Exemption from the Payment of Income Tax — Business League

September 23, 1981 BIR RULING NO. 183-81 27-f 107-81 183-81 Lloyd's Register of Shipping Room 314 PPL Building 1000-1046 United Nations Ave. Ermita, Metro Manila Attention: Mr . H . Mclean Senior Principal Surveyor for China, HongKong, Korea and the Philippines Gentlemen : This refers to your letter dated January 23, 1981 requesting exemption from payment of income tax and the filing of the corresponding income tax return under Section 27(f) of the Tax Code. Investigation conducted by this Office disclosed that Lloyd's Register of Shipping (hereinafter referred to as the Society) is a non-Stock, non-profit foreign classification society founded in the year 1760 in the United Kingdom; that it was granted by the Securities and Exchange Commission a license to operate in the Philippines to engage in the classification, survey and inspection of merchant shipping; that the principal purpose of the Society is to secure for the benefit of the community high technical standards in vessel construction, repairs, and maintenance for the purpose of enhancing the safety of life and property at sea; that to attain this objective, it undertakes services in the form of survey, review, classification and inspection of ships to insure that the ship is constructed, maintained and/or repaired in accordance with the standards of strength and safety of ships set by the rules of the Society to assure their sea-worthiness; that in the performance of the aforesaid services, the Society derives fees which constitute its source of income; and that said fees are used solely for the Society's operations in the Philippines and no part of its income inures to the benefit of any private individual or member. In view of the foregoing, this Office is of the opinion and so holds that the Lloyd's Register of Shipping is considered as a business league as contemplated under Section 27(f) of the Tax Code because it is an association of persons having some common business interest in which limits its activities to work for such common interest, and does not engage in regular business of a kind ordinarily carried on for profit (Section 31, Revenue Regulations No. 2). Moreover, the rendering of services by the Society does not affect its tax-free status since the same is incidental to its primary exempt purpose. (American Plywood Association v. United States, 267F. Supp. 830; Revenue Ruling No. 70-187, 1970-1 C.B. 131) Accordingly, it is exempt from the payment of income tax in respect of income received by it as such organization and therefore need not file an income tax return concerning such income. However, pursuant to Section 27 of the Tax Code, as amended by Presidential Decree No. 1457 which took effect on August 5, 1978, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its property, real or personal or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation (Revenue Memorandum Circular No. 80-78 dated August 15, 1978). Moreover, it is required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year 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. In this connection, since the Society is exempt from income tax as a business league because it was not organized for profit, the income covered by said tax exemption is also exempt from business taxes. (B.I.R. Ruling No. 188-00-000-00-29-80) It is requested that a copy of this letter be attached to the annual information return to be filed by the Society. Very truly yours, RUBEN B. ANCHETA Acting Commissioner