BIR Ruling No. 264-13

July 12, 2013 BIR RULING NO. 264-13 Section 30 NIRC; BIR Ruling No. 135-10 The Roman Catholic Archbishop of Manila 121 Arzobispo Street Intramuros, Manila Attention: Maria Liza A. Lopez-Rosario Deputy Legal Counsel Gentlemen : This refers to your letter dated May 26, 2011, received by this Office on September 2, 2011 by way of 2nd Indorsement from Revenue Region No. 6, City of Manila, dated August 15, 2011, requesting on behalf of The Roman Catholic Archbishop of Manila (RCAM) for exemption from the payment of income tax, and consequently, from the creditable withholding tax, on the payments to be refunded by the Manila Electric Company (MERALCO) to the different parishes of RCAM. It is represented that RCAM, with Tax Identification Number (TIN) 000-989-201-000, is a corporation sole duly registered with the Securities and Exchange Commission (SEC) bearing SEC Certificate of Registration No. PW-817; that RCAM was primarily established for religious purpose, particularly, the evangelization of the people; that as part of its pastoral works, RCAM is also engaged in charitable activities, like caring of the sick, the poor and the elders; that RCAM delivers its religious and charitable works to the people through its eighty-five (85) parishes, fourteen (14) shrines, one (1) sanctuary and two (2) chapels, the list of which is hereto attached as Annex "A";1 and that the fund for the operations and administrative costs, which include among others, electrical bills, of the parishes rely on the donations they receive from the people. In reply, please be informed that under Section 2.57.5 of RR No. 2-98, as amended, withholding of creditable withholding tax as prescribed by such regulations shall not apply to income payments made to corporations which are exempt from income tax under Section 30 of the Tax Code of 1997, to wit: "SEC. 2.57.5. Exemption from Withholding. The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: xxx xxx xxx (B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: SCHIcT xxx xxx xxx (3) Corporations which are exempt from the income tax under Sec. 30 of the NIRC , and government-owned or controlled corporations, which are exempt from income tax under Section 27 of the same Code, to wit: the Government Service Insurance System (GSIS), the Social Security System (SSS), the Philippine Health Insurance Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO) and the Philippine Amusement and Gaming Corporation (PAGCOR); However, the income payments arising from any activity which is conducted for profit or income derived from real or personal property shall be subject to a withholding tax as prescribed in these Regulations." (Emphasis supplied) RR No. 08-2005 dated February 23, 2005 amended RR No. 2-98 by including among the income payments subject to the creditable withholding tax, payments by Meralco of refunds, viz. : "SEC. 2. Income Payments Subject to Creditable Withholding Tax. Sec. 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows: "Sec. 2.57.2. Income payments subject to creditable tax and rates prescribed thereon. Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxx xxx xxx (U) MERALCO Refund arising from Supreme Court Case G.R. No. 14814 of April 9, 2003 to customers under Phase IV as approved by ERC On gross amount of refund given by MERALCO to Customers with active contracts as classified by MERALCO Twenty-Five Percent (25%);To Customers with terminated contracts Thirty-Two Percent (32%);" In view of the foregoing, considering that RCAM is a non-stock non-profit corporation or association organized and operated exclusively for religious and charitable purposes, of which no part of its net income or asset belongs to or inures to the benefit of any member, organizer, officer or nay specific person under Section 30 (E) of the Tax Code, the Meralco refund in its favor, therefore, is not subject to the 30% regular corporate income tax, and consequently, to the 25% or 32% withholding tax imposed under RR No. 8-2005. It must be emphasized, however, that the exemption from income tax and consequently from withholding tax covers only the amount refunded, representing excess utility payments, which pertains to expenses related to RCAM's operation as religious institution and not from activities conducted for profit. (BIR Ruling No. 135-2010 dated December 1, 2010) 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 as null and void. ISTHED Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The document consists of thirteen (13) pages and contains the list of the names of eighty-five (85) parishes, fourteen (14) shrines, one (1) sanctuary and two (2) chapels under the jurisdiction of RCAM.