Tax Exemption Granted to ASI Inc.

July 4, 1990 BIR RULING NO. 130-90 24 324-88 130-90 Gentlemen : This refers to your letter dated April 5, 1990 requesting tax exemption of your client, the Asian Social Institute (ASI) Inc. on the following: 1. 10% tax on its income as a private educational institution prescribed under Section 24 (b) of the Tax Code; casia 2. 20% final tax on its interest income on bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; 3. Capital gains tax and/or stock transaction tax imposed under Section 24 (e) (2) of the NIRC on capital gains realized or presumed to have been realized from the sale, exchange or disposition of shares of stock in a domestic corporation; 4. Customs duties and value-added tax on its importation of books, films, slides and other educational materials and equipment; 5. Donor's tax and other applicable taxes and/or duties on all grants, endowments, donations, or contributions made in its favor; and all other income or revenues of ASI which are used actually, directly, and exclusively for educational purposes. It is represented that the Asian Social Institute (ASI) Inc. is a non-stock, non-profit educational institution duly recognized as such by the Department of Education, Culture and Sports, operated exclusively for educational purposes, no part of the income of which inures to the benefit of any private stockholder or individual; and that its income from operations are actually, directly and exclusively used for educational purposes. In reply thereto, I have the honor to inform you that paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz: "All revenues and assets of non-stock, non-profit education institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. xxx xxx xxx The aforementioned Constitution was ratified at a plebiscite held for the purpose on February 2, 1987. Accordingly, the tax exemption privilege of non-stock, non-profit education institutions took effect as of said date. A non-stock, non-profit educational institution is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution. The exemption herein contemplated refers to internal revenue taxes and customs duties, in appropriate cases, imposed by the National Government and in certain cases to local taxes imposed by local government units under the Local Tax Code on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. They shall, however, be subject to internal revenue taxes on income from trade, business or other activity the conduct of which is not related to the exercise or performance by such educational institution of its educational purpose or function. (Section 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Such being the case, the Asian Social Institute (ASI) Inc. being a non-stock, non-profit educational institution is exempt from the 10% tax on its income as an educational institution and customs duties and value-added tax on its importation of books, films, slides and other educational materials and equipment to be accurately and exclusively used for educational purposes. However, while your client's interest income from Philippine currency bank deposits is exempt from the 20% final withholding tax, earnings or yield realized from its passive investment arising from deposit substitute instruments, e.g. money market placements, treasury bills, etc., not having been derived from an activity the conduct of which is not related to the performance by such educational institution of is educational purpose or function are subject to the 20% final tax. In the case of investments in shares of stock, the conduct of said activity is not also related to the performance of its purpose as an educational institution; hence, the gains derived from the sale, exchange or disposition thereof is subject to the capital gains tax imposed under Section 24(e)(2)(A) of the Tax Code. Donations, grants, endowments or other contributions made in its favor are exempt from donor's tax provided that not more than thirty per centum of said gifts shall be used by such donee for administration purposes pursuant to Section 94 (a) (3) of the Tax Code, as amended. It is understood, however, that Asian Social Institute (ASI) Inc. shall be subject to internal revenue taxes on its income from trade, business and other activity the conduct of which is not related to the exercise or performance by such educational institution of its educational purpose or function. Finally, as a tax-exempt educational institution, your client shall file an annual information return on or before the 15th day of the 4th month following the end of your client's taxable year. (Section 4, Finance Department Order No. 137-87). cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner