BIR Ruling No. 113-15

April 17, 2015 BIR RULING NO. 113-15 Section 30 (F) of the Tax Code of 1997, as amended; BIR Ruling No. 375-13; BIR Ruling No. 469-12; BIR Ruling No. 365-11 Federation of Filipino-Chinese Chambers of Commerce and Industry, Inc . 6TH Floor, Federation Center, Muelle de Binondo St., Binondo, Manila 1006 Attention: Dr. Alfonso G. Siy President Gentlemen : This refers to your letter dated December 27, 2013, applying in behalf of FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. for a tax exemption certificate under Section 30 (F) of the Tax Code of 1997, as amended. It is represented that FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. with Taxpayer's Identification No. (TIN) 000-624-437-000, is a corporation duly organized under the laws of the Philippines, registered with the Securities and Exchange Commission (SEC) under Registration No. 8743 dated May 5, 1954; and that the purposes for which it was incorporated are the following, to wit: (a) To coordinate the activities of all Filipino-Chinese chambers of commerce, industry, trade, and business organizations in the Philippines; maintain harmonious relations between them; settle and arbitrate their disputes and differences; and promote cooperation among them in all matters of common concern and interests to them; (b) To cooperate with the Philippine Government in the implementation of its national policies; (c) To promote the integration of local Chinese into the mainstream of Philippine body politic; (d) To foster and encourage the development and growth of trades and industries in the Philippines; (e) To correct trade abuses, and create and maintain higher standard in business dealings among its members and between its members and other business or trade organization in the Philippines, irrespective of nationality or ownership; (f) To aid and protect, promote the welfare, and work for the prosperity and well-being of its members; (g) To compile, translate, study laws affecting its members and guide them properly in the observance thereof; (h) To cultivate, promote and enhance friendly relations between the Filipino and Chinese people in general and between Filipino and Chinese merchants in particular; (i) To conduct and maintain educational, charitable, and social welfare projects; (j) To implement a volunteer service program specifically to recruit, train, deploy and support volunteer service workers for development undertakings; (k) To acquire properties, real or personal; receive contribution, gifts, bequests, legacies and donations from members as well as non-members, here or abroad, who believe in its ideals and purposes; to engage the services of persons and firms; invest its funds, moneys and properties in such undertakings and activities as it may desire or need from time to time; and (l) To do and perform any and all acts and things reasonably necessary or proper for the accomplishment of any or all of the foregoing purposes or which shall at any time appear to be conducive to the advancement of the interests of the association or any of its members. In support of its request, FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. submitted the following required documents: 1. Original copy of application letter for issuance of Tax Exemption Ruling; aDSAEI 2. Certified true copy of the Certificate of Registration/Incorporation with the Securities and Exchange Commission (SEC); 3. Certified true copy of the amended Articles of Incorporation issued by the SEC which include the following: a. That the corporation is non-stock, non-profit; b. No part of the revenue which the Corporation may obtain as an incident of its operations will ever be distributed to its members, directors and officers; c. No director, officer and member of the Corporation shall receive any remuneration whatsoever for services rendered to the Corporation; d. In the event of dissolution of the Corporation, the principal assets of the Corporation, after payment of all debts and expenses, shall be transferred to a tax-exempt organization or to the Republic of the Philippines, as the Board of Directors may so determine, subject to the provisions of the Corporation Code of the Philippines. 3. n Certified true copy of the By-Laws; 4. Certification under Oath by its President as to: (i) all previous amendments/changes in the Articles of Incorporation and By-Laws, (ii) manner of activities, and (iii) the sources and disposition of income of the corporation; 5. Certified true copy of the Certificate of Registration with the BIR; 6. Certification under Oath by the Treasurer certifying that no amount of income, compensation, salaries or any emoluments has ever been paid by the corporation or association to its trustees, officers and other executive officers; 7. Certification issued by the Revenue District Officer, RDO No. 29, Tondo/San Nicolas, Manila, that the corporation has no pending investigation, on-going audit, pending tax assessment, claim for refund or issuance of tax credit certificate with this district as of December 20, 2013; 8. Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the last three (3) years; and 9. Original copy of a statement under Oath by the President of the corporation as to its modus operandi . In reply, please be informed as follows: Income Tax Section 30 (E) 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: xxx xxx xxx (F) Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual; ..." Under the above-quoted provision, a non-stock corporation or association organized as a business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inure to the benefit of any private stockholder or individual is exempt from income taxation. (BIR Ruling No. 375-13 dated October 10, 2013) Wherefore, FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. falls within the purview of an association contemplated under Section 30 (F) of the Tax Code of 1997, as amended. Accordingly, it is exempt from the payment of tax on income received by it as such organization. However, it is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. (BIR Ruling No. 375-13 dated October 10, 2013) Likewise, interest income from currency bank deposits and yield or any other monetary benefit from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax: Provided, however, that interest income derived by it from a depository bank under the expanded foreign currency deposit system shall be subject to 7 1/2% final withholding tax pursuant to Section 27 (D) (1) in relation to Section 57 (A), both of the Tax Code of 1997. (BIR Ruling No. 469-12 dated July 17, 2012) cTDECH It should be understood that FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. shall be constituted as withholding agent for the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the withholding tax pursuant to Section 57 of the Tax Code of 1997, also as implemented by Revenue Regulations No. 2-98, as amended. (BIR Ruling No. 469-12 dated July 17, 2012) Value-Added Tax 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. Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests),or government entity. Accordingly, if FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall be liable for VAT. (BIR Ruling No. 365-11 dated October 5, 2011) Notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 106 to 108 of the said Code. 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 the association 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. Accordingly, if FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT. (BIR Ruling No. 365-11 dated October 5, 2011) Likewise, revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. However, the above exemption from the 12% VAT does not extend to its purchase of goods or properties or services and importation of goods. Hence, notwithstanding that it is a non-stock, non-profit association, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code. (BIR Ruling No. 365-11 dated October 5, 2011) Donor's Tax Pursuant to Section 101 of the 1997 Tax Code, only the following gifts or donations are exempt from donor's tax, viz. : "(A) In the case of Gifts Made by a Resident (1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized, or adopted children to the extent of the first ten thousand pesos (P10,000); (2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and (3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution: Provided, however, that not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of this exemption, a 'non-profit educational and/or charitable corporation, institution, accredited, nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receives no compensation, and devoting all its income, whether student fees or gifts, donations, subsidies or other form of philanthropy, to the accomplishment and promotion of the purposes enumerated in the Articles of Incorporation." cEITCA Based on the foregoing, FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. does not qualify as a donee organization and as such, any gift or donation made thereto by the donor/s is not exempt from the donor's tax. Deductibility of Donation In the light of the above, donations made to FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. are not deductible from the gross income of the donor/s as provided for under Section 34 (H) of the 1997 Tax Code. Moreover, FEDERATION OF FILIPINO-CHINESE CHAMBERS OF COMMERCE AND INDUSTRY, INC. is required to file on or before the 15th day of the fourth month following the end of the accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the preceding period 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. Under Section 235 of the Tax Code of 1997, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which it has been granted tax exemptions or tax incentives, and its tax liabilities, if any. Finally, it is 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 the Association is registered [Revenue Memorandum Circular (RMC) No. 76-2003]. It is requested that a copy of this letter of exemption be attached to the aforementioned Annual Information Return. 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. The tax exemption ruling may be renewed upon filing of a subsequent application for Tax Exemption/Revalidation with the same requirements and procedures provided under Revenue Memorandum Order (RMO) No. 20-2013. Failure to renew the Tax Exemption Ruling shall be deemed a revocation thereof upon the expiration of the three (3)-year period. The new Tax Exemption Ruling shall be valid for another period of three (3) 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 n Note from the Publisher: Copied verbatim from the official copy. Duplication of No. 3.