BIR Ruling No. 186-15

June 8, 2015 BIR RULING NO. 186-15 Sections 27 (D) (1), 30 (C); 105 of the Tax Code of 1997, as amended; BIR Ruling No. 577-12; BIR Ruling No. 536-12 Baguio Islamic Cordillera Women's Association (BISWA),Inc. 303 Hamada Building, Upper Mabini St., Baguio City 2600 Attention: Zainab Fagyan Balisong President Ladies : This refers to your letter dated December 17, 2012 duly indorsed by Revenue Region No. 2-Cordillera Administrative Region through 2nd Indorsement dated March 4, 2013, requesting for tax exemption pursuant to Section 30 of the Tax Code of 1997, as amended. It is represented that BAGUIO ISLAMIC CORDILLERA WOMEN'S ASSOCIATION (BISWA),INC. with Taxpayer's Identification No. 429-774-016-000, is a non-stock, non-profit corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CN201233497 dated November 23, 2012; and that the purposes for which it was incorporated are the following: 1) To build stronger relations among Islamic Women in Baguio, nearby places and other countries through linkages using internet and other media; 2) To create networking with other similar Islamic foundations for support; 3) To provide seminars, trainings & workshops on personality development, leadership and livelihood activities; 4) To be a role representation of commitment and dedication by practicing Islam; and 5) To provide quality education and services to the Islamic community by establishing Nursery schools, outreach programs and other educational forms of learning activities. In reply, please be informed that this Office cannot as yet issue the requested certificate of tax exemption because BAGUIO ISLAMIC CORDILLERA WOMEN'S ASSOCIATION (BISWA), INC. has to prove by actual operation for at least three (3) years that it is really an organization exempt from income tax under Section 30 of the Tax Code of 1997, as amended. BAGUIO ISLAMIC CORDILLERA WOMEN'S ASSOCIATION (BISWA), INC. shall 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. Hence, BAGUIO ISLAMIC CORDILLERA WOMEN'S ASSOCIATION (BISWA), INC. 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. SDAaTC 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. It should be understood that BAGUIO ISLAMIC CORDILLERA WOMEN'S ASSOCIATION (BISWA), INC. 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. 577-2012, September 9, 2012 and BIR Ruling No. 536-2012 dated August 8, 2012) 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. BAGUIO ISLAMIC CORDILLERA WOMEN'S ASSOCIATION (BISWA), INC. is subject to the payment of the annual registration fee of P500.00 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]. Moreover, 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 service, 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. Accordingly, if BAGUIO ISLAMIC CORDILLERA WOMEN'S ASSOCIATION (BISWA),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. 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. 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. acEHCD 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. Finally, for purposes of securing a certificate of tax exemption after the three (3)-year period, BAGUIO ISLAMIC CORDILLERA WOMEN'S ASSOCIATION (BISWA), INC. shall file its application for tax exemption with the Revenue District Office (RDO) where it is registered and is required to submit the following documents to Revenue Memorandum Order (RMO) No. 20-2013: a) Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the NIRC, as amended, under which the application for exemption/revalidation is being based. b) Certified true copies of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission which must clearly state that: 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 or to the government. c) Original Certification under Oath by an executive officer of the corporation or association as to: (i) all previous amendments/changes in the Articles of Incorporation and By-Laws, (ii) manner of activities, and (iii) the sources and disposition of income, if any, of the subject corporation or association. If there are no amendments/changes, the Certification shall state this fact. d) Certified true copy of the Certificate of Registration with the BIR; e) Original copy of the Certification under Oath by the Treasurer of the corporation or association as to the amount of income, compensation, salaries or any emoluments paid by the corporation or association to its trustees, officers and other executive officers. Provided, that, a corporation sole, which, by its nature, does not have trustees, corporate officers or executive officers need not submit the certification required under this subparagraph. f) Original copy of the Certification issued by the RDO where the corporation or association is registered that the corporation or association is not the subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; or if thereby be any, the Original copy of the Certification issued by the RDO on the status thereof; g) Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the last three (3) years; and h) Original copy of a statement under Oath by an executive officer of the corporation or association as to its modus operandi which shall include: i. A full description of the past, present, and proposed activities of the corporation or association; ii. A narrative description of anticipated receipts and contemplated expenditures; and iii. A detailed description of all revenues which it seeks to be exempted from income tax. All other revenues which are not included in the statement/application shall be subject to income tax. 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. SDHTEC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue