BIR Ruling No. 348-12

May 18, 2012 BIR RULING NO. 348-12 Section 4 (3), Article XIV, 1987 Constitution; Sections 27 (D) (1), 30 (H); 101 (A) (3); 105; 109 (H) of the Tax Code of 1997, as amended; BIR Ruling No. 168-11; BIR Ruling No. 155-11; BIR Ruling No. 152-11; and BIR Ruling No. 117-11 Saint Antoninus Academy of Pampanga, Inc. Corner Galac & Rodriguez Streets,Villa Victoria Dolores San Fernando City, Province of Pampanga Attention: Myravina Sampang-Adonis Principal/Corporate Treasurer Madam : This refers to your letter dated July 8, 2011, requesting on behalf of Saint Antoninus Academy of Pampanga, Inc. 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. It is represented that Saint Antoninus Academy of Pampanga, Inc. with Taxpayer's Identification No. 007-662-418-000, 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 Registration No. CN201004780 and with SEC Certificate of Incorporation dated March 25, 2010; that it is recognized by the government and permitted by the Department of Education, Culture and Sports (DECS) in accordance with Government Recognition No. E-154 s. 2009 to operate Pre-Elementary Course (Toddlers, Nursery, Kindergarten I and II) and SPED; and that the purposes for which it was incorporated are the following: 1) To encourage, initiate, stimulate, and support programs or projects for the interest of St. Antoninus Academy and the children enrolled thereat; 2) To engage in, initiate, stimulate, and support programs or projects for the development of research and education of children at St. Antoninus Academy; 3) To assist in the amelioration of the living conditions of students by providing access to educational facilities and programs; 4) To grant scholarships to deserving children of St. Antoninus Academy and other similar institutions; 5) To provide educational programs approved by the Department of Education for curriculum levels Pre-school, Elementary and Secondary education; 6) To accept gifts, contribution, endowments, grants, benefits and devices of any kind of real and personal property which are necessary and proper for the attainment of the purposes, objectives and programs of the association and to hold administer and dispose of the same for the purposes of the association; 7) To acquire, purchase, own, hold and operate develop, lease, mortgage, pledge, exchange, sell transfer or otherwise invest, trade or deal in any manner permitted by the law, real and personal property of every kind and description or any interest therein and to invest and reinvest its funds money or properties in any lawful manner. In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because Saint Antoninus Academy of Pampanga, Inc. has to prove by actual operation for at least three (3) years that it is really an organization/association exempt from income tax under Section 30 (H) of the Tax Code of 1997, as amended. Saint Antoninus Academy of Pampanga, Inc. can file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month of the preceding accounting period following the start of its operation as an exempt organization 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, Saint Antoninus Academy of Pampanga, 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. It should be understood that as a non-stock, non-profit corporation educational institution, Saint Antoninus Academy of Pampanga, 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 168-11 dated May 25, 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. 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. 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/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. Accordingly, if Saint Antoninus Academy of Pampanga, 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. 155-11 dated May 17, 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 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 12% VAT pursuant to Section 107 of the said Code (BIR Ruling 152-11 dated May 17, 2011 and BIR Ruling No. 117-11 dated April 12, 2011). Finally, for purposes of securing a permanent exemption after the three (3)-year period, Saint Antoninus Academy of Pampanga, 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 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) Certified true copy of the DECS recognition; 6) Sworn Affidavit of Non-Forum Shopping; and 7) 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 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