BIR Ruling No. 304-12

May 3, 2012 BIR RULING NO. 304-12 Section 30 (H) of the Tax Code of 1997; BIR Ruling No. 174-2011; BIR Ruling No. 172-2011; BIR Ruling No. 165-2011; BIR Ruling No. 115-2011 Primary Structures Educational Foundation, Inc. School of Knowledge for Industrial Labor Leadership and Service (SKILLS) Campus General Maxilom Ave.,Cebu City Cebu 6000 Attention: Maria Liza A. Lamoste Accounting Manager Gentlemen : This refers to your letter dated July 25, 2011 relative to the 2nd Indorsement dated September 1, 2011 of Revenue Region No. 13, Cebu City, requesting for the issuance of a certificate of tax exemption enjoyed by a non-stock, non-profit educational institution under Section 30 (H) of the Tax Code of 1997 as amended. It is represented that PRIMARY STRUCTURES EDUCATIONAL FOUNDATION, INC.,doing business under the name and style of School of Knowledge for Industrial Labor Leadership and Service (SKILLS),with Taxpayer's Identification Number (TIN) 007-170-001, is a non-stock, non-profit educational institution duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. CN200817327 dated November 7, 2008; that among the purposes for which it was incorporated is "to establish, manage, and/or operate a training institution in engineering, construction, industrial, technical, vocational, information technology, agriculture, fisheries, health, medical, and other fields" and that it is granted the following government permits from Technical Education and Skills Development Authority (TESDA): 1) Certificate of Accreditation No. AC-HEO0207021113156 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Heavy Equipment Operation on Off-Highway Dump Truck (Rigid) NC II; 2) Certificate of Accreditation No. AC-HEO0207021113157 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Heavy Equipment Operation on Off-Highway Dump Truck (Articulated) NC II; 3) Certificate of Accreditation No. AC-ROC0207021113149 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Carpentry NC II; 4) Certificate of Accreditation No. AC-RSB0207021113150 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Reinforced Steel Bar Installation NC II; TcDaSI 5) Certificate of Accreditation No. AC-HEO0207021113164 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Heavy Equipment Operation on Wheel Loader NC II; 6) Certificate of Accreditation No. AC-HEO0207021113160 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Heavy Equipment Operation on Road Roller NC II; 7) Certificate of Accreditation No. AC-HEO0207021113155 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Heavy Equipment Operation on Hydraulic Excavator NC II; 8) Certificate of Accreditation No. AC-HEO0207021113154 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Heavy Equipment Operation on Forklift NC II; 9) Certificate of Accreditation No. AC-HEO0207021113152 (date accredited: June 28, 2011 with expiration date: June 28, 2013) as an Accredited Competency Assessment Center for Heavy Equipment Operation on Bulldozer NC II; 10) Certificate of TVET Program Registration No. WTR 1007022070 dated September 16, 2010 for a program on Carpentry NC II; 11) Temporary Certificate of TVET Program Registration No. WTR 1007022104 dated December 7, 2010 for a program in Reinforced-Steel Bar Installation NC II; 12) Temporary Certificate of TVET Program Registration No. WTR 1007022105 dated December 20, 2010 for a program in Scaffold Erection NC II; 13) Certificate of TVET Program Registration No. WTR 1007022056 dated July 12, 2010 for a program on Heavy Equipment Operation (Wheel Loader) NC II; 14) Certificate of TVET Program Registration No. WTR 1007022055 dated July 12, 2010 for a program on Heavy Equipment Operation (Tower Crane) NC II; 15) Certificate of TVET Program Registration No. WTR 1007022054 dated July 12, 2010 for a program on Heavy Equipment Operation (Road Roller) NC II; 16) Certificate of TVET Program Registration No. WTR 1007022053 dated July 12, 2010 for a program on Heavy Equipment Operation (Hydraulic Excavator) NC II; 17) Certificate of TVET Program Registration No. WTR 1007022051 dated July 12, 2010 for a program on Heavy Equipment Operation (Forklift) NC II; 18) Certificate of TVET Program Registration No. WTR 1007022052 dated July 12, 2010 for a program on Heavy Equipment Operation (Bulldozer) NC II; 19) Certificate of TVET Program Registration No. WTR 090702243 dated May 6, 2009 for a program on Shielded Metal Arc Welding NC II; and 20) Certificate of TVET Program Registration No. WTR 090702242 dated May 6, 2009 for a program on Shielded Metal Arc Welding NC I. In support of its request, PRIMARY STRUCTURES EDUCATIONAL FOUNDATION, INC. has completely submitted on November 21, 2011 the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the SEC Certificate of Incorporation; 3) Certified true copy of the Amended Articles of Incorporation which includes the following provisions: a) That the corporation is non-stock, non-profit educational institution; TCSEcI b) That the primary purpose for which it was created is to establish and conduct an educational institution under Section 30 (H) of the Tax Code of 1997, as amended; 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; and e) In case of dissolution, assets of the organization shall be transferred to similar institution or to the government. 4) Certified true copy of the By-Laws; 5) Certified true copy of SEC 2011 General Information Sheet; 6) Certified true copies of BIR Certificate of Registration; 7) Certified true copies of the 2009 and 2010 Annual Information Returns and Financial Statements; and 8) Certified true copies of current TESDA government permits. In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because PRIMARY STRUCTURES EDUCATIONAL 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. 174-2011 dated May 27, 2011) PRIMARY STRUCTURES EDUCATIONAL 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. However, PRIMARY STRUCTURES EDUCATIONAL 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. 172-2011 dated May 25, 2011) It should be understood that PRIMARY STRUCTURES EDUCATIONAL 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. 165-2011 dated March 23, 2011 and BIR Ruling No. 115-2011 dated April 12, 2011) IAEcCT 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 organization 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]. Finally, for purposes of securing a permanent exemption after the three (3)-year period, PRIMARY STRUCTURES EDUCATIONAL FOUNDATION, INC. is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 1) Certified true copy of the Certificate of Registration with the SEC; 2) Certified true copy of the Articles of Incorporation which includes the following provisions: a) That the corporation is non-stock, non-profit; b) That the primary purpose for which it was created is one of those enumerated under Sec. 30 of the Tax Code of 1997, as amended; 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; and e) In case of dissolution, assets of the corporation shall be transferred to similar institution or to the government. 3) Certified true copy of the By-Laws; 4) Certified true copy of the Annual Information Returns and Financial Statements for the last three (3) years of operation; 5) Certification under oath that there has not been any change in the By-Laws, Articles of Incorporation, manner of activities as well as the sources and disposition of income; and 6) BIR Certificate of Registration. 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. ScEaAD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue