BIR Ruling No. 275-13

July 17, 2013 BIR RULING NO. 275-13 Section 30 (H), NIRC of 1997; Section 4 (3), Article XIV of the 1987 Constitution; BIR Ruling No. 170-11; BIR Ruling No. 081-11; BIR Ruling No. 051-11 Saint Mary's University of Bayombong Ponce Street, Bayombong, Nueva Vizcaya Attention: Rev. Renillo H. Sta. Ana, CICM University President Gentlemen : This refers to your letter dated 06 August 2012 requesting for tax exemption pursuant to Section 4 (3), Article XIV of the 1987 Philippine Constitution or Section 30 (H) of the Tax Code of the Philippines, as amended. Documents submitted disclosed that SAINT MARY'S UNIVERSITY OF BAYOMBONG (TIN: 000-542-627) is a non-stock and non-profit educational institution organized in accordance with the law and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 3947; that the purpose for which it was incorporated by the CICM Missionaries (or the Philippine Province of the Congregation of the Immaculate Heart of Mary), as an instrumentality of said corporation, is to establish and conduct an educational institution, opening and maintaining the necessary schools, departments and colleges, and offering therein Nursery, Kindergarten, Elementary, Secondary, Collegiate and Post-Graduate courses of study, as well as technical, vocational and special courses of study, as the Board of Trustees may determine, the primary intention being to provide education directed to the service and growth of the individual human person, the community, the country and humanity in general, with a commitment to and concern for academic excellence; and to faithfully carry out the educational aims of the Philippine Republic and the directives of the educational apostolate of the CICM missionaries; that it has been previously issued a Certificate of Income Tax Exemption by the Bureau last November 21, 1989; the Ministry of Education, Culture and Sports (MECS), Department of Education (DepEd), Technical Education and Skills Development Authority (TESDA), and Commission on Higher Education (CHED) have respectively issued Government Recognition/Certificates of Authority/Accreditation to SAINT MARY'S UNIVERSITY OF BAYOMBONG, as follows: HIaSD Issued Government Courses Offered Effectivity Date Date by Recognition/Certificate Issued of Accreditation CHED C.M.O. No. 32, s. 2001 Graduate: Grant of 11/25/2004 Autonomy & Deregulated Status Ph.D. in Science Educ. (majors in Biology and Mathematics) Ph.D. in Commerce M.A. in Religious Education M.A. in Pedagogy M.A. in Physics and Chemistry Undergraduate: BS Computer Engineering BS Electrical Engineering BS Information Technology BS Tourism BS HRM BS Public administration BS Electronics and Communications Engineering BS Architecture BS Management Accounting BS Physical Therapy BS Psychology/AB Guidance and Counselling (a double major) BS Information Management BS Computer Science BS Commerce- Entrepreneurship and Agribusiness Bachelor of Secondary Education Major in Mathematics and Computer Education Graduate in Midwifery CHED C.M.O. No. 32, 2001 Undergraduate Programs: 1/23/2007 BS Entrepreneurial AY 2001-2002 Management Bachelor in Early Childhood AY 2002-2003 Education and Development BS Rural Development AY 2002-2003 BS Political Science AY 2003-2004 BS Criminology AY 2003-2004 BS Mechatronics (robotics) AY 2003-2004 BA Major in Religious and AY 2004-2005 Values Education BS Hospitality and Tourism AY 2005-2006 Management Bachelor of Library and AY 2005-2006 Information Science Bachelor of Science in Public AY 2006-2007 Administration Double Major: a. Political Science b. Legal Studies c. Public Health Administration and Hospital Governance CHED C.M.O. No. 32, 2001 Graduate Programs: 1/23/2007 Master of Science in AY 2001-2002 Management Engineering Master in Engineering AY 2001-2002 Master of Science in AY 2001-2002 Nursing Master of Science in AY 2003-2004 Accountancy Doctor of Philosophy major in AY 2003-2004 Educational Management Master of Arts major in Physics, AY 2004-2005 Chemistry & Mathematics Doctor in Public AY 2006-2007 Administration Master of Library and AY 2006-2007 Information Sciences Master of Arts in Education AY 2006-2007 major in Physical Education CHED 02 Temporary Permit No. BS Pharmacy (Levels AY 2012-13/ 2/15/2012 014 Series No. 2012 I & II) 2013-14 CHED 02 Temporary Permit No. BS in Information AY 2012-13/ 2/15/2012 No. 002 Series No. 2012 System (Levels I & II) 2013-14 CHED 02 Temporary Permit No. BS Accounting Technology AY 2012-13/ 2/15/2012 No. 001 Series No. 2012 (Levels I & II) 2013-14 CHED 02 Temporary Permit No. Bachelor in Medical AY 2012-13/ 2/15/2012 013 Series No. 2012 Laboratory Science 2013-14 (Levels I & II) DECS 02 No. 013 Series No. 1992 Bachelor of Science 1992-1993 8/21/1992 in Accountancy DepEd No. 108 Series No. 1955 Bachelor of arts Courses 6/1/1955 4/12/1955 MECS No. 067 Series No. 1978 BS Chemistry 6/13/1978 6/22/1978 MECS No. 117 Series No. 1984 Bachelor of Science 6/18/1984 8/8/1984 DepEd No. 499 Series No. 1948 First Year of the General 7/1/1948 9/4/1948 Liberal Arts Course CHED 02 No. 021 Series No. 1999 Associate in Office 1999-2000 5/10/1999 Administration DepEd No. 015 Series No. 1966 2-Year Secretarial Course 7/11/1966 5/24/1966 CHED 02 No. 020 Series No. 1999 BS in Office Administration 1999-2000 3/22/1999 DepEd No. 370 Series No. 1950 4-Year Course in Education 7/1/1950 2/23/1950 leading to the degree of BS Education DepEd No. 095 Series No. 1956 4-Year Collegiate Normal 6/11/1956 4/19/1956 Course leading to the degree of BS Elementary Education DepEd No. 131 Series No. 1958 4-Year Collegiate Course 6/9/1958 4/24/1958 leading to the degree of BS Home Economics DECS 02 No. 010 Series No. 1993 First to Fifth Year of the 1993-1994 4/5/1993 Geodetic Engineering course leading to the degree of BS Geodetic Engineering DepEd No. 367 Series No. 1960 First to Fifth Year of the Civil 6/13/1960 6/4/1960 Engineering leading to the degree of BS Civil Engineering DECS 02 No. 194 Series No. 1976 3-Year Geodetic Engineering 6/7/1976 8/16/1976 Course leading to the degree of Associate in Geodetic Engineering DECS 02 No. 195 Series No. 1976 2-year Certificate in 6/7/1976 8/16/1976 Surveying Course CHED No. 234 Series No. 1998 BS in Nursing 1998-1999 9/28/1998 CHED No. 063 Series No. 2000 Bachelor of Laws 1999-2000 2/29/2000 MECS No. 084 Series No. 1980 Post-Graduate Course in 6/9/1980 3/2/1981 Education, Major in Educational Management leading to the degree of Doctor of Education MECS No. 085 Series No. 1980 Graduate Course in Teaching 6/9/1980 3/2/1981 Secondary Biology; Elementary Mathematics; Elementary Science & Social Studies leading to the degree of Master of Arts in Teaching MECS No. 045 Series No. 1984 Graduate Course in Business 6/14/1983 4/9/1984 Administration leading to the degree of Master of Science in Business Administration DepEd No. 021 Series No. 1975 Graduate Course in English 6/2/1975 5/12/1975 leading to the degree of Master in Arts in English DepEd No. 174 Series No. 1967 Graduate Course in Education, 7/3/1967 6/6/1967 Major in Guidance and Counselling leading to the degree of Master of Arts in Education DECS 02 No. 011 Series No. 1993 Graduate Course in Public 1993-1994 4/5/1993 Administration leading to the degree of Master in Public Administration DepEd No. 495 Series No. 1948 Kindergarten Course 7/1/1948 9/4/1948 DepEd No. 496 Series No. 1948 Elementary Course 7/1/1948 9/4/1948 DepEd No. 106 Series No. 1947 General Secondary Course 7/1/1947 5/6/1947 DepEd No. 306 Series No. 1975 Third & Fourth Year of the 6/2/1975 11/10/1975 Science Secondary Course TESDA Certification Private Technical Vocational 8/14/2012 02 Educational and Training (TVET)-13 Programs TESDA AC-CGV Caregiving NC II 9/30/2010 9/30/2010 02 0202041012103 TESDA AC-HSK Housekeeping NC II 9/30/2010 9/30/2010 02 0202241012102 TESDA AC-HHS Household Services NC II 9/30/2010 9/30/2010 02 0202041012101 TESDA AC-FBS Food and Beverage 9/30/2010 9/30/2010 02 0202041012109 services NC II TESDA AC-HCS Health Care Service 9/30/2010 9/30/2010 02 0202041012108 NC II TESDA AC-FOS Front Office Services 9/30/2010 9/30/2010 02 0202041012107 NC II TESDA AC-BAR Bartending NC II 9/30/2010 9/30/2010 02 0202041012106 TESDA AC-BPP Baking/Pastry 9/30/2010 9/30/2010 02 0202041012105 Production NC II TESDA AC-COK Commercial Cooking 9/30/2010 9/30/2010 02 0202041012104 NC II and that in support of the request, the following documents were submitted: 1) Copy of the BIR Certificate of Registration of Saint Mary's University of Bayombong; 2) Certified true copies of the SEC Amended Articles of Incorporation and Amended By-Laws of Saint Mary's University of Bayombong which provides: a. That the corporation is non-stock, non-profit; b. That the primary purpose for which it was created is to establish an educational institution; c. That no part of the net income shall inure to the benefit of any of its members; d. That the trustees do not receive any compensation or remuneration; and e. That, in case of dissolution, remaining assets, after settling liabilities would be distributed to another non-profit domestic corporation organized for similar purpose or to the State for public purpose. 3) Copies of the latest 3 years Audited Financial Statement and Annual Income Tax Return of Saint Mary's University of Bayombong; 4) Government recognitions, TESDA, MECS/DepEd and CHED Certificates of Authority; 5) BIR Certificate of Registration; 6) Proof of payment of current year's registration; and 7) Verification and Certificate Against Forum-Shopping. In reply, please be informed that paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz. : "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties." Likewise, Section 30 (H) of the 1997 Tax Code, 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 (H) A non-stock and non-profit educational institution;" A non-stock, non-profit educational institution is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. The exemption contemplated herein refers to internal revenue taxes imposed by the National Government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. (BIR Ruling No. 081-11 dated March 15, 2011) Pursuant to Section 27 (B) of the Tax Code of 1997, as amended, and the Supreme Court Decision in G.R. Nos. 195909 and 195960 dated 26 September 2012, entitled "Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc.," private non-profit educational institutions whose gross income from unrelated trade, business or other activity does not exceed fifty percent (50%) of their total gross income derived from all sources, shall pay a tax of ten percent (10%) on their taxable income except those covered by Section 27 (D) of the Tax Code. However, if their gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of their total gross income derived from all sources then they shall be subject to the regular corporate income tax rate prescribed under Section 27 (A) of the Tax Code. cAHITS From the foregoing, and since SAINT MARY'S UNIVERSITY OF BAYOMBONG is a non-stock and non-profit educational institution as contemplated under the said provisions, it is exempt from the payment of taxes and duties on all its revenues and assets used actually, directly and exclusively for educational purposes. (BIR Ruling No. 170-11 dated May 25, 2011) However, SAINT MARY'S UNIVERSITY OF BAYOMBONG shall be subject to internal revenue taxes on income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institutions of their educational purposes or functions (Sec. 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Likewise, SAINT MARY'S UNIVERSITY OF BAYOMBONG's gross receipts from educational services as a non-stock, non-profit educational institution are exempt from value-added tax (VAT) pursuant to Section 109 (1) (H) of the 1997 Tax Code, as amended. (BIR Ruling No. 051-11 February 18, 2011) However, other activities involving sale of goods and services such as the operation of dormitories, stores, printing, publishing, not in connection with its primary purposes as an educational institution are subject to the 12% VAT imposed under Sections 106 and 108 of the Tax Code of 1997, as amended, or 3% percentage tax imposed under Section 116 in relation to Section 109 (1) (V) of the same Code, if the gross sales or receipts from such sale of goods and services do not exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) 1 which tax payment may legitimately be passed on to buyers of such goods and services. (BIR Ruling No. 051-11 February 18, 2011; BIR Ruling No. 170-11 dated May 25, 2011; BIR Ruling No. 081-11 dated March 15, 2011) Hence, as long as SAINT MARY'S UNIVERSITY OF BAYOMBONG will not engage in the regular conduct or pursuit of a commercial or economic activity which is unrelated to its educational services, including transactions incidental thereto, it will remain exempt from VAT. Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. 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. (BIR Ruling No. 051-11 February 18, 2011; BIR Ruling No. 170-11 dated May 25, 2011; BIR Ruling No. 081-11 dated March 15, 2011) Thus, the shifting of the VAT to it 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 to avoid the passing on or shifting of the VAT. Under Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of its purpose as an educational institution, are exempt from the 20% final tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the Tax Code of 1997, subject to compliance with the conditions that as a tax-exempt educational institution it shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly audited financial statement together with the following: AaCTcI (a) Certification from their depository banks as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) (1) of the Tax Code of 1997; (b) Certification of actual utilization of the said income; and (c) Board Resolution by the school administration on proposed projects ( i.e. , construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of the money deposited in banks or placed in money markets, on or before the 15th day of the fourth month following the end of its taxable year (Sec. 4, Finance Department Order No. 137-87). Moreover, revenues derived from assets used in the operation of cafeterias/canteens and bookstores are exempt from taxation provided they are owned and operated by SAINT MARY'S UNIVERSITY OF BAYOMBONG as ancillary activities and the same are located within its premises. In addition, gifts, donations, and other contributions received by SAINT MARY'S UNIVERSITY OF BAYOMBONG as an educational institution, are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of said gift shall be used for administration purposes. HEDaTA Donors cannot avail of full deductibility for purposes of computing taxable income under Revenue Regulations No. 13-98 without the accreditation of SAINT MARY'S UNIVERSITY OF BAYOMBONG as a donee institution with the Philippine Council for NGO Certification (PCNC). Organizations seeking certification shall file with the PCNC Secretariat a letter of intent to apply for certification and submit the necessary documents. If the applicant NGO has met the minimum criteria for certification, the Board gives a 3-year or 5-year certification to the organization and informs this Office which then issues to said organization a certification of Donee Institution Status. SAINT MARY'S UNIVERSITY OF BAYOMBONG is advised to contact the Secretariat, Philippine Council for NGO Certification (PCNC), tel. nos. 7821-568; 7159-594; 7152-756 or telefax 7152-783. It must be emphasized that its tax exemption does not cover withholding taxes. As an educational institution, SAINT MARY'S UNIVERSITY OF BAYOMBONG is constituted as a withholding agent for the government required to withhold the tax on compensation income of its employees, or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the Tax Code of 1997, as amended. Moreover, SAINT MARY'S UNIVERSITY OF BAYOMBONG 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) cSIADH 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 SAINT MARY'S UNIVERSITY OF BAYOMBONG to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. (BIR Ruling No. 051-11 February 18, 2011; BIR Ruling No. 170-11 dated May 25, 2011; BIR Ruling No. 081-11 dated March 15, 2011) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained 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 Footnotes 1. Revenue Regulations No. 16-2011.