BIR Ruling No. 347-14

August 26, 2014 BIR RULING NO. 347-14 Section 30 (E), Tax Code of 1997, as amended; BIR Ruling No. 174-2011; BIR Ruling No. 172-2011; BIR Ruling No. 165-2011; BIR Ruling No. 115-2011; BIR Ruling No. 259-2011 The Order of the Great I Am, Inc. 168 Avenida, Rizal West, Poblacion, Lingayen, Pangasinan Attention: Ms. Jacqueline E. Coralde Corporate Secretary Gentlemen : This refers to your letter dated March 11, 2013 requesting for a Certificate of Tax Exemption on behalf of THE ORDER OF THE GREAT I AM, INC. pursuant to Section 30 (E) of the National Internal Revenue Code (NIRC) of 1997, as amended. It is represented that THE ORDER OF THE GREAT I AM, INC. with BIR Taxpayer's Identification No. (TIN) 008-432-781-000 and Certificate of Registration No. OCN4RC0000693739 dated January 30, 2013, is a non-stock, non-profit religions corporation duly organized and existing under the laws of the Republic of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. CN201222887 dated December 14, 2012; and the sole purpose for which it was incorporated is to administer its affairs, properties and estate. In support of its request, THE ORDER OF THE GREAT I AM, INC. submitted the following documents: A) Original copy of the application letter for issuance of Tax Exemption Ruling; B) SEC certified true copy of its Certificate of Incorporation; C) SEC certified true copy of its Amended Articles of Incorporation which expressly states the following provisions: a) That the corporation/association is non-stock, non-profit; b) That the primary purpose for which it was incorporated is one of those enumerated under Section 30 of the Tax Code of 1997, as amended; c) That no part of its net income shall inure to the benefit of any of its members or any private individual; d) That the trustees of the religious corporation do not receive any compensation; and e) That in case of dissolution, assets of the religious corporation shall be transferred to a similar institution or to the government. D) SEC certified true copy of its By-laws; E) Certification that there has not been any change in the manner of activities as well as sources and disposition of income; ATESCc F) Original copy of the Certification from RDO No. 5, Alaminos City, Pangasinan that it is not the subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; and G) Certified true copy of its BIR Certificate of Registration. In reply, please be informed that this Office cannot as yet issue the requested Certificate of Tax Exemption because THE ORDER OF THE GREAT I AM, INC. has to prove by actual operation for at least three (3) years that it is really an organization or 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) THE ORDER OF THE GREAT I AM, INC. can file the necessary annual information return instead of an income tax return on or before the fifteenth (15th) day of the fourth (4th) 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, THE ORDER OF THE GREAT I AM, INC. is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code (NIRC) of 1997, as amended, 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 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, as amended. Moreover, it is required to file on or before the fifteenth (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 THE ORDER OF THE GREAT I AM, 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) 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. 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]. TCacIA Moreover, the tax exemption granted to it as a non-stock, non-profit corporation/association under Section 30 (E) of the Tax Code of 1997, as amended 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 under Sections 106 to 108 of the same code. 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. 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 or purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer or 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. Accordingly, if THE ORDER OF THE GREAT I AM, INC. is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT. (BIR Ruling No. 259-2011 dated July 27, 2011) Likewise, 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 twelve percent (12%) VAT. Hence, 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 twelve percent (12%) VAT pursuant to Section 107 of the Tax Code of 1997, as amended. (BIR Ruling No. 259-2011 dated July 27, 2011) Finally, for purposes of securing a Certificate of Exemption after the three (3)-year period. THE ORDER OF THE GREAT I AM, INC. is required to submit the following documents pursuant to Revenue Memorandum Order (RMO) No. 20-2013 dated July 22, 2013 : 1) Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the NIRC of 1997, as amended, under which the application for exemption/revalidation is being based; 2) SEC certified true copy of the Articles of Incorporation which must specifically include and clearly state the following provisions verbatim: 1) That the corporation is non-stock, non-profit; 2) 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; 3) That no part of the net income shall inure to the benefit of any of its members; TSacAE 4) That the trustees do not receive any compensation; and 5) In case of dissolution, assets of the corporation shall be transferred to a similar institution or to the government. 3) SEC certified true copy of the By-Laws; 4) Original copy of the Certification under Oath by an executive officer of the corporation/association as to: (i) all previous amendments/changes in the Articles of Incorporation and By-laws; (ii) manner of activities; and (iii) the sources and disposition of income, if any, of the subject corporation or association. If there are no amendments/changes, the Certification shall state this fact ; 5) Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the last three (3) years of operation; 6) Original copy of the Certification under Oath by the treasurer of the corporation or association as to the amount of income, compensation, salaries or any emoluments paid by the corporation or association to its trustees, officers and other executive officers. Provided, that, a corporation sole, which, by its nature, does not have trustees, corporate officers or executive officers need not submit the certification required under this paragraph; 7) Certified true copy of the BIR Certificate of Registration; 8) Original copy of the Certification under Oath issued by the Revenue District Office (RDO) where the corporation or association is registered that the corporation or association is not the subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; or if there be any, the Original copy of the Certification issued by the RDO on the status thereof; and 9) Original copy of the Statement under Oath by an executive officer of the corporation or association as to its modus operandi which shall include: (i) A full description of the past, present, and proposed activities of the corporation or association; (ii) A narrative description of anticipated receipts and contemplated expenditures; and (iii) A detailed description of all revenues which it seeks to be exempted from income tax. All other revenues which are not included in the statement or application shall be subject to income tax. 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. EHTSCD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue