BIR Ruling No. 161-13

April 29, 2013 BIR RULING NO. 161-13 Section 30 (E) 1997 NIRC, as amended; BIR Ruling No. 174-11; and BIR Ruling No. 165-11 Discalced Carmelite Nuns of Gumaca, Quezon (Carmel of Our Lady), Inc. Brgy. Villa Padua, Gumaca, Quezon Attention: Sr. Catherine Angelique Prioress and President Gentlemen : This refers to your letter dated June 19, 2009, as indorsed by the Regional Director of Revenue Region No. 9, San Pablo City, requesting for the issuance of a certificate of tax exemption enjoyed by non-stock, non-profit religious organizations under Section 30 of the Tax Code of 1997, as amended. ISaTCD Documents submitted show that Discalced Carmelite Nuns of Gumaca, Quezon (Carmel of Our Lady), Inc. with Tax Identification No. 005-615-878-000 is an entity registered with the Securities and Exchange Commission (SEC) under Company Reg. No. A200112998 dated September 19, 2001. The purpose for which it was incorporated is for the administration of its temporalities and to organize and maintain a society of ladies approved by the Roman Catholic Church authorities which will devote themselves to religious exercise and will prepare articles for Catholic Worship, such as making church regalia, and such other acts as may be necessary in the accomplishment of its purpose. In support of your request, Discalced Carmelite Nuns of Gumaca, Quezon, Inc. has completely submitted on December 7, 2012 the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the Certificate of Registration with the SEC; 3) Certified true copy of the 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 of 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 of the congregation or to the government. DSEIcT 4) Certified true copy of the By-Laws; 5) Certified true copies of the Annual Income Tax Returns and Financial Statements for the last three (3) years of operation; 6) BIR Certificate of Registration; and 7) Other pertinent documents. In reply, please be informed as follows: Income Tax Section 30 (E) of the 1997 Tax Code, 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 (E) Nonstock corporation or association 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; . . ." Based on the above-quoted provision, a non-stock corporation or association 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 is exempt from income taxation. (BIR Ruling No. 158-2011 dated May 19, 2011) It has been established that Discalced Carmelite Nuns of Gumaca, Quezon, Inc. is a religious corporation contemplated under Section 30 (E) of the Tax Code of 1997, as amended. Accordingly, it is exempt from the payment of tax on income received by it as such organization provided that 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. However, it is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 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 benefit 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. (BIR Ruling No. 157-2011 dated May 19, 2011) 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. 138-2011 dated April 29, 2011) It is requested that a copy of this letter of exemption be attached to the aforementioned Annual Information Return. It should be understood that Discalced Carmelite Nuns of Gumaca, Quezon, Inc. shall be constituted as withholding agent for the government if it acts as an employer and its employees receive 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 withholding tax pursuant to Section 57 of the Tax Code of 1997, also as implemented by Revenue Regulations No. 2-98, as amended. (BIR Ruling No. 075-2011 dated March 14, 2011) 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. Finally, 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] . Value-Added Tax Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. ASICDH Accordingly, if Discalced Carmelite Nuns of Gumaca, Quezon, Inc. is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall be liable for VAT. (BIR Ruling No. 158-2011 dated May 19, 2011) Notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code. (BIR Ruling No. 157-2011 dated May 19, 2011) It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. Revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. Donor's Tax In as much as Discalced Carmelite Nuns of Gumaca, Quezon, Inc. is a religious organization, donations to it are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. (BIR Ruling No. 024-2011 dated January 28, 2011) Deductibility of Donation Section 34 (H) (1) of the Tax Code of 1997, as amended, provides that for contributions or gifts actually paid or made within the taxable year to, or for the use of corporations or associations organized and operated exclusively, among others, for religious purposes, their donors shall be entitled to the limited deductions in an amount not in excess of 10% in the case of an individual and 5% in the case of a corporation of the taxpayer's taxable income derived from trade, business or profession as computed without this benefit. 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. EIDaAH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue