Pangasinan State University Federation

June 28, 2018 BIR RULING NO. 1042-18 Section 30 (C) of the NIRC of 1997, as amended; RMO No. 20-2013; RMC No. 051-14; BIR Ruling No. 466-2014 Pangasinan State University Federation of Non-Teaching and Teaching Personnel, Inc. (PSU-FENTEP, Inc.) PSU Main Bldg., Alvear St., East Poblacion Lingayen, Pangasinan 2401 Attention: Presley V. De Vera President, PSU-FENTEP, Inc. Gentlemen : This refers to your letter dated July 11, 2016 applying in behalf of PANGASINAN STATE UNIVERSITY FEDERATION OF NON-TEACHING AND TEACHING PERSONNEL, INC. (PSU-FENTEP, INC.) for tax exemption certificate being enjoyed by non-stock, non-profit corporation or association under Section 30 (C) of the National Internal Revenue Code (NIRC) of 1997, as amended, which was forwarded to this Office by Revenue Region No. 1, Calasiao, Pangasinan, through 2nd Indorsement dated April 26, 2017. It is represented that PSU-FENTEP, INC. with BIR Taxpayer's Identification No. (TIN) 253-305-294-000 and Certificate of Registration No. OCN 4RC0000323834 dated July 23, 2007, is a non-stock, non-profit association duly organized and existing under the laws of the Republic of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. BNO94-000412; and that the purposes 1 for which the association was incorporated are: a) formulate and implement viable benefit programs such as mutual aid system, financial assistance, hospitalization and the like; and b) advance the cause of education and uphold the mission of the university; c) enhance the professional, economic, social and cultural growth of each member; d) foster cooperation and solidarity among members; e) establish linkage with national/international associations and other bodies concerned for personnel's welfare. In reply, please be informed that Section 30 of the National Internal Revenue Code of 1997, as amended, enumerates the non-stock and/or non-profit corporations/associations/organizations that are exempt from income tax in respect to income received by them as such. Section 30 (C) of the National Internal Revenue Code of 1997, as amended, provides, viz. : CAIHTE "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 (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 nonstock 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 nonstock corporation or their dependents; xxx xxx xxx" "Non-stock" means "no part of its income is distributable as dividends to its members, trustees, or officers" and that any profit "obtained as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized." 2 "Non-profit" means that "no net income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institution's purposes and all its activities conducted not for profit." 3 Revenue Memorandum Circular (RMC) No. 51-2014 has clarified that in order for an entity to qualify as a non-stock and/or non-profit corporation/association/organization exempt from income tax under Section 30 of the National Internal Revenue Code, as amended, its earnings or assets shall not inure to the benefit of any of its trustees, organizers, officers, members or any specific person. The following are considered "inurements" of such nature: 1. The payment of compensation, salaries, or honorarium to its trustees or organizers; x x x . In the submitted documents of PSU-FENTEP, INC. , it was disclosed that the Board of Directors are entitled to Honoraria. The Certification by PSU-FENTEP, INC. 's Treasurer Cristina U. Manansala, DMD, dated June 09, 2016, states that: "I also certify that the honoraria of the Board of Directors for the fiscal year 2014-2015 is one hundred eighty six thousand pesos (P186, 000.00)" The giving of honoraria to the members of the Board of Directors is considered a distribution of the equity (including the net income) of PSU-FENTEP, INC. This is a form of private inurement which the law prohibits in the organization and operation of a non-stock, non-profit corporation. This act violates the requirement that no part of the net income or assets of the corporation shall inure to the benefit of any individual or specific person. Thus, PSU-FENTEP, INC. cannot be qualified as a non-stock, non-profit corporation under Section 30 (C) of the National Internal Revenue Code of 1997, as amended. DETACa Please bear in mind that, "being a non-stock and/or non-profit corporation does not, by this reason alone, completely exempt an institution from tax." 4 Thus, "statutes granting tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. The burden of proof rests upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed." 5 (BIR Ruling No. 466-2014 dated November 19, 2014) In view of the foregoing, the request of PSU-FENTEP, INC. to be exempted from income tax on its income as a Section 30 (C) corporation is hereby denied as it failed to prove that it is a non-profit corporation. Therefore, PSU-FENTEP, INC. shall be treated as an ordinary corporation subject to thirty percent (30%) income tax rate pursuant to Section 27 (A) and other internal revenue taxes imposed by the National Internal Revenue Code of 1997, as amended. Please be guided accordingly. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. First, Amended Articles of Incorporation. 2. Section 87, Corporation Code. 3. CIR vs. St. Luke's Medical Center, Inc. , G.R. Nos. 195909 and 195960 dated 26 September 2012. 4. CIR vs. St. Luke's Medical Center, Inc. [G.R. No. 195909 & G.R. No. 195960, 26 September 2012]. 5. Quezon City and The City Treasurer of Quezon City vs. ABS-CBN Broadcasting Corporation [G.R. No. 166408, 6 October 2008].