BIR Ruling No. 334-12

May 14, 2012 BIR RULING NO. 334-12 Section 30 (E) of the Tax Code of 1997; BIR Ruling No. 078-11; BIR Ruling No. 079-11 Revelation (Paltiing) of Jesus Christ Fellowship Mission, Inc. Saddle, Ampucao, Itogon, Benguet Province Attention: Ms. Julieta D. Clemente Secretary/OIC Treasurer Gentlemen : This refers to your letter dated August 23, 2010, received by this Office on September 15, 2010 by way of 2nd Indorsement from Revenue Region No. 02-Baguio City dated September 9, 2010, requesting for the issuance of a certificate of tax exemption enjoyed by non-stock non-profit religious organization under Section 30 (E) of the Tax Code of 1997, as amended. DIEcHa Documents submitted disclose that REVELATION (PALTIING) OF JESUS CHRIST FELLOWSHIP MISSION, INC. with Taxpayer Identification No. 004-033-983-000, 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 Reg. No. B2000000869 dated December 26, 2000 and that the primary purpose for which it was incorporated is for the administration of its affairs, properties and temporalities; that the funds of the organization shall be derived from tithes and offerings; and that no part of the funds of the church shall inure to the benefit of any member. In support of its request, REVELATION (PALTIING) OF JESUS CHRIST FELLOWSHIP MISSION, INC. has completely submitted on February 2, 2012 the following documents: 1) Letter of application for tax exemption; 2) Certified true copy of the Certificate of Registration with the SEC; 3) Certified true copy of the Amended Articles of Incorporation which includes the following provisions: a. That it is a religious corporation organized under Sec. 116 of the Corporation Code; b. That the primary purpose for which it was created is one of those enumerated under Sec. 30 (E) 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; and d. That the corporation shall comply with the rules and regulations of the SEC for non-stock and non-profit corporations in the course of its operation. 4) Certified true copy of the Amended By-laws which includes a provision that the trustees do not receive any remuneration or compensation; 5) Certified true copies of the Financial Statements for three (3) years of operation; 6) Copy of its current year's registration; 7) BIR Certificate of Registration; and 8) Certified list of members. aTcHIC In reply, please be n as follows: Income tax Section 30 (E) of the 1997 Tax Code, as amended, provides viz. : "Sec. 30. Exemptions from Tax on Corporations. The following organization shall not be taxed under this Title in respect to income received by them as such: xxx xxx xxx (E) Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person;" Under the above-quoted provision, a non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person is exempt from income taxation. (BIR Ruling No. 078-2011 dated March 15, 2011) Based on the foregoing, this Office is of the opinion that REVELATION (PALTIING) OF JESUS CHRIST FELLOWSHIP MISSION, INC. is a religious organization which is among those contemplated under Section 30 (E) of the Tax Code of 1997, as amended. Accordingly, it is exempt from the payment of 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 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 twenty percent (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 seven and one-half percent (7-1/2%) final withholding income tax pursuant to Sec. 27 (D) (1) in relation to Sec. 57 (A) both of the Tax Code of 1997. (BIR Ruling No. 078-2011 dated March 15, 2011) TaEIAS 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. 078-2011 dated March 15, 2011) It is requested that a copy of this letter of exemption be attached to the aforementioned Annual Information Return. (BIR Ruling No. 078-2011 dated March 15, 2011) It should be understood that the said exempt organization 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 implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the withholding tax provided for in Section 57 of the Tax Code of 1997, also as implemented by Rev. Regs. No. 2-98, as amended. (BIR Ruling No. 079-2011 dated March 15, 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. Finally, it is subject to the payment of 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 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. 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. ACTESI 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. (BIR Ruling No. 078-2011 dated March 15, 2011) Accordingly, if REVELATION (PALTIING) OF JESUS CHRIST FELLOWSHIP MISSION, INC. is engaged in the sale of services in the course of a business pursuit, such providing research services for a fee, including transactions incidental thereto, in general, it shall also be liable for VAT. Notwithstanding that it is a non-stock, non-profit corporation, 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. 078-2011 dated March 15, 2011) 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 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. (BIR Ruling No. 078-2011 dated March 15, 2011) 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. (BIR Ruling No. 078-2011 dated March 15, 2011) Donor's tax Inasmuch as REVELATION (PALTIING) OF JESUS CHRIST FELLOWSHIP MISSION, INC. is a corporation organized for religious purposes, donations to it are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. Deductibility of Donation Section 34 (H) (1) of the Tax Code of 1997 provides that for contributions or gifts actually paid or made within the taxable year to, or for the use of corporations or associations organized and operated exclusively for religious purposes, its donors shall be entitled only to the limited deductions in an amount not in excess of 10% in the case of an individual and 5% in the case of a corporation. (BIR Ruling No. 078-2011 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. IATHaS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue n Note from the Publisher: Copied verbatim from the official copy.