Exemption from the 20% Final Withholding Tax

October 16, 1990 BIR RULING NO. 197-90 24 (e) (1) 000-00 197-90 Gentlemen : This refers to your letter dated February 6, 1990 requesting in effect, reconsideration of BIR Ruling No. 009-90 dated January 31, 1990 subjecting to the 20% final withholding tax your income constituting earnings/yield from deposit substitute instruments; and tax exemption in favor of the University of Santo Tomas Hospital on its income derived also from earnings and yield from deposit substitute instruments. aisadc Investigation conducted by this Office disclosed that the University of Santo Tomas which includes the University of Santo Tomas Hospital is a private educational institution incorporated as a non-stock, non-profit corporation; that all funds and revenues derived by the said taxpayer from its operation are being used for the accomplishment and promotion of its educational purpose; that the excess of taxpayer's idle funds during enrollment, usually for two (2) months, are invested in money market for a short term and withdrawn as the need arises; that this is so because earnings from money market investment are much higher than from bank savings deposit aside from taxpayer's desire to increase its source of funds in order to be able to meet adequately its operating expenses; and that part of its total loan of P50,000,000.00 for the construction of two (2) buildings were placed in short term investment in the meantime that the whole amount is not immediately needed so that the earnings from the same could help in some way in the payment of the amortization of said loan. In reply, please be informed that since the income you derived including that of the University of Santo Tomas Hospital from earnings and yield from your passive investment arising from deposit substitute instruments, e.g., money market placements were found, as per investigation conducted by this Office, to be used directly, exclusively and actually for your educational purpose or function, this Office is therefore, of the opinion and so holds that such income are exempt from the 20% final withholding tax imposed under Section 24 (e)(1) of the Tax Code, as amended, pursuant to Section 4 (3), Article XIV of the 1987 Constitution, beginning February 2, 1987, the date of the said Constitution was ratified. This accordingly, modifies BIR Ruling No. 009-90 dated January 31, 1990 insofar as said income is concerned. cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner