BIR Ruling No. 190-13

May 20, 2013 BIR RULING NO. 190-13 Section 4 (3), Article XIV, 1987 Constitution; Sections 27 (D) (1), 30 (H); 101 (A) (3); 105; 109 (H) of the Tax Code, as amended; BIR Ruling No. 168-11; BIR Ruling No. 155-11; BIR Ruling No. 152-11 Independent Living Learning Centre, Inc. #575 Wack-Wack Road, Mandaluyong City Attention: Abelardo Apollo I. David President Gentlemen : This refers to your letter dated May 15, 2012 requesting on behalf of Independent Living Learning Centre, Inc. for tax exemption pursuant to Section 30 (H) of the Tax Code of the Philippines, as amended. EACIcH It is represented that Independent Living Learning Centre, Inc. , with Taxpayer's Identification No. 008-241-084-000, 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. CN201204684 dated March 7, 2012; that it is recognized by the government and permitted by the Department of Education (DepEd) under DepEd-NCR Permit No. SP-031, Series 2012 issued on October 5, 2012 to operate Special Education Course for the school year 2012-2013 only, DepEd NCR Permit No. E-354, Series 2012 issued on October 2, 2012 to operate Complete Elementary Course for the school year 2012-2013 only and DepEd-NCR Permit No. P-413, Series 2012 issued on October 2, 2012 to operate Nursery/Kindergarten Course for the school year 2012-2013 only; and that the purposes for which it was incorporated are: to establish, operate, support and maintain an institution of learning pursuant to the curriculum courses prescribed by the Department of Education (DepEd), and to maintain and support with adequate funds, facilities, plant and qualified personnel a continuing program of special education, pre-school, elementary and secondary education instructions in the aforesaid institution of learning and as incident thereto, adopts the following objectives: 1. To provide special education and therapy services with specially designed instruction, support and programs to students with an identified disability requiring an individually designed instructional program to meet their unique learning needs, and enable them to successfully develop their fullest potentials and an instruction that is geared to their strength as they are given sufficient opportunity to learn; 2. To promote the objective of pre-school, elementary and secondary education, shifting emphasis from the mastery of basic tools of learning, expression and acquiring intellectual, social, moral and physical concepts, ideals, attitudes and skills to develop the whole human being; 3. To discover and enhance, in addition, the aptitudes and interest of the individual students so as to equip them with the skills for productive endeavor thus prepare them for work in the real world and/or for formal studies in higher education; 4. To prescribe and enforce such rules and regulations as are necessary and proper and not contrary to law to govern and regulate the admission of students wishing to attend the programs offered and taught by the school, as well as to govern their conduct and behavior while in attendance thereat; 5. Conformably with such authority as may be granted to it by the government to award or otherwise issue appropriate certificates and/or diplomas of completion of such courses of instruction as may taught therein pursuant to law; 6. To receive and acquire from any person, firm or entity, whether resident or non-resident of the Philippines, by donation, grant, endowment, trust, lease, contribution of purchase, money, lands and other properties, whether real or personal, or any other specie of property or interest therein, which shall be used exclusively to carry out purposes and objectives of the corporation; and ScCEIA 7. To do and perform all acts and things which are necessary or expedient, suitable or proper for the furtherance or accomplishment of the purposes and the attainment of any or all of the objectives herein stated or which shall appear, at any time, to be conducive and useful for the activities of the corporation. In reply, please be informed that this Office cannot as yet issue the requested certificate of tax exemption because Independent Living Learning Centre, Inc. has to prove by actual operation for at least three (3) years that it is really an organization/association exempt from income tax under Section 30 (H) of the Tax Code of 1997, as amended. Independent Living Learning Centre, Inc. can file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month of the preceding accounting period following the start of its operation as an exempt organization 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. (BIR Ruling No. 152-11 dated May 17, 2011) . However, Independent Living Learning Centre, 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. 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. (BIR Ruling No. 168-11 dated May 25, 2011) It should be understood that as a non-stock, non-profit corporation educational institution, Independent Living Learning Centre, 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. 168-11 dated May 25, 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. 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. CaATDE 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. 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. Accordingly, if Independent Living Learning Centre, 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 also be liable for VAT (BIR Ruling No. 155-11 dated May 17, 2011) . Likewise, 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. Hence, 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. 155-11 dated May 17, 2011) . Finally, for purposes of securing a permanent exemption after the three (3)-year period, Independent Living Learning Centre, Inc. is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 1) Certified true copy of the Certificate of Registration with the SEC; 2) 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 or to the government. 3) Certified true copy of the By-Laws; 4) Certified true copies of the Annual Information Returns and Financial Statements for the latest three (3) years of operation; DHaECI 5) Certified true copy of the DepEd recognition; 6) Sworn Affidavit of Non-Forum Shopping; and 7) BIR Certificate of Registration. 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue