Pres. Roxas Hervilla Irrigators Association, Inc.

July 12, 2018 BIR RULING NO. 1064-18 Section 30 (J) of the National Internal Revenue Code of 1997, as amended; RMO No. 20-2013; RMC No. 051-14; BIR Ruling No. 466-2014 Pres. Roxas Hervilla Irrigators Association, Inc. Poblacion President Roxas, Cotabato 9405 Attention: Silvano T. Fortin President Gentlemen : This refers to your letter dated October 29, 2013, requesting in behalf of PRES. ROXAS HERVILLA IRRIGATORS ASSOCIATION, INC. for a Tax Exemption Certificate pursuant to Section 30 (J) of the National Internal Revenue Code of 1997, as amended. TIADCc It is represented that PRES. ROXAS HERVILLA IRRIGATORS ASSOCIATION, INC. with BIR Taxpayer's Identification No. (TIN) 439-033-446-000 and Certificate of Registration No. OCN 2RC0000639053 dated July 24, 2013, is a non-stock, non-profit corporation 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. CN201329790 and with SEC Certificate of Incorporation dated May 29, 2013; and that the purposes for which the association was incorporated are: 1. To initially serve as an organization/foundation in strengthening agrarian reform and cooperative development programs of the government; 2. To operate and maintain the irrigation facilities and appurtenant structures by regulating and distributing the water supply equitable thru proper irrigation management in accordance with existing laws of irrigation; cSEDTC 3. To serve as channel for the government and private agencies in providing technical financial assistance and other essential services concerning irrigated agricultural development and water management implementation at farm level; 4. To act as catalyzer for payment of loans, land amortization, irrigation service fees, or for outright sale of farm produce to pre-determined buyer, as well as in the distribution of farm supplies intended for farmers and to facilitate similar farm transaction between farmers and the concerned parties; 5. To encourage participation of the farmer-irrigators in promoting a wholesome community life; 6. To serve as a vehicle for the proper integration of resources, skills and talent of irrigation water-users for maximum productivity and economic advantage; 7. To promote continuous group action/cooperative work thereby enhancing the execution of farm activities to benefit the water-users; 8. To implement planned thrift and savings program among its members; 9. To promote the conduct of continuing education and training programs for members/officers as part of the development process of cooperative; and 10. To cooperate or federate with similar associations to spearhead the growth and development process of cooperation. AIDSTE 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 (J) of the National Internal Revenue Code of 1997, 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: xxx xxx xxx (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; x x x" SDAaTC "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." 1 "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." 2 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: AaCTcI " 1. The payment of compensation, salaries, or honorarium to its trustees or organizers; xxx xxx xxx" In the submitted documents of PRES. ROXAS HERVILLA IRRIGATORS ASSOCIATION, INC. , it was disclosed that the Board of Trustees are serving the association with honorarium. 3 The giving of honorarium to the members of the Board of Trustees is considered a distribution of the equity (including the net income) of PRES. ROXAS HERVILLA IRRIGATORS ASSOCIATION, 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, PRES. ROXAS HERVILLA IRRIGATORS ASSOCIATION, INC. cannot be qualified as a non-stock, non-profit corporation or association under Section 30 (J) of the National Internal Revenue Code of 1997, as amended. 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 PRES. ROXAS HERVILLA IRRIGATORS ASSOCIATION, INC. to be exempted from income tax on its income as a Section 30 (J) corporation is hereby denied as it failed to prove that it is a non-profit corporation. Therefore, PRES. ROXAS HERVILLA IRRIGATORS ASSOCIATION, 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. acEHCD Please be guided accordingly. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. Section 87, Corporation Code. 2. CIR vs. St. Luke's Medical Center, Inc. , G.R. Nos. 195909 and 195960 dated 26 September 2012. 3. Section 6, Article VII, By-laws. The attached cash flow in the Certification under Oath by Alicia T. Mahimpit, the IA Treasurer. 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].