BIR Ruling No. 218-14

June 20, 2014 BIR RULING NO. 218-14 Casino Espanol De Manila 855 Teodoro M. Kalaw St., Ermita, Manila Attention: Antonio Q. Alumno, Jr. Treasurer Gentlemen : This refers to your letter dated December 27, 2013 requesting for confirmation of Casino Espanol De Manila as an exempt organization under Section 30 (E) of the National Internal Revenue Code of 1997, as amended (NIRC). It is represented that Casino Espanol De Manila is a nonstock nonprofit association organized, among others, to make closer relations between the members who feel affinity with the Spanish Culture and the ideals of Hispanidad. It is claimed that the organization is organized for cultural purposes. Section 30 (E) exempts from income tax organizations organized and operated exclusively for cultural purposes. In order to be exempt as a cultural organization described in Section 30 (E), an organization must be both organized and operated EXCLUSIVELY for cultural purposes. An organization is not organized exclusively for cultural purposes unless its assets are dedicated to an exempt purpose. An organization's assets will be considered dedicated to an exempt purpose, for example, if, upon dissolution, such assets would, by reason of a provision in the organization's articles or by operation of law, be distributed for one or more exempt purposes, or to the government, or would be distributed to another organization with the same purpose as the dissolved corporation. An organization does not meet the organizational test if its assets may, upon dissolution, be distributed to its members or organizers. CEDScA To satisfy the operational test, an organization must be engaged in activities furthering public purposes rather than private interests. It must not be operated for the benefit of designated individuals or the persons who created it. It is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals, the organizers, shareholders of the organization, or persons controlled, directly or indirectly, by such private interests. In addition, an organization is not operated exclusively for cultural exempt purposes if it conducts activities which are not in furtherance of its purposes (cultural), even though such organization is, by the terms of such articles, created for cultural purposes. Thus, an organization that engages in the operation of a social club does not meet the operational test regardless of the fact that its articles may state that such organization is created for cultural purposes. 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. In case of doubt, non-exemption must be favored. 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 Articles of Incorporation of Casino Espanol De Manila reveals that its assets are not dedicated to an exempt purpose. There is no provision in its Articles of Incorporation which prohibit the distribution of its assets to members or organizers upon dissolution. Thus, it cannot be said that Casino Espanol De Manila is organized exclusively for exempt purposes. CEcaTH Moreover, the documents submitted by Casino Espanol De Manila disclose that it is registered with the Bureau as an operator of day and night clubs. The bulk of its revenues come from bar and restaurant operations, rental income, and interest income. The Notes to Financial Statements reveal that Casino Espanol De Manila is a social club that operates a restaurant, bar and sports facilities and that it also offers catering services for its members. It is a social club that operates for the benefit of its members and guests. It is our finding that Casino Espanol De Manila is an organization that is not operated exclusively for cultural purposes. IN VIEW OF THE FOREGOING, this Office is of the opinion that Casino Espanol De Manila 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 and other applicable internal revenue taxes. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue