BIR Ruling No. 152-11

May 17, 2011 BIR RULING NO. 152-11 Section 30 (E) of the Tax Code of 1997; BIR Ruling No. DA-457-99; BIR Ruling No. [NSNP-(S30E-050)335-08]; BIR Ruling No. S-30-027-2006 ICTSI Foundation, Inc. ICTSI Administration Bldg., South Access Rd. Manila International Container Terminal North Harbor, Manila Attention: Ms. Narlene A. Soriano Executive Director Gentlemen : This refers to your letter dated April 12, 2010 requesting for a confirmatory ruling on the exemption from income tax and value-added tax (VAT) enjoyed by non-stock, non-profit corporations under Section 30 of the Tax Code of 1997, as amended. TCAHES Documents submitted to this Office show that ICTSI Foundation, Inc. (IFI) with Tax Identification No. (TIN) 007-292-316-000, is a non-stock, non-profit association duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CN200906656 and with SEC Certificate of Incorporation dated May 12, 2009; and that the purposes for which it was incorporated are the following: 1. To support the search for, training, development, and competitiveness of athletes who can represent the Philippines in national, regional and international competitions; 2. To promote the development of sports by sponsoring, organizing or supporting various athletic activities; 3. To foster the advancement of education by providing scholarships in vocational, technical, livelihood and entrepreneurial courses; 4. To conduct seminars, workshops or livelihood projects in urban and rural communities; 5. To organize, staff and finance research projects which may be established in furtherance of the purposes and objectives of the corporation; 6. Generally, to do all such things, transact such activities exercise such power and authority as may be directly or indirectly necessary, suitable, or proper for the accomplishment of any of the purposes or the attainment of any or more of the objects enumerated or which shall appear at anytime conducive to, or expedient for the corporation and to these ends: a. To receive and/or give grants, legacies, donations, contributions, endowment, and financial aids or loans from any source whatsoever, and to make use of them in operating enterprises, activities and business as may be necessary to carry out the objectives of the corporation; and CaTSEA b. To invest or exchange any portion of its donations, revenues, earning, or capital in the purchase or acquisition of shares of stocks or bonds of other corporations, and in any real estate and other kinds of investments, and to these ends, to deal in any manner whatsoever with any of its holdings, properties, investments, and shares of stocks as the corporation may devise or need from time to time to carry out the purposes and objectives of the corporation. In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because IFI has to prove by actual operation for at least three (3) years that it is really a corporation/association exempt from income tax under Section 30 (E) of the Tax Code of 1997, as amended. (BIR Ruling No. [NSNP-(S30E-050)335-2008] dated December 5, 2008) IFI can file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month following the end of its taxable year as required under Section 24 of Revenue Regulations No. 2-40 dated February 10, 1940 (Collector vs. Sinco, G.R. L-9276 dated October 23, 1956) . 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, IFI is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code 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 depository 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 day 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 expenses 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 No. DA-457-99 dated August 11, 1999) It should be understood that IFI shall be constituted as withholding agent of the government if it acts as an employer and its employee receives compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations 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 Revenue Regulations No. 2-98, as amended. (BIR Ruling No. S-30-027-2006, dated June 23, 2006) DaTICc Under Section 235 of the Tax Code of 1997, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which it has been granted tax exemptions or tax incentives, and its tax liabilities, if any. It is subject to the payment of the annual registration fee of PhP500.00 as prescribed in Section 236 (B) of the Tax Code of 1997, as amended. It is also required under Section 6 (C) in relation to Section 237 of the same Code to issue duly registered receipts or sales or commercial invoices for each sale or transfer of merchandise or for services rendered which are not directly related to the activities for which the Association is registered [Revenue Memorandum Circular (RMC) No. 76-2003]. Finally, for purposes of securing a permanent exemption after the three (3)-year period, IFI is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 1) Certified true copy of the Certificate of Registration with the SEC; 2) Certified true copy of the By-Laws, and Articles of Incorporation which includes 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 Sec. 30 of the Tax Code of 1997, as amended; c. That no part of the net income shall inure to the benefit of any 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) Certified true copy of the Annual Information Returns and Financial Statements for the last three (3) years of operation; and 4) BIR Certificate of Registration. CADacT This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained 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