgate and enforce a National Grid Code and a Distribution Code; 4. The ERC adopted Resolution No. 115 dated 02 March 2002, adopting a Philippine Grid Code and Distribution Code to provide the basic rules, procedures and standards that govern the operation, maintenance and development of the high-voltage backbone Transmission System and Distribution System, respectively. Section 1.3 and Section 2.2 of the Grid Code established the creation of the GMC; 5. On 2 August 2005, the Company was registered with the SEC as a non-stock non-profit organization to relieve the ERC from the tedious task of monitoring the day-to-day operations of the Grid, and to serve the purposes provided under Sections 2.1 and 2.2 Chapter 2 of the Philippine Grid Code ("PGC"), namely: Section 2.1 Chapter 2 of the Philippine Grid Code 1. To facilitate the monitoring of compliance with the Grid Code at the operations level; 2. To ensure that all Users of the Grid are represented in reviewing and making recommendations pertaining to connection, operation, maintenance and development of the Grid; 3. To specify the processes for the settlement of disputes, enforcement and revision of the Grid Code. Section 2.2 Chapter 2 of the Philippine Grid Code 1. Monitoring the implementation of the Grid Code; 2. Monitor, evaluate and make recommendations on Grid operations; 3. Review and recommend standards, procedures and requirements for Grid connection, operation, maintenance and development; TcDaSI 4. Coordinate Grid Code dispute resolution and make appropriate recommendations to the ERC; 5. Initiate the Grid Code enforcement process and make recommendations to the ERC; 6. Initiate and coordinate revisions of the Grid Code and make recommendations to the ERC; and 7. Prepare regular and special reports for submission to the ERC, or as required by the appropriate government agency, or when requested by a Grid User. 6. In accordance with Section 2.2.4, Chapter 2 of the Grid Code, the Grid Owner and the System Operator shall fund the operations of the Company, its subcommittees, maintenance of a permanent support staff, including the honoraria of members and subcommittee members, if any, and shall recover the same from Grid service charges. Salaries of all GMC members and subcommittee members are the responsibility of their respective employers or sponsoring organizations. In reply, please be informed that Section 30 of the 1997 Tax Code, as amended, provides for the exclusive list of the organizations which are exempt from income tax to wit: "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: (A) Labor, agricultural or horticultural organization not organized principally for profit; (B) Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock organized and operated for mutual purposes and without profit; (C) A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or mutual aid association or a non-stock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or non-stock corporation or their dependents; ITaCEc (D) Cemetery company owned and operated exclusively for the benefit of its members; (E) 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 inures to the benefit of any member, organizer, officer or any specific person; (F) 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 stockhholder, or individual; (G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (H) A non-stock and non-profit educational institution; (I) Government educational institution; (J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or cooperative telephone company, or like organization of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and (K) Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on the basis of the quantity of produce finished by them; cEISAD xxx xxx xxx" Applying the afore-quoted provision in the instant case, this Office is of the opinion that GMC does not fall under any of the above enumerated non-stock, non-profit organizations exempt from income tax. It bears stressing that a general claim for entitlement to a tax incentive, without pointing to a particular provision under which the claim for exemption is made, would not suffice consistent with the principle that tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Neither would it be enough under Section 30 of the Tax Code that the organization be a non-stock, non-profit. It must also show that the primary purpose for which it was organized is one of those provided therein, such as charitable, religious, educational and other purposes. The basic principle in the construction of laws granting tax exemptions has been very stable. He who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake (City of Iloilo, et al. vs. Smart Communications, Inc., G.R. No. 167260, dated February 27, 2009). In the case at bar, GMC failed to show that the purposes for which it was organized are among those provided in Section 30 of the Tax Code that would entitle it to exemption from income tax. Accordingly, your request for exemption from income tax is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue