BIR Ruling No. 356-14

September 17, 2014 BIR RULING NO. 356-14 Section 30 (E) 1997 Tax Code; BIR Ruling No. 111-2014 Association of Philippine Medical Colleges Foundation, Inc. Suite 611 Future Point Plaza I Panay Avenue, Quezon City Attention: Dr. Fernando S. Sanchez Executive Director Gentlemen : This refers to your letter dated December 19, 2013 requesting on behalf of the Association of Philippine Medical Colleges Foundation, Inc. (APMCFI) the issuance of a Certificate of Tax Exemption enjoyed by non-stock, non-profit corporation organized exclusively for scientific purposes under Section 30 (E) of the Tax Code of 1997, as amended. It is represented that APMCFI, with Tax Identification Number (TIN) 000-707-094-000, 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) with SEC Certificate of Registration No. 113489; and that the purposes, among others, for which the corporation was organized are the following, to wit: 1. To undertake research and development projects in health, sciences, biological and physical sciences, social sciences and the humanities; 2. To develop scientific and technological manpower through scholarship grants, advanced training grants, travel study and observation grants and financial assistance to faculty members participating in workshops, seminars, scientific conferences; 3. To establish professorial chairs; 4. To develop a pool of research equipment and improve laboratory and library facilities; IHEaAc 5. To develop field laboratories and stations for community studies; and 6. To establish linkages with other research institutions. In reply, please be informed that Section 30 (E) of the 1997 Tax Code, as amended, provides for the exemption of non-stock, non-profit organizations operated exclusively for scientific purposes, to wit: "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: (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 inures to the benefit of any member, organizer, officer or any specific person; xxx xxx xxx" Relative thereto, Revenue Regulations (RR) No. 13-98 (Implementing Republic Act No. 8424, "An Act Amending the National Internal Revenue Code, as Amended" Specifically Section 34 (H) Relative to the Deductibility of Contributions or Gifts Actually Paid or Made to Accredited Donee Institutions in Computing Taxable Income) defines "scientific and research purpose" as follows: "Section 1. Definition of Terms. xxx xxx xxx (g) "Scientific and research purpose" shall refer to undertaking or assisting in pure or basic, applied and scientific research in the field of agriculture, forestry, fisheries, industry, engineering, energy development, food and nutrition, medicine, environment and biological, physical and natural sciences for the public interest. AacCIT (i) Basic research shall refer to an experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts without any particular application or use in view. It analyzes properties, structures or relationships with a view to formulating and testing hypothesis, theories or laws. The results of basic research are not generally sold but are usually published in scientific journals or circulars to interested colleagues. (ii) Applied research shall refer to an original investigation undertaken in order to acquire new knowledge. It is directed primarily towards a specific practical aim or objective. It is undertaken either to determine possible uses for the findings of basic research or to determine new methods or ways of achieving some specific and predetermined objectives. It involves the consideration of the available knowledge and its extension in order to solve particular problems. Applied research develops ideas into operational form. (iii) Scientific research will be regarded as carried on for public interest if the results of such research are made available to the public on a non-discriminatory basis; or if such research is performed for the Government of the Philippines or any of its agencies or political subdivisions; or if such research is directed to benefit the public." While it appears in the Articles of Incorporation of APMCFI that it was organized for scientific and research purpose under Section 30 (E) of the 1997 Tax Code, a perusal of the documents submitted to this Office shows that its actual activities do not pertain to any scientific and research purpose. This was confirmed by the representation made by APMCFI's Executive Director in his application letter dated December 19, 2013, that the corporation's major activities include the implementation of National Internship Matching Programs and other related activities such as the accreditation of medical hospitals for internship and collaborator in the administration of national medical admission test. These activities do not fall within the purview of the definition of "scientific and research purpose" contemplated under Section 30 (E) of the 1997 Tax Code and RR No. 13-98. Furthermore, the Financial Statements of the corporation show that it is a profit-oriented enterprise since it collects internship fees, accreditation fees, annual dues and other contributions for its services. It had collected Php4,417,500.00, Php3,609,500.00 and 3,065,500.00 in 2013, 2012 and 2011 respectively from internship fees alone. This fact leads to no other conclusion than that the corporation is offering its services for a fee. HEacDA Even assuming arguendo that those amounts collected by the corporation pertain to donations from members, said donations are still subject to donor's tax. Under Section 101 (A) (3) of the Tax Code of 1997, as amended, donations to an accredited research institution may be exempt from the donor's tax provided that not more than thirty percent (30%) of those donations shall be used for administration purposes. It is noted that the administrative expenses of PMCFI from 2010 to 2012 exceeded thirty percent of the revenues it collected for the same years. It bears stressing that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. 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 111-2014 dated April 21, 2014) Foregoing considered, this Office is of the opinion that PMCFI does not fall under the definition of a non-stock, non-profit organization engaged exclusively for scientific and research purpose. Hence, it is subject to the applicable income taxes imposed under Title II of the 1997 Tax Code. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue