BIR Ruling No. 117-10

November 4, 2010 BIR RULING NO. 117-10 Tax Code of 1997, as amended, Section 30 (J), Section 27 (D) (1) in relation to Section 57 (A); Section 79 (A), Section 105; VAT Ruling No. 119-90; BIR Ruling [NSNP-(S30J-003)744-09] Hobo Integrated Farmers Association, Inc. Zone 1, Hobo, Minalabac, Camarines Sur Attention: Mr. Alex L. Nacor President Gentlemen : This refers to your letter dated May 15, 2010 wherein you requested for the issuance of a Tax Exemption Certificate on the exemption enjoyed by non-stock, non-profit corporation pursuant to Section 30 (J) of the National Internal Revenue Code of 1997 (NIRC). HSIDTE It is represented that HOBO INTEGRATED FARMERS ASSOCIATION, INC. is a non-stock, non-profit corporation with Taxpayer Identification No. 266-415-447-000 duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission under SEC Registration No. CN200831038; and that among the purposes for which the Association is organized are: 1. To conduct micro-finance operation pursuant to R.A. 8425, the Special Reform and Poverty Alleviation Act; 2. To help provide goods and services and other requirements of the members; 3. To undertake agricultural and/or industrial production purposes; 4. To encourage thrift and savings mobilization among the members for capital formation. In reply, pleased be informed that this Office cannot as yet issue the requested certificate of tax exemption because you have to prove by actual operation for at least three (3) years that you are really an organization/association exempt from income tax under Section 30 of the Tax Code of 1997, as amended. You should file the necessary annual information return on or before the 15th day of the fourth month of the preceding accounting period following the start of your operation as an exempt organization as required under Section 24 of Revenue Regulations (Rev. Regs.) No. 2. Based on such information return, we shall conduct the necessary investigation on the activities undertaken during the period. The letter of exemption shall thereafter be issued depending upon the result of our investigation. However, you are subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997, as amended, 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. Likewise, interest income from currency bank deposits and yield or any other monetary benefits 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 depositary 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. Moreover, it is required to file on or before the 15th month 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 expense 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 (BIR Ruling [NSNP-(S30J-003)744-09] dated December 4, 2009). It should be understood that the said exempt non-government organization shall be constituted as withholding agent of the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax provided for in Section 57 (B) of the Tax Code of 1997, also as implemented by Rev. Regs. No. 2-98, as amended. cSEDTC Finally, your books of accounts and other pertinent records shall be subject to examination by Bureau of Internal Revenue for the purpose of ascertaining whether you have complied with the conditions under which you may be granted tax exemption and/or have paid your tax liability, if any. For purposes of securing a permanent exemption after the three (3)-year period, you are required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 1. SEC Registration; 2. Articles of Incorporation which must include the following provisions: a. That the corporation is non-stock, non-profit; b. That the primary purpose for which it was created is one of those enumerated under Section 30 of the Tax Code of 1997; c. That no part of the net income shall inure to the benefit of any of its members; d. That the trustees do not receive any compensation; and e. In case of dissolution, assets of the corporation shall be transferred to similar institution or to the government; 3. By-laws; 4. Annual Information Returns for the past three (3) years; and 5. Financial Statement (balance sheet) for the past three (3) years. 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. cSIADa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue