BIR Ruling No. 138-14

May 20, 2014 BIR RULING NO. 138-14 Camarines Sur Elementary and Secondary Teachers and Employees Association (CASESTEA), Inc. Zone 1, Peafrancia Avenue Naga City 4400 Attention: Antonio A. Raluta Operations Manager Gentlemen : This refers to your letter dated 23 August 2012 for the issuance of a certificate of tax exemption enjoyed by a non-stock, non-profit organization under Section 30 (G) of the Tax Code of 1997, as amended. It is represented that CAMARINES SUR ELEMENTARY AND SECONDARY TEACHERS AND EMPLOYEES ASSOCIATION (CASESTEA), INC. with Tax Identification No. 006-832-664-000, is a non-stock, non-profit corporation duly organized under the laws of the Philippines and that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CN200826184 dated March 25, 2008. In reply, please be informed that Section 30 (G) of the Tax Code of 1997, as amended, provides: Section 30 (G) of the Tax Code of 1997, 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 (G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; . . ." cASEDC The Supreme Court, in the case of Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc. [G.R. No. 195909 & G.R. No. 195960, September 26, 2012] , declared: "Section 30 (E) of the NIRC provides that a charitable institution must be: 1) A non-stock corporation or association; 2) Organized exclusively for charitable purposes; 3) Operated exclusively for charitable purposes; and 4) No part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person. Thus, both the organization and operations of the charitable institution must be devoted "exclusively" for charitable purposes. The organization of the institution refers to its corporate form, as shown by its articles of incorporation, by-laws and other constitutive documents. Section 30 (E) of the NIRC specifically requires that the corporation or association be non-stock, which is defined by the Corporation Code as "one where no part of its income is distributable as dividends to its members, trustees, or officers" and that any profit "obtain[ed] as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized." However, under Lung Center, any profit by a charitable institution must not only be plowed back "whenever necessary or proper", but must be "devoted or used altogether to the charitable object which it is intended to achieve." The operations of the charitable institution generally refer to its regular activities. Section 30 (E) of the NIRC requires that these operations be exclusive to charity. There is also a specific requirement that "no part of [the] net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person." xxx xxx xxx "However, the last paragraph of Section 30 of the NIRC qualifies the words "organized operated exclusively" by providing that: Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their activities, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code. In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts "any" activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt. This paragraph qualifies the requirements in Section 30 (E) that the "[n]on-stock corporation or association [must be] organized and operated exclusively for . . . charitable . . . purposes . . ." TEDaAc In the above-cited case, the Supreme Court interpreted the term "exclusive citing the case of Lung Center of the Philippines v. Quezon City (G.R. No. 144104, June 29, 2004), which held that: "[e]xclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." . . . The words "dominant use" or "principal use" cannot be submitted for the words "used exclusively" without doing violence to the Constitution and the law. Solely is synonymous with exclusively." Applying the foregoing, the purpose of CAMARINES SUR ELEMENTARY AND SECONDARY TEACHERS AND EMPLOYEES ASSOCIATION (CASESTEA), INC. under its Amended Articles of Incorporation "to conduct micro-finance operation and loan programs pursuant to Republic Act No. 8425, the Social Reform and Poverty Allevation Act" show that is not a non-stock, non-profit corporation qualified as a social welfare institution exempted under Section 30 (G) of the Tax Code of 1997, as amended. Notwithstanding that the Amended Articles of Incorporation states that the CAMARINES SUR ELEMENTARY AND SECONDARY TEACHERS AND EMPLOYEES ASSOCIATION (CASESTEA), INC. is a non-stock, non-profit corporation, it has to prove that it is really a corporation organized and operated as contemplated under Section 30 of the Tax Code of 1997, as amended, by actual exclusive operation for at least three (3) years. Being a non-stock and non-profit corporation does not, by this reason alone, completely exempt an institution from tax. (Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc. [G.R. No. 195909 & G.R. No. 195960, 26 September 2012]) Thus, statutes granting tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. The burden of proof rests upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed. (Quezon City and the City Treasurer of Quezon City vs. ABS-CBN Broadcasting Corporation [G.R. No. 166408, 6 October 2008]) cDIaAS In view of the foregoing, your request for the exemption of CAMARINES SUR ELEMENTARY AND SECONDARY TEACHERS AND EMPLOYEES ASSOCIATION (CASESTEA), INC. as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997, as amended, is hereby denied for lack of factual and legal basis. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue