BIR Ruling No. 093-15

April 13, 2015 BIR RULING NO. 093-15 Section 4 (3), Article XIV, 1987 Constitution; Sections 27 (D) (1), 30 (H); 101 (A) (3); 105; 109 (H) of the Tax Code, as amended; BIR Ruling No. 170-11; BIR Ruling No. 169-11; BIR Ruling No. 159-11 St. Scholastica's Academy of Marikina, Inc. 2 West Drive St., Marikina City Attention: SR. M. Celeste Licas, OSB Treasurer Gentlemen : This refers to your letter dated September 17, 2013 requesting on behalf of ST. SCHOLASTICA'S ACADEMY OF MARIKINA, INC. (ST. SCHOLASTICA'S ACADEMY OF MARIKINA, INC., for brevity) for tax exemption pursuant to Section 30 (H) of the Tax Code of the Philippines, as amended. acEHCD It is represented that ST. SCHOLASTICA'S ACADEMY OF MARIKINA, INC. with Taxpayer's Identification No. 000-647-976-000, 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. 18111; that its Kindergarten, Complete Elementary and Secondary Courses are recognized by the government and permitted under Certificates of Recognition Nos. K-139 s.1962 dated May 29, 1962, E-44 s.1964 dated June 8, 1964 and S-11 s.1967 dated April 28, 1967; and that the purpose for which it was incorporated are: to establish and maintain as complete and adequate a system of elementary, secondary and music education as possible, giving religious and academic, vocational and general instruction to help carry out faithfully the educational objectives in the Constitution of the Philippines. In support of its request, ST. SCHOLASTICA'S ACADEMY OF MARIKINA, INC. has completely submitted on December 16, 2013, the following documents: a. Original copy of application letter for issuance of Tax Exemption Ruling; b. Certified true copy of the Amended Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission; SDHTEC c. Certification on Amendments of the Articles of Incorporation and By-Laws; d. Certificate under oath by Treasurer that no compensation is paid to trustees, officers and other executive officers; e. Certified true copy of the Certificate of Registration with the BIR; f. DEPED certification of Good Standing; g. Certificate of Modus Operandi by the President; h. 2011-2013 Annual Income Tax Return and Audited Financial Statements; i. Certification of Utilization of Annual revenues and Assets by the Treasurer; and j. Certification of the RDO that ST. SCHOLASTICA'S ACADEMY OF MARIKINA, INC. is not subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or judicial appeal. 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: AScHCD xxx xxx xxx (H) A non-stock and non-profit educational institution; xxx xxx xxx" 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. 170-11 dated May 25, 2011) Private non-profit educational institutions whose gross income from unrelated trade, business or other activity does not exceed fifty percent (50%) of their total gross income derived from all sources, shall pay a tax of ten percent (10%) on their taxable income, except those covered by Section 27 (D) of the Tax Code. However, if their gross income from unrelated trade, business or other activity exceeds fifty (50%) of the total gross income derived from all sources then the entire taxable income shall be subject to the regular corporate income tax rate prescribed under Section 27 (A) of the Tax Code. (Section 27 [B] of the Tax Code of 1997, as amended; Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc., G.R. Nos. 195909 and 195960 dated 26 September 2012) Unrelated trade, business or other activity means any trade, business or activity, the conduct of which is not substantially related to the exercise or performance by such educational institution of its primary purpose or function. (Section 27 [B], Tax Code of 1997) AcICHD From the foregoing, and since ST. SCHOLASTICA'S ACADEMY OF MARIKINA, 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. 170-11 dated May 25, 2011) However, ST. SCHOLASTICA'S ACADEMY OF MARIKINA, 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, ST. SCHOLASTICA'S ACADEMY OF MARIKINA, 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 (1) (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) 1 which tax payment may legitimately be passed on to buyers of such goods and services. (BIR Ruling No. 170-11 dated May 25, 2011) Hence, as long as ST. SCHOLASTICA'S ACADEMY OF MARIKINA, 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. 169-11 dated May 25, 2011) TAIaHE 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. 170-11 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: (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 ST. SCHOLASTICA'S ACADEMY OF MARIKINA, INC. as ancillary activities and the same are located within its premises. cDHAES In addition, gifts, donations, and other contributions received by ST. SCHOLASTICA'S ACADEMY OF MARIKINA, 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 ST. SCHOLASTICA'S ACADEMY OF MARIKINA, 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. ST. SCHOLASTICA'S ACADEMY OF MARIKINA, INC. is advised to contact the Secretariat, Philippine Council for NGO Certification (PCNC), 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 ST. SCHOLASTICA'S ACADEMY OF MARIKINA, 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, ST. SCHOLASTICA'S ACADEMY OF MARIKINA, 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) ASEcHI 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 ST. SCHOLASTICA'S ACADEMY OF MARIKINA, INC. to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. (BIR Ruling No. 159-11 dated May 19, 2011) Please note that this tax exemption ruling shall be valid for a period of three (3) years from the date of issue, unless sooner revoked or cancelled. Tax Exemption Rulings may be renewed upon filing of a subsequent Application for Tax Exemption/Revalidation, under same requirements and procedures provided in Revenue Memorandum Order No. 20-2013. Failure to renew the Tax Exemption Ruling shall be deemed a revocation thereof upon the expiration of the three-year period. The new Tax Exemption Ruling shall be valid for another period of three years unless sooner revoked or cancelled. 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Starting January 1, 2012, Revenue Regulations No. 016-11, dated October 27, 2011.