BIR Ruling No. 126-14

May 15, 2014 BIR RULING NO. 126-14 Sec. 27 (B) of the Tax Code of 1997, as amended; RMC No. 14-2001 Fide Christian Academy, Inc. Rizal Street, Iraya, Guinobatan, Albay 4503 Attention: Mr. Grando P. Bruzo Chairman, BOD Gentlemen : This refers to your letter, with attachments, dated August 15, 2012, requesting in behalf of FIDE CHRISTIAN ACADEMY, INC. for the issuance of a Certificate of Tax Exemption enjoyed by non-stock, non-profit educational institutions pursuant to Section 30 (H) of the Tax Code of 1997, as amended. It is represented that FIDE CHRISTIAN ACADEMY, INC. with Taxpayer's Identification No. (TIN) 418-136-720-000 is a non-stock, non-profit educational institution duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CN201130716 dated July 8, 2011; that it is recognized by the government and permitted by the Department of Education (DepEd) in accordance with Government Recognition Nos. 023, s. 2013 for the Pre-Elementary Course and 042, s. 2013 for the Elementary Course. In reply, please be informed that notwithstanding your submission of documents on May 7, 2013 and July 15, 2013, respectively, in response to the NOTICE TO SUBMIT DOCUMENTS sent by this Office dated March 20, 2013, you have not completely complied with all the required documents enumerated therein contrary to your allegations in your complaint with the Civil Service Commission (CSC). It is significant to note that despite our clear requirement pursuant to Revenue Memorandum Circular (RMC) No. 14-2001, to wit: DACcIH Articles of Incorporation which must include the following provisions: i) that the corporation is non-stock, non-profit; ii) that the primary purpose for which it was created is one of those enumerated under Sec. 30 of the Tax Code of 1997; iii) that no part of the net income shall inure to the benefit of any of its members; iv) that the trustees do not receive any compensation; and v) in case of dissolution, assets of the corporation shall be transferred to similar institution or to the government. the last two (2) provisions are not stated in the Articles of Incorporation submitted. Subsequent submissions show that the Articles of Incorporation of FIDE CHRISTIAN ACADEMY, INC. have not yet been amended with the SEC to include the required provisions despite due notice and considerable length of time have lapsed. Such being the case, your request for tax exemption of FIDE CHRISTIAN ACADEMY, INC. is denied for lack of factual basis. Tax exemption cannot be created by implication because exemptions from taxation are highly disfavored in law and one who claims exemption from tax must be able to justify his claim by clearest grant of organic or statute law. An exemption from the common burden cannot be permitted to exist on vague implication. 1 To be exempted from payment of taxes, it is the taxpayer's duty to justify the exemption "by words too plain to be mistaken and too categorical to be misinterpreted. Laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. 2 aITDAE Section 27 (B) of the Tax Code of 1997, as amended, provides, viz. : "Sec. 27. Rates of Income Tax on Domestic Corporations. xxx xxx xxx (B) Proprietary Educational Institutions . . . Propriety educational institutions . . . which are nonprofit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof: Provided, that if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions . . . from all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term 'unrelated trade business or other activity' means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution . . . of its primary purpose or function. A 'proprietary educational institution' is any private school maintained and administered by private individuals or groups with an issued permit to operate from the Department of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED) or the Technical Education and Skills Development Authority (TESDA), as the case may be in accordance with existing laws and regulations." Wherefore, FIDE CHRISTIAN ACADEMY, INC. is subject to the 10% income tax on its taxable income except those covered by Section 27 (D) of the Tax Code of 1997, as amended. However, if the gross income from unrelated trade, business or any activity exceeds 50% of the total gross income derived from all sources, then the tax prescribed in Section 27 (A) of the same Code shall be imposed as the entire taxable income. 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 Footnotes 1. Collector vs. Manila Jockey Club, Inc. , L-875, March 23, 1956; Petroleum Co. vs. Llanes , 49 Phil. 466. 2. Commissioner of Internal Revenue vs. Mitsubishi Metal Corporation , G.R. 80041, Jan. 22, 1990.