BIR Ruling No. 182-14

June 9, 2014 BIR RULING NO. 182-14 Punongbayan & Araullo 19th Floor Tower 1 The Enterprise Center 6766 Ayala Avenue Makati City Attention: Eleanor L. Roque Head, Tax Advisory & Compliance Gentlemen : This refers to your letter dated December 6, 2013 requesting for confirmation of the tax exemption of Philippine Chamber of Commerce and Industry as a nonstock, nonprofit corporation under Section 30 (F) of the National Internal Revenue Code of 1997, as amended (NIRC). HEcIDa It is represented that Philippine Chamber of Commerce and Industry is a nonstock nonprofit corporation duly organized in accordance with the laws of the Philippines. The corporation is established to: a. Foster closer relations, understanding and cooperation among the agricultural, commercial and industrial sectors of the economy; b. Serve as the voice of the Philippine Business and an independent forum for the development of a consensus of the business community on matters of national concern; c. Perform an active role in helping shape the course of national events and make known its position on issues affecting national interest; d. Represent the Philippine business community in all fora at the local, national, regional and international level; e. Establish and maintain linkages with global organizations representing agriculture, commerce and industry. A business league is an association of persons having a common business interest. Its activities must be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for persons. Its purpose must not be to engage in a regular business of a kind ordinarily carried on for profit. Moreover, it must be primarily engaged in activities or functions constituting the basis for its exemption and that its primary activity cannot be performing particular services for members or nonmembers. However, the last paragraph of Section 30 of the NIRC is clear that the income of whatever kind and character of the exempt organization from any of its properties, real or personal, or from any of its activities conducted for profit regardless of the disposition made of such income is subject to tax. Thus, even if the income of the exempt organization from any property or activity conducted for profit is exclusively used for the accomplishment of its exempt objectives, the income is subject to tax. DAEcIS Moreover, to qualify for exemption under Section 30 (F) the organization must have no net earnings or assets inuring to the benefit of any member, organizer, officer or any specific person. Dissolution of the organization will constitute prohibited inurement if, on dissolution, any assets remaining, after satisfaction of all liabilities, are distributed to organizers, members or officers. Thus, the assets of the organization must be dedicated to its exempt purpose. To meet this requirement, it's constitutive documents must provide that on dissolution its assets shall be transferred or conveyed to one or more organizations in the Philippines engaged in activities similar to those of the dissolving organization or to the Philippine government. 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 review of the documents submitted in support of the request shows that Philippine Chamber of Commerce and Industry earns revenues from collection of fees from issuance of certificates of origin, fees for conferences, seminars, workshops, forums and other events. Such activities are of a kind ordinarily carried on for profit. As discussed, such income is subject to tax even if the income of the exempt organization from such activities are exclusively used for the accomplishment of its exempt objectives. Further, Article Eight of its articles of incorporation states that "the right of participation in the assets thereof in the event of dissolution and liquidation shall be acquired and enjoyed by the charter members thereof and those who are admitted to the Corporation . . .". Such provision constitutes prohibited increment and will not entitle Philippine Chamber of Commerce and Industry exempt status under Section 30 (F). As previously discussed, the constitutive documents must provide that on dissolution the assets of the organization shall be transferred or conveyed to one or more organizations in the Philippines engaged in activities similar to those of the dissolving organization or to the Philippine government. IN VIEW OF THE FOREGOING, this Office is of the opinion that Philippine Chamber of Commerce and Industry is not a business league exempt under Section 30 (F) of the NIRC. It is therefore subject to income taxes imposed under Title II of the NIRC. It is also subject to value-added tax and other applicable taxes under the NIRC. ADHaTC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue