BIR Ruling No. 229-15

June 30, 2015 BIR RULING NO. 229-15 Section 30 (F) of the Tax Code of 1997; BIR Ruling No. 375-13; BIR Ruling No. 469-12; BIR Ruling No. 365-11 British Chamber of Commerce of the Philippines, Inc. 120 Upper McKinley Hill, Taguig City Attention: Ms. Patricia L. Whyte Board of Directors-Treasurer Gentlemen : This refers to your letter dated November 21, 2013 requesting on behalf of the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. for exemption from the payment of income tax under Sec. 30 (F) of the Tax Code of 1997, as amended. It is represented that the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. (TIN: 212-293-557-000) 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. A200001647; and that the purposes for which it was incorporated are the following: 1. To promote the business environment and quality of life for British Citizens and British-invested companies in the Philippines (The term "British Citizen," as used in these Articles of Incorporation, shall mean "a person who is a British citizen pursuant to Part 1 of the BRITISH National Act 1981 of the United Kingdom"); 2. To function as a chamber of commerce and promote trade, industry, investment, social and economic relations between the United Kingdom and the Republic of the Philippines (The term "United Kingdom," as used in these Articles of Incorporation, shall mean "the territorial area comprising Great Britain, Northern Ireland, the Channel Islands and the Isle of Man"); 3. To consider all questions connected with such trade, industry or business; 4. To promote, support or oppose legislative or other measures affecting such trade, industry and investments; ICHDca 5. To present, express and give effect to the views and opinions Members (as "Members" is defined in Article III of the By-Laws of Association) on matters connected with British and International trade, commerce and industry, including the trade between the Republic of the Philippines and United Kingdom; 6. To collect and disseminate statistical facts and information relating to such trade, industry and investment; 7. To promote business and social intercourse among members of the Association and to provide facilities for this purpose; 8. To advance and promote commercial and technical education, and to fund scholarships to be held by or otherwise assist young persons desiring to train for commercial careers, and to accept donations and endowments and support establishments and institutions for any such purposes, and generally to undertake and execute any trusts the undertaking of which may be considered consonant with the other objects of the Association or otherwise desirable, and either gratuitously or otherwise; 9. To provide a focal point for providing feedback to the Government of the United Kingdom; 10. To subscribe to and promote the aims and objects of any society or association having similar objects to all or any of the objects of the Association; 11. To enhance its Members' understanding of legal, commercial and cultural aspects of living and doing business in the Republic of the Philippines; 12. To promote understanding and cordial relations between the Members of the Association and British and Philippine government offices in the Republic of the Philippines; 13. To raise funds from entrance fees, annual subscription fees, donation and contributions to finance the operations of the Association and its projects; 14. To receive gifts, legacies, donations, endowments and financial aid or loan from whatever source, and to invest and reinvest funds and collect the income together with the principal or such part thereof, for such endeavors as may be necessary to carry out the purposes of the Association; 15. To acquire, purchase, own, hold, develop, lease, mortgage, pledge, exchange, sell, transfer or otherwise trade or deal in, in any manner permitted by law, real and personal property (except land) of every kind and description or any interest therein as may be necessary for the accomplishment of the purposes of the Association; 16. To let, allow or grant concessions to others to do any of the things that this association is empowered to do, and to enter into, make, perform and carry out, contracts and arrangements of every kind and character with any person, firm, association or corporation, or any government or authority of subdivision or agency thereof; and 17. To do all such other lawful things as are incidental or conducive to the attainment of the above objectives. In support of its request, the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. has completely submitted, the following documents: a. Original copy of application letter for issuance of Tax Exemption Ruling. b. Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission: i. It is a non-stock, non-profit corporation or association; ii. The purpose for which it was created is one of those enumerated under Section 30 of the NIRC, as amended; iii. No part of the corporation or association's net income shall inure to the benefit of any private individual; iv. The trustees of the non-profit corporation or association do not receive any compensation or remuneration; and v. That upon dissolution, its surplus property shall be appropriated and distributed to a duly qualified, local, self-governing organization or an organization designated by competent authorities. 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; TCAScE d. Certified true copy of the Certificate of Registration with the BIR; e. Original copy of the Certification under Oath by the Treasurer re: the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC.'s Payment of salaries and Compensation to its Officers and Trustees; f. Original copy of the Certification issued by the RDO and the RD that the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. has no delinquent accounts; g. Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the years 2010, 2011, 2012 and 2013; and h. Original copy of a statement under Oath by an executive officer of the corporation or association as to its modus operandi . In reply, please be informed as follows: Income Tax Section 30 (F) of the Tax Code of 1997, as amended, provides, viz .: "Sec. 30. Exemptions from Tax on Corporations . The following organizations shall not be taxed under this Title in respect to income received by them as such: . . . xxx xxx xxx (F) Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual." Under the above-quoted provision, a non-stock and non-profit corporation organized as a business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual is exempt from income taxation. (BIR Ruling No. 365-11 dated October 5, 2011) The BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. falls within the purview of an association contemplated under the above cited provision. Accordingly, it is exempt from the payment of income tax on income received by it as such organization. However, it is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997, as amended, 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. (BIR Ruling No. 365-11 dated October 5, 2011) Likewise, interest income from currency bank deposits and yield or any other monetary benefit 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, as amended. (BIR Ruling No. 365-11 dated October 5, 2011) 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. 365-11 dated October 5, 2011) cTDaEH It should be understood that the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. shall be constituted as withholding agent for the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as amended, as implemented by Revenue Regulations No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the withholding tax pursuant to Section 57 of the Tax Code of 1997, as amended, also as implemented by Revenue Regulations No. 2-98, as amended. (BIR Ruling No. 365-11 dated October 5, 2011) Value-Added Tax Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997, as amended, covers only income taxes for which it is directly liable. Section 105 of the Tax Code of 1997, as amended, 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 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 association (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. 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. Thus, the shifting of the VAT to the association does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997, as amended, to avoid the passing on or shifting of the VAT. Accordingly, if the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, 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 also be liable for VAT. (BIR Ruling No. 365-11 dated October 5, 2011) Likewise, revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. However, the above exemption from the 12% VAT does not extend to its purchase of goods or properties or services and importation of goods. Hence, notwithstanding that it is a non-stock, non-profit association, 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. (BIR Ruling No. 365-11 dated October 5, 2011) Moreover, the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. is also 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 they are registered. (RMC No. 76-2003) Under Section 235 of the Tax Code of 1997, as amended, any provision of existing general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of accounts and other pertinent records of the BRITISH CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. (BIR Ruling No. 159-11 dated May 19, 2011) Please note that this tax exemption ruling shall be valid for a period of three (3) years from the date of issue, unless sooner revoked or cancelled. Tax Exemption Rulings may be renewed upon filing of a subsequent Application for Tax Exemption/Revalidation, under same requirements and procedures provided in Revenue Memorandum Order No. 20-2013. Failure to renew the Tax Exemption Ruling shall be deemed a revocation thereof upon the expiration of the three-year period. The new Tax Exemption Ruling shall be valid for another period of three years unless sooner revoked or cancelled. 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. cSaATC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue