BIR Ruling No. 217-14

June 20, 2014 BIR RULING NO. 217-14 Ang Hortaleza Foundation, Inc. Social Development Center 30-32 T. Santiago St., Canumay Valenzuela City Attention: Maurice P. Ligot Managing Director Gentlemen : This refers to your letter dated November 25, 2013 requesting for confirmation of Ang Hortaleza Foundation, Inc. as an exempt organization under Section 30 (E) of the National Internal Revenue Code of 1997, as amended (NIRC). It is represented that Ang Hortaleza Foundation, Inc. is a nonstock nonprofit organization created, among others, to promote the social, cultural, education and the general well-being and economic development of the Filipino people, especially the less fortunate/privilege members of the Philippine society by undertaking charitable or philanthropic work or activities. Section 30 (E) exempts from income tax organizations organized and operated exclusively for charitable purposes. One of the requirements for exemption of a charitable organization is that no part of the net earnings of the organization may inure to the benefit of any private person. Whether prohibited inurement has occurred is a question to be determined with regard to all of the facts and circumstances. Prohibited inurement includes the performance of services for a person for less than the greater of fair market value or cost to the organization. Thus, the granting by the organization of a non-interest bearing loan to a private person, regardless of whether the latter is a donor, constitutes prohibited inurement. IEcaHS Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. (BIR Ruling No. 310-2011 dated August 22, 2011) A perusal of the documents submitted by Ang Hortaleza Foundation, Inc. shows that it granted noninterest-bearing cash advances to Splash Corporation for the years 2011 and 2012. Such transactions inure to the private advantage of a private corporation which will disqualify Ang Hortaleza Foundation, Inc. tax-exempt status. IN VIEW OF THE FOREGOING, this Office is of the opinion that Ang Hortaleza Foundation, Inc. does not qualify for exemption under Section 30 (E) of the NIRC. It is therefore liable for income taxes imposed under Title II of the NIRC. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue