BIR Ruling No. 359-13

September 26, 2013 BIR RULING NO. 359-13 Section 30 (C) of the Tax Code of 1997; BIR Ruling No. 174-11; BIR Ruling No. 172-11; BIR Ruling No. 165-11; BIR Ruling No. 115-11 Cebu Alliance of Grains Traders, Inc. 25-27 Progresso Street, Cebu City 6000 Attention: Mr. Margarito Manuel C. Yu President Gentlemen : This refers to your letter dated October 15, 2012, requesting on behalf of CEBU ALLIANCE OF GRAINS TRADERS, INC. for the issuance of a Certificate of Tax Exemption enjoyed by non-stock, non-profit associations operating for the exclusive benefit of its members under Section 30 (C) of the Tax Code of 1997, as amended. It is represented that CEBU ALLIANCE OF GRAIN TRADERS, INC. with Taxpayer's Identification No. 408-518-600-000, is a non-stock, non-profit association duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CN201030570 dated September 20, 2010; and that among the purposes for which the association is incorporated are: 1. To advance the development of the grains industry by promoting and fostering a sustainable, viable and efficient grains sector in the Philippines in any manner that the association deems fit and thereby to generally promote the interest of the grains traders including those who are members; 2. To serve its members by advocating its fiscal interest and to foster a cordial relationship with all entities the association works with; and 3. To establish contacts between members and government and to consult and inform these bodies in the interest of all member. In support of its request, CEBU ALLIANCE OF GRAINS TRADERS, INC. has submitted the following documents: 1) Letter application for tax exemption; 2) Certified true copy of SEC Certificate of Incorporation; acAIES 3) Certified true copy of the Amended Articles of Incorporation which includes the following provisions: a) That the corporation is non-stock, non-profit association; 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 inures to the benefit of any of 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 a similar institution or to the government as provided in RMC 14-2001. 4) Certified true copy of the By-Laws; 5) Certified true copy Annual Information Return and Financial Statement for 2011; 6) Certified true copy of the BIR Certificate of Registration; and 7) Verification and Certification against Forum Shopping. In reply, please be informed that this Office cannot as yet issue the requested certificate of tax exemption because CEBU ALLIANCE OF GRAINS TRADERS, 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. (BIR Ruling No. 174-11 dated May 27, 2011) CEBU ALLIANCE OF GRAINS TRADERS, INC. shall 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. Hence, CEBU ALLIANCE OF GRAINS TRADERS, 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. (BIR Ruling No. 172-11 dated May 25, 2011) HcACTE It should be understood that CEBU ALLIANCE OF GRAINS TRADERS, INC. shall be constituted as withholding agent of 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 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. 165-11 dated March 23, 2011 and BIR Ruling No. 115-11 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 Ph500.00 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]. Finally, for purposes of securing a permanent exemption after the three (3)-year period, CEBU ALLIANCE OF GRAINS TRADERS, INC. shall file its Application for Tax Exemption with the Revenue District Office (RDO) where it is registered and is required to submit the following documents pursuant to Revenue Memorandum Order No. 20-2013: a. Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the NIRC, as amended, under which the application for exemption is being based; b. Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission; c. Original copy of Certification under Oath by an executive officer of the corporation or 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; IaAEHD d. Certified true copy of the Certificate of Registration with the BIR; e. 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 subparagraph; f. Original copy of the Certification issued by the 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 thereby be any, the Original copy of the Certification issued by the RDO on the status thereof; g. Certified true Copies of the DECS, or CHED, or TESDA recognition, as the case may be; h. 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; and i. Original copy of a 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/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 disclosed 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