BIR Ruling No. 166-11

May 25, 2011 BIR RULING NO. 166-11 Sections 27 (D) (1), 30 (H) 1997 Tax Code; BIR Ruling No. DA-013-02; BIR Ruling No. DA-313-05; BIR Ruling No. DA-588-07; BIR Ruling No. DA(FIT-010)285-2008 Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) Los Baos, Laguna Attention: Mr. Gil C. Saguiguit, Jr. Deputy Director Gentlemen : This refers to your letters dated September 3, 2009 and May 28, 2010 requesting this Office to issue in your favor a certificate of tax exemption from the payment of the 20% final tax on interest earnings derived from savings and time deposits, treasury bonds, treasury bills, and other bank notes. TIADCc Documents submitted disclosed that BIR Rulings Nos. DA(FIT-010)285-2008 dated October 10, 2008, DA 588-2007 dated November 9, 2007, DA 313-2005 dated July 6, 2005, DA-013-02 dated January 30, 2002, were issued exempting Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA) from payment of the 20% final tax on interest earnings derived from treasury bonds, treasury bills and other bank notes; that SEARCA, with Taxpayer's Identification No. 000-639-090-000 is a non-stock, non-profit educational institution located at Los Baos, Laguna; that it was established through an enabling instrument in accordance with the Charter of the Southeast Asian Ministers of Education Organization in order to provide high quality graduate education and training in agriculture in the region; and that Southeast Asian Ministers of Education Organization-Regional Center for Graduate Study and Research in Agriculture (SEAMEO SEARCA) is both an international and educational institution at the same time, hence qualified to be exempt from 20% final tax. In support of its request, SEARCA has completely submitted on May 28, 2010 the following documents: 1) Letter application for tax exemption; 2) BIR Certification of Registration; 3) Enabling Instrument of the Southeast Asian Regional Center for Graduate Study and Research in Agriculture; 4) Charter of the Southeast Asian Ministers of Education Organization; 5) Financial Statements for the taxable years 2007, 2008 and 2009; 6) Copy of the BIR Rulings Nos. DA(FIT-010)285-2008 dated October 10, 2008, DA588-2007 dated November 9, 2007, DA-313-2005 dated July 6, 2005, DA-013-02 dated January 30, 2002. In reply, please be informed that Paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz. : cAHDES "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties." Likewise, Section 30 (H) 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 (H) A non-stock and non-profit educational institution; ...." Under Finance Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, interest income from Philippine currency bank deposits and yields from deposit substitute instruments used actually, directly and exclusively in pursuance of its purpose as an educational institution are exempt from the 20% final tax and 7-1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the Tax Code of 1997, subject to compliance with the conditions that, as a tax-exempt educational institution, it shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly-audited financial statements together with the following: (a) Certification from their depository bank as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax imposed by Section 24 (e) (Now Section 27 [D] [1]) of the Tax Code, as amended; (b) Certification of actual utilization of the said income; and (c) Board Resolution by the school administration on proposed projects ( i.e. ,construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of the money deposited in banks or placed in money markets. Under Section 4 of Finance Department Order No. 137-87, the information return should be filed annually on or before the 15th day of the 4th month following the end of the taxable year. Thus, SEARCA is exempt from payment of the 20% final tax on interest earnings derived from treasury bonds, treasury bills and other bank notes that are used actually, directly, and exclusively for its educational purposes. Savings and time deposits, treasury bills, treasury bonds and other bank notes of SEARCA also form part of its assets used for educational purposes. However, SEARCA shall 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 of its educational purpose or function (Section 2.1 of Finance Department Order No. 137-87, as amended by Finance Department Order No. 149-95) . This ruling is being issued on the basis on 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 or void. HDTCSI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue