Business Leagues, Not Being Carried on for Profit, Exempt from Income Tax

July 10, 1981 BIR RULING NO. 107-81 27-f 000-00 107-81 Messrs. Teves, Campos, Hernandes and Lim Law Offices 5th Floor Magsaysay Building T.M. Kalaw, Ermita, Metro Manila Attention: Atty . Fernando C . Campos Gentlemen : This refers to your letter dated April 26, 1979 requesting in behalf of your client, the American Bureau of Shipping, Inc., (ABS), exemption from payment of income tax and the filing of income tax return under Section 27(f) of the Tax Code. Investigation conducted by this Office disclosed that your client, the American Bureau of Shipping, Inc., hereinafter referred to as ABS, is a non-stock, non-profit corporation duly organized in accordance with the laws of the State of New York, U.S.A., and with branch office and business address at Rms. 304-305, PPL Building, Ermita, Manila; that the principal purpose of ABS is the protection of life and property at sea by establishing safety standard for the construction and maintenance of ocean-going vessels and testing materials to assure compliance with said standard; that to attain said purpose ABS reviews plans and specifications in connection with ship construction, classification of vessels, testing of materials used in the construction, maintenance and repair of vessels; inspection of vessels to assure their sea worthiness; that in said undertakings ABS derives fees which constitute its sources of income; and that its income is credited to its working fund and no part of its net income inures to the benefit of any private individual or member. In view of the foregoing, this Office is of the opinion and so holds that your client, the American Bureau of Shipping is considered as a business league as contemplated under Section 27(f) of the Tax Code because it is an association of persons having some common business interest which limits its activities to work for such common interest, and does not engage in regular business of a kind ordinarily carried on for profit. (Section 31, Revenue Regulations No. 2). Moreover, the rendering of services by ABS does not affect its tax-free status since the same is incidental to its primary exempt purpose. (American Plywood Association v. United States, 267 F, Supp. 830; Revenue Ruling No. 70-187, 1970-1 C.B. 131). Accordingly, it is exempt from the payment of income tax in respect of income received by it as such organization, and therefore need not file an income tax return concerning such income. However, pursuant to Section 27 of the Tax Code, as amended by P.D. No. 1457 which took effect on August 5, 1978, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its property, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. (Revenue Memorandum Circular No. 80-78 dated August 15, 1978). Moreover, it is required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in its By-Laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. In this connection, since ABS is exempt from income tax as a business league because it is not carried on for profit, the income covered by said tax exemption is also exempt from business taxes. (BIR Ruling No. 188-00-000-00-29-80) It is requested that a copy of this letter be attached to the annual information return to be filed by your client. Very truly yours, RUBEN B. ANCHETA Acting Commissioner