BIR Ruling No. 211-13

June 14, 2013 BIR RULING NO. 211-13 Section 30 (C) of the Tax Code of 1997, as amended; BIR Ruling No. 173-11 Support Your Navy Foundation, Inc. 2335 Philippine Navy Headquarters, Roxas Blvd., Barangay 719, Zone 078, Malate, Manila Attention: Capt. Augusto C. Iglesia PN(GSC) Trustee, Support Your Navy Foundation, Inc. Gentlemen : This refers to your undated letter requesting on behalf of Support Your Navy Foundation, Inc. for tax exemption pursuant to Section 30 (C) of the Tax Code of 1997, as amended. It is represented that Support Your Navy Foundation, Inc. with Taxpayer's Identification No. 008-323-245-000, 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. 201212417 and with SEC Certificate of Incorporation dated 11 July 2012; and that the purposes for which it was incorporated are the following: "PRIMARY PURPOSE To establish and operate a private, non-profit corporate foundation which shall, in coordination and cooperation with the Philippine Navy, initiate, stimulate, encourage, develop, promote, support, assist, undertake, finance, provide, establish, manage, operate, and/or sustain plans, programs, projects enterprises, businesses or activities for charitable, educational, scientific, social or cultural aims, geared towards supporting the Philippine Navy in fulfilling its mandate and achieving its goals, including uplifting the physical, psychological, social, moral, economic, morale and welfare of its men and women as well as their dependents. AHCaED SECONDARY 1. To accept, receive and/or give assistance, gifts, donations, devises, bequests, legacies, inheritance or endowments, financial aid or loans from and to any person, entity, foundation or association whatsoever, whether domestic or foreign, and to hold and acquire, make use of them in operating enterprises, activities and business, as well as assisting and cooperating with the Philippine Navy or any person as may be necessary to carry out the purposes and objectives of the Corporation; 2. To invest and deal with monies and properties of the Corporation so that the same shall bear fruit to inure to the benefit of the Corporation and enable the Corporation to carry out its purposes and objectives; 3. To purchase, acquire, hold and convey, lease, mortgage, encumber or otherwise deal with property, real or personal, as well as make and carry out contracts of every kind and nature necessary, convenient or proper to realize the purposes and objectives of the Corporation; 4. To borrow money and issue, sell or pledge bonds, promissory notes, bills of exchange, debentures, and obligations and evidence of indebtedness, payable at a specified time or times, or payable upon the happening of a specified event or events, whether secured by mortgage, pledge, or otherwise, or unsecured, as necessary, convenient or proper to realize the purposes and objectives of the Corporation; DTEAHI 5. To initiate, develop and promote the advancement of educational, scientific, technological, social or cultural research studies and other activities, the publication of materials, or the operation of any activity geared towards the physical, psychological, social, moral and economic upliftment of any individual; 6. To establish and maintain offices, conduct and carry on its operations and otherwise promote its purposes and objectives of the Corporation within and outside the Philippines, without restriction as to place or amount; 7. In general, to carry on any activity, to do and to perform all acts and things necessary, suitable, convenient or proper for the accomplishment of any of the purposes herein enumerated or which shall, at any time, appear for the best interest and benefit of the Corporation in the furtherance of its objectives, including all power, authorities and attributes confined by law to any juridical persons as principals, agent or otherwise, either alone or in syndicate or otherwise in conjunction with any person, association, entity, domestic or foreign and to establish or maintain branches, offices, or agencies here or abroad." In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because Support Your Navy Foundation, 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 (C) of the Tax Code of 1997, as amended. Support Your Navy Foundation, 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. DAHSaT However, Support Your Navy Foundation, 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. It should be understood that Support Your Navy Foundation, 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. 173-11 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. TAEcCS Finally, it is subject to the payment of the annual registration fee of PhP500.00 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] For purposes of securing a permanent exemption after the three (3)-year period, Support Your Navy Foundation, 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 aTIEcA 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) Certification under oath that there has not been any change in the Articles of Incorporation and/or By-laws; 5) Certified true copies of the Annual Income Tax Returns and Financial Statements for the last three (3) years of operation; 6) 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