BIR Ruling No. 069-12

February 10, 2012 BIR RULING NO. 069-12 Sec. 27 (D) (1) NIRC; R.A. No. 10072; RMC No. 059-10 Philippine National Bank Trust and Banking Group-BDAMD 3rd Floor, PNB Financial Center, Pres. Diosdado Macapagal Boulevard, Pasay City Attention: Rafael G. Ayuste, Jr. First Senior Vice President & Trust Officer Gentlemen : This refers to your letter dated 06 July 2010 requesting re-certification that interest income derived by THE PHILIPPINE NATIONAL RED CROSS (PNRC) from investments in money market placements and bank deposits, deposit substitutes, trust funds and/or similar or like arrangements/investments is exempt from the 20% and 7.5% final withholding tax under Section 27 (D) (1) of the Tax Code of 1997. IcEACH It is represented that THE PHILIPPINE NATIONAL RED CROSS, with TIN 000-804-271-000 is a voluntary organization officially designated to assist the government in its health and welfare services; and that BIR Ruling No. 014-99 dated February 1, 1999 was issued to it clarifying that "interest income derived by PNRC from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements are exempt from the 20% final tax imposed under Section 27 (D) (1) of the Tax Code of 1997". In reply, please be informed that Republic Act (R.A.) No. 10072 otherwise known as the "Philippine Red Cross Act of 2009" was approved on April 20, 2010 and published in the Official Gazette on May 17, 2010. R.A. No. 10072 expressly repealed R.A. No. 95 as amended, as well as other laws or parts thereof, decrees, orders, rules and regulations inconsistent its provisions. Hence, P.D. No. 1264 which amended R.A. No. 95 has been likewise superseded by R.A. No. 10072. Revenue Memorandum Circular No. 059-10 dated July 1, 2010 was issued circularizing Sections 5 (c) and 6 of R.A. No. 10072. Pertinent provisions are hereunder quoted: "SEC. 5. Privileges. To allow it to fully realize its mandate under the Geneva Conventions, the Statutes of the International Red Cross and Red Crescent Movement and this Act, the Philippine Red Cross shall: aESIDH xxx xxx xxx (c) Be exempt from payment of all direct and indirect taxes, all provisions of law to the contrary notwithstanding, including value-added tax (VAT),fees and other charges of all kinds on all income from its operations, including the use, lease or sale of its real property, and provision of services. The Philippine Red Cross shall also be exempt from direct and indirect taxes, including VAT, duties, fees and other charges on importations and purchases for its exclusive use. Likewise, all donations, legacies and gifts made to the Philippine Red Cross to support its purposes and objectives shall be exempt from the donor's tax and shall be deductible from the gross income of the donor for income tax purposes or from the computation of the donor-decedent's net estate as a transfer for public use for estate tax purposes. Finally, the Philippine Red Cross shall be exempt from the payment of real property taxes on all real properties owned by it; and ..." EAIcCS Based on the foregoing, the PNRC is exempt only from direct and indirect taxes on its income from operations. Considering that interest income earned from PNRC's currency bank deposits and yield or any other monetary benefit from deposit substitutes and from investments in money market placements, trust funds and/or similar or like arrangements/investments is not part of income from operations, PNRC is neither exempt from income tax nor the 20% and 7.5% final withholding tax under Section 27 (D) (1) of the Tax Code of 1997, as amended. BIR Ruling No. 014-99 dated February 1, 1999 which held that: "thus, the tax exemption privileges of PNRC has not been withdrawn by Executive Order No. 93 effective March 10, 1987 because the withdrawal of all tax and duty incentives granted to private entities referred to private entities which are engaged in trade or business or an economic activity. It did not therefore apply to PNRC which is a non-profit and charitable organization." has been invoked in subsequent BIR rulings holding that "interest income derived by PNRC from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements are exempt from the 20% final tax imposed under Section 27 (D) (1) of the Tax Code of 1997." HCITcA It is to be emphasized that such precedent rulings were issued pursuant to P.D. No. 1264, the prevailing law at that time, and therefore, cannot apply in the present request in view of the effectivity of R.A. No. 10072. Based on the foregoing, this Office regrets to deny the request for tax exemption for lack of legal basis. The interest income derived by PNRC from currency bank deposits and yield or any other monetary benefits from deposit substitute instruments and from trust funds and similar arrangements received by the organization, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax and the 7-1/2% final withholding tax for interest income derived by it from a depository bank under the expanded foreign currency deposit system, which are both imposed by Section 27 (D) (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. DCSETa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue