BIR Ruling No. 218-15

June 22, 2015 BIR RULING NO. 218-15 Section 30 (G) of the Tax Code of 1997; BIR Ruling No. 165-2011; BIR Ruling No. 327-2011; BIR Ruling No. 146-2011; BIR Ruling No. 058-2011 Cebu I Zonta Club Foundation, Inc. 2/F GCH Bldg. Tres Borces St. Mabolo, Cebu City Attention: Lucille Colina President Gentlemen : This refers to your letter dated April 19, 2013 requesting on behalf of Cebu I Zonta Club Foundation, Inc. for the issuance of a certificate of tax exemption enjoyed by non-stock corporation or association organized and operated exclusively for the promotion of social welfare under Section 30 (G) of the Tax Code of 1997, as amended. It is represented that Cebu I Zonta Club Foundation, Inc. with Taxpayer's Identification No. (TIN) 226-796-516-000, 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 SEC Registration No. CN201332300 dated December 26, 2013; and that the purposes for which the corporation was organized are the following: 1. To promote the objectives of Zonta International, a worldwide service organization of executive women in business and the professions; 2. To support projects and programs geared towards community development like day care center, livelihood program aimed at improving the quality of life of our less fortunate brothers and sisters; 3. To provide an institutional vehicle which will carry out, undertake and sponsor activities and projects designed to promote the major concern of the Zonta International Strategies to eradicate violence against women and children with particular focus on domestic violence; 4. To enter into contracts, agreements with the government and private institutions to assist and coordinate in various activities concerning the status of women and children victims of abuse and violence. In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because Cebu I Zonta Club Foundation, Inc. has to prove by actual operation for at least three (3) years that it is really a corporation/association exempt from income tax under Section 30 (E) of the Tax Code of 1997, as amended. (BIR Ruling No. 165-2012 dated March 9, 2012) While the Foundation has submitted copies of Financial Statements and Income Tax Returns for taxable years 2010 to 2012, those are pertaining to Cebu I Zonta Club Foundation, Inc. with SEC Registration No. C200200370 dated April 3, 2002 which had already been revoked by the SEC as can be gleaned from Article I (I.a) of the Articles of Incorporation. Thus, for all legal intents and purposes, Cebu I Zonta Club Foundation, Inc. bearing SEC Registration No. CN201332300 dated December 26, 2013 is totally a new corporation separate and distinct from Cebu I Zonta Club Foundation, Inc. with SEC Registration No. C200200370 dated April 3, 2002. In the meantime, Cebu I Zonta Club 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 following the end of its taxable year 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. Hence, Cebu I Zonta Club 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. (BIR Ruling No. 327-2011 dated September 1, 2011) It should be understood that Cebu I Zonta Club 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. 146-2011 dated May 12, 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. 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]. Value-Added Tax 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. 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. Accordingly, if Cebu I Zonta Club Foundation, 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 be liable for VAT. (BIR Ruling No. 058-2011 dated February 25, 2011) Notwithstanding that it is incorporated as a non-stock, non-profit organization , 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. 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. Finally, for purposes of securing a certificate of exemption after the three (3)-year period, Cebu I Zonta Club Foundation, Inc. is required to submit the following documentary requirements with the Revenue District Office (RDO) where it is registered pursuant to Section 3 of Revenue Memorandum Order (RMO) 20-2013: a. Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the NIRC, as amended, under which the application for exemption/revalidation is being based; b. Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission; c. Original copy of Certification under Oath by an executive officer of the corporation or association as to: (i) all previous amendments/changes in the Articles of Incorporation and By-Laws, (ii) manner of activities, and (iii) the sources and disposition of income, if any, of the subject corporation or association. If there are no amendments/changes, the Certification shall state this fact; d. Certified true copy of the Certificate of Registration with the BIR; e. Original copy of the Certification under Oath by the Treasurer of the corporation or association as to the amount of income, compensation, salaries or any emoluments paid by the corporation or association to its trustees, officers and other executive officers. Provided, that, a corporation sole, which, by its nature, does not have trustees, corporate officers or executive officers need not submit the certification required under this subparagraph. f. Original copy of the Certification issued by the RDO where the corporation or association is registered that the corporation or association is not the subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; or if thereby be any, the Original copy of the Certification issued by the RDO on the status thereof; g. Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the last three (3) years; and h. Original copy of a statement under Oath by an executive officer of the corporation or association as to its modus operandi which shall include: i. A full description of the past, present, and proposed activities of the corporation or association; ii. A narrative description of anticipated receipts and contemplated expenditures; and iii. A detailed description of all revenues which it seeks to be exempted from income tax. All other revenues which are not included in the statement/application shall be subject to income tax. 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