BIR Ruling No. 336-14

August 26, 2014 BIR RULING NO. 336-14 ChildFund Philippines 8F Strata 100 Bldg. F. Ortigas Jr. Road Pasig City Attention: Jazer T. Marcelo Human Resources and Administration Director Gentlemen : This refers to your letter dated June 2, 2014 requesting for clarification whether income payments to an educational institution for services not related to the performance of the educational purpose of the organization are exempted from withholding tax. It is represented that ChildFund Philippines commissioned the Social Development Research Center of the De La Salle University (SDRC-DLSU) to undertake a study related to a project that ChildFund Philippines is implementing in Typhoon Yolanda-affected areas. Section 30 (H) of the National Internal Revenue Code of 1997, as amended, (NIRC) provides for exemption of nonstock, nonprofit educational institutions. The provision reads: 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: DSHTaC xxx xxx xxx (H) A non-stock and nonprofit educational institution. xxx xxx xxx Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under this Code. Under this provision, the income tax exemption of non-stock, non-profit educational institutions is limited to income earned from its operations as an educational institution. Income earned from non-educational activities are not covered by the exemption. Revenue Memorandum Circular No. 76-2003 clarified that non-stock nonprofit education institutions that qualify under Sec. 30 (H) of the NIRC are 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 education institution of their education purposes or functions. SacTCA Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. In case of doubt, non-exemption must be favored. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. (BIR Ruling No. 310-2011 dated August 22, 2011) The services rendered by SDRC-DLSU to ChildFund are not related to the former's performance of its educational purpose as the same may be rendered by non-educational institutions. SDRC-DLSU's income from such services are therefore not exempt from corporate income tax pursuant to the last paragraph of Section 30 of the NIRC. IN VIEW OF THE FOREGOING, this Office is of the opinion that income payments made by ChildFund to SDRC-DLSU for services rendered which are not related to the latter's educational purpose are subject to applicable withholding taxes. cCSEaA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue