BIR Ruling No. 151-14

May 29, 2014 BIR RULING NO. 151-14 Serviamus Foundation, Inc. 4F Diocesan Centrum Lluch St. Iligan City Attention: Most Rev. Elenito Delos Reyes Galido Chairman of the Board/President Gentlemen : This refers to your letter dated March 12, 2014 requesting for confirmation of Serviamus Foundation, Inc. as an exempt organization under Section 30 (C), (E) and (G) of the National Internal Revenue Code of 1997, as amended (NIRC). It is represented that Serviamus Foundation, Inc. is a nonstock nonprofit association organized, among others, to conduct microfinance operations pursuant to Republic Act No. 8425, otherwise known as the Social Reform and Poverty Alleviation Act. It primarily earns income from interest on loans. Section 30 (C) exempts from income tax a beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal organization operating under the lodge system, or a mutual aid association or a nonstock corporation organized by employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such society, order, or association, or nonstock corporation or their dependents. Section 30 (E) exempts nonstock corporations or associations organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, 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. aASDTE Section 30 (G) provides for exemption of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare. An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. An organization embraced within this section is one which is operated primarily for the purpose of bringing about civic betterments and social improvements. A common characteristic of the organizations or associations exempt under Section 30 (C), (E), and (G) is that they must not be organized and operated principally for profit. Moreover the last paragraph of Section 30 clearly states that the income of whatever kind and character of these organizations from any of their properties, 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. Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption must be favored. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. (BIR Ruling No. 310-2011 dated August 22, 2011) A perusal of the documents submitted by Serviamus Foundation, Inc. shows that it is primarily engaged in micro-finance. The bulk of its revenues come from interest income from loans. Such proceeds were used almost exclusively for its perpetuation. It appears that this activity is being carried on by Serviamus Foundation, Inc. in a manner similar to organizations operated for profit. Thus, it is organized and operated principally for profit. To qualify for exemption under Section 30 (C) the organization must provide for the payment of life, sick, accident, or other similar benefits to the members of the organization. The term other benefits includes only benefits that are similar to life, sick, or accident benefits. A benefit is similar to a life, sick, or accident benefit if it protects against a contingency that interrupts or impairs a member's earning power. An organization is not exempt if its principal activity is to grant loans to its members or the general public. ASTIED Organizations that are charitable or promote social welfare should primarily promote the common good and general welfare of the people of the community as a whole. An organization is not operated exclusively for the charitable or social welfare purposes if its primary activity is carrying on a business with the general public. An organization that is engaged in micro-finance cannot be presumed to be a charitable or social welfare organization under Section 30 (E) or (G) of the NIRC because micro-finance is a business activity conducted by organizations operated for profit such as banks. Furthermore, there is no evidence to show that it offers its services only to the disadvantaged and that the fees and interest it charges are nominal to support its claim that it is a charitable or social welfare organization. IN VIEW OF THE FOREGOING, this Office is of the opinion that Serviamus Foundation, Inc. does not qualify for exemption under Section 30 (G) of the NIRC. It is therefore liable for income taxes imposed under Title II of the NIRC. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue