BIR Ruling No. 367-13

October 1, 2013 BIR RULING NO. 367-13 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. 170-11; BIR Ruling No. 169-11; BIR Ruling No. 159-11 Notre Dame of Marbel University, Inc. Alunan Avenue, City of Koronadal South Cotabato Attention: Bro. Wilfredo E. Lubrico, FMS President Gentlemen : This refers to your letter dated December 3, 2012, requesting for tax exemption pursuant to Section 30 (H) of the Tax Code of the Philippines, as amended. TCEaDI It is represented that Notre Dame of Marbel University, Inc. with Taxpayer's Identification No. 001-387-375-000, 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. 4379 dated March 19, 2001; that it is recognized by the government and permitted to operate the following; Commission on Higher Education (CHED) Government Recognition No. 160 s. 1959 Four-Year Course Bachelor of Science in Elementary Education (B.S.E.Ed.) Government Recognition No. 161 s. 1959 Four-Year Course Bachelor of Science in Education (B.S.E.) Government Recognition No. 162 s. 1959 Four-Year Course Bachelor of Arts (A.B.) Government Recognition No. 169 s. 1961 Four-Year Course Bachelor of Science in Commerce Government Recognition No. 40 s. 1970 Graduate Course in Education Master of Arts in Education (M.A.) Government Recognition No. 81 s. 1978 Graduate Course in Science Education Master of Arts in Science Education (M.A.) Government Recognition No. 055 s. 1983 Four-Year Course Bachelor of Science in Secretarial Administration (B.S.S.A) Government Recognition No. 056 s. 1983 Four-Year Course Bachelor of Science in Theology (B.S.Theo.) Government Recognition No. 141 s. 1983 Four-Year Course Bachelor of Science in Biology Government Recognition No. 142 s. 1983 Four-Year Course Bachelor of Science in Chemistry Government Recognition No. 143 s. 1983 Four-Year Course Bachelor of Science in Mathematics Government Recognition No. 144 s. 1983 Four-Year Course Bachelor of Science in Guidance and Counseling (B.S.G.C.) Government Recognition No. 145 s. 1983 Four-Year Course Bachelor of Elementary Education (B.E.Ed.) Government Recognition No. 017 s. 1988 Four-Year Course Bachelor in Agricultural Technology (B.A.T.) Government Recognition No. 002 s. 1991 Associate in Industrial Technology specialized in Architectural Drafting, Electricity & Electronics, Refrigeration & Airconditioning Government Recognition No. 003 s. 1992 Two Year Nursing Aide Government Recognition No. 003 s. 1992 Two Year Associate in Food Technology (A.F.T.) Government Recognition No. 019 s. 1993 Master in Public Administration (M.P.A.) Master in Business Administration (M.B.A.) Government Recognition No. 020 s. 1993 Bachelor of Science in Accountancy (B.S.A.) Government Recognition No. 3 s. 1994 Doctor of Philosophy (Ph.D.) in Educational Management Government Recognition No. 4 s. 1994 First to Fourth Year Bachelor of Science in Food Technology Government Recognition No. 27 s. 1994 First to Fourth Year Bachelor of Science in Computer Science Government Recognition No. 001 s. 1995 Master of Science in Physics Master of Science in Crop Science Government Recognition No. 002 s. 1995 Master of Science in Biology Master of Science in Chemistry Master of Science in Mathematics Government Recognition No. 007 s. 1996 BS in Agriculture Government Recognition No. 012 s. 1996 Master of Science in Rural Extension and Development Government Recognition No. 005 s. 1997 Bachelor of Science in Medical Technology Government Recognition No. 201 s. 1998 Bachelor of Science in Electrical Engineering Government Recognition No. 202 s. 1998 Bachelor of Science in Computer Engineering Government Recognition No. 203 s. 1998 Bachelor of Science in Chemical Engineering Government Recognition No. 204 s. 1998 Bachelor of Science in Electronics and Communication Engineering Government Recognition No. 072 s. 2000 Bachelor of Science in Social Work Government Recognition No. 251 s. 2000 Bachelor of Science in Community Development Government Recognition No. 010 s. 2002 Bachelor of Science in Geodetic Engineering Government Recognition No. 011 s. 2002 Bachelor of Science in Industrial Engineering Government Recognition No. 012 s. 2002 Bachelor of Science in Information Management Government Recognition No. 013 s. 2002 Bachelor of Science in Information Technology Government Recognition No. 001 s. 2007 Bachelor of Science in Nursing Government Recognition No. 022 s. 2010 Bachelor of Science in Accounting Technology Government Recognition No. 045 s. 2011 Bachelor of Science in Hotel and Restaurant Management Government Recognition No. 052 s. 2011 Bachelor of Science in Business Administration Department of Education (DepEd) Government Recognition No. 388 s. 1956 Grades One and Two of the Primary Course (Day) Government Recognition No. 396 s. 1957 Third and Fourth Grades of the Primary Course (Day) Government Recognition No. 163 s. 1959 Grades Five and Six of the Elementary Course (Day) Government Recognition No. 131 s. 1974 Complete Secondary Course (Day) Government Recognition No. 015 s. 1987 Kindergarten Course Technical Education and Skills Development Authority (TESDA) TVET Program Registration No. Commercial Cooking NC II 2012120102016 TVET Program Registration No. Computer Hardware Servicing NC II 2012120102017 TVET Program Registration No. Food and Beverage Services NC II 2012120102018 TVET Program Registration No. Automotive Servicing NC II 201212012023 TVET Program Registration No. RAC Servicing (PACU/CRE) NC II 201212012024 TVET Program Registration No. Shielded Metal Arc Welding (SMAW) 201212012025 NC II and purposes for which it was incorporated are the following: 1) To establish and maintain Catholic school or college, as an institution of learning dedicated to the moral, academic, scientific, technical, sociological and economic and vocational needs of the youth of the Philippines as well as contribute to the advancement of the socio-economic development of the country; 2) To promote the principles of higher education whether general professional or technical by providing a sound, complete and general education according to the individual and his socio-economic needs; 3) To provide courses of study in the primary, intermediate, secondary, vocational and collegiate levels for which the usual certificates and/or diplomas may be awarded and the appropriate honors and degrees conferred; 4) To engaged in carry and conduct scientific, technical, sociological and humanitarian researches, experiments, investigation, analysis and studies; 5) To establish, maintain and operate scientific laboratories, technical shops, pilot demonstration plants and any and all other facilities and establishments as may be necessary for attaining the aforesaid purposes; HICSaD 6) To prepare, compile, select, distribute and disseminate scientific data information of all kinds which maybe reasonable useful in furthering the purposes of the Corporation; 7) To edit, print, publish, distribute and circulate among the students and the scholars, books, pamphlets, periodicals, papers and magazines in connection with the activities of the Corporation; and 8) To receive gifts, bequests, legacies, donations and devises, to acquire, possess and hold title to real, personal and mixed estates, either in trust or otherwise, for the purpose of carrying out the purposes, aims and ends of the donation, grant or bequest. In support of its request, Notre Dame of Marbel University, Inc. has completely submitted on February 4, 2013 the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the Certificate of Registration with the SEC; 3) 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 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 similar institution or to the government. 4) Certified true copy of the By-Laws; 5) Certified true copies of the Annual Income Tax Returns and Financial Statements for the last three (3) years of operation; 6) Certified true copy of the CHED, TESDA and DEPED Recognition; 7) BIR Certificate of Registration. HSCATc In reply, please be informed that paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz. : "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties." Likewise, Section 30 (H) of the 1997 Tax Code, as amended, provides, viz. : "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: xxx xxx xxx (H) A non-stock and non-profit educational institution; ...." A non-stock, non-profit educational institution is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. The exemption contemplated herein refers to internal revenue taxes imposed by the National Government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. (BIR Ruling No. 170-11 dated May 25, 2011 and BIR Ruling No. 159-11 dated May 19, 2011) Private non-profit educational institutions whose gross income from unrelated trade, business or other activity does not exceed fifty percent (50%) of their total gross income derived from all sources, shall pay a tax of ten percent (10%) on their taxable income except those covered by Section 27 (D) of the NIRC. However, if their gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of their total gross income derived from all sources shall be subject to the regular corporate income tax rate prescribed under Section 27 (A) of the NIRC. (Section 27 (B) of the NIRC and Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc., G.R. Nos. 195909 and 195960 dated 26 September 2012) Unrelated trade, business or other activity means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or its primary purpose or function. (Section 27 [B], Tax Code of 1997) From the foregoing, and since Notre Dame of Marbel University, Inc. is a non-stock and non-profit educational institution as contemplated under the said provisions, it is exempt from the payment of taxes and duties on all its revenues and assets used actually, directly and exclusively for educational purposes. (BIR Ruling No. 169 dated May 25, 2011) DCcAIS However, Notre Dame of Marbel University, Inc. shall be 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 educational institutions of their educational purposes or functions (Sec. 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Likewise, Notre Dame of Marbel University, Inc.'s gross receipts from operations as a non-stock, non-profit educational institution are exempt from value-added tax (VAT) pursuant to Section 109 (H) of the 1997 Tax Code, as amended. However, other activities involving sale of goods and services not in connection with its primary purposes are subject to the 12% VAT imposed under Sections 106 and 108 of the Tax Code of 1997, as amended, or 3% percentage tax imposed under Section 116 in relation to Section 109 (V) of the same Code if the gross sales or receipts from such sale of goods and services do not exceed One Million Five Hundred Thousand Pesos (P1,500,000.00) 1 which tax payment may legitimately be passed on to buyers of such goods and services. (BIR Ruling No. 170-11 dated May 25, 2011 and BIR Ruling No. 159-11 dated May 19, 2011) Hence, as long as Notre Dame of Marbel University, Inc. will not engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, it will remain exempt from VAT. (BIR Ruling No. 170-11 dated May 25, 2011 and BIR Ruling No. 159-11 dated May 19, 2011) 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. 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. (BIR Ruling No. 170-11 dated May 25, 2011 and BIR Ruling No. 159-11 dated May 19, 2011) Under Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of its purpose as an educational institution, are exempt from the 20% final tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the Tax Code of 1997, subject to compliance with the conditions that as a tax-exempt educational institution it shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly audited financial statement together with the following: TaDSCA (a) Certification from their depository banks as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) (1) of the Tax Code of 1997; (b) Certification of actual utilization of the said income; and (c) Board Resolution by the school administration on proposed projects ( i.e., construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of the money deposited in banks or placed in money markets, on or before the 15th day of the fourth month following the end of its taxable year (Sec. 4, Finance Department Order No. 137-87). Moreover, revenues derived from assets used in the operation of cafeterias/canteens and bookstores are exempt from taxation provided they are owned and operated by Notre Dame of Marbel University, Inc. as ancillary activities and the same are located within its premises. In addition, gifts, donations, and other contributions received by Notre Dame of Marbel University, Inc. as an educational institution, are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of said gift shall be used for administration purposes. Donors cannot avail of full deductibility for purposes of computing taxable income under Revenue Regulations No. 13-98 without the accreditation of Notre Dame of Marbel University, Inc. as a donee institution with the Philippine Council for NGO Certification (PCNC). Organizations seeking certification shall file with the PCNC Secretariat a letter of intent to apply for certification and submit the necessary documents. If the applicant NGO has met the minimum criteria for certification, the Board gives a 3-year or 5-year certification to the organization and informs this Office which then issues to said organization a certification of Donee Institution Status. Notre Dame of Marbel University, Inc. is advised to contact The Secretariat, Philippine Council for NGO Certification (PCNC),tel. nos. 7821-568; 7159-594; 7152-756 or telefax 7152-783. It must be emphasized that its tax exemption does not cover withholding taxes. As an educational institution, Notre Dame of Marbel University, Inc. is constituted as withholding agent for the government required to withhold the tax on compensation income of its employees, or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the Tax Code of 1997, as amended. Moreover, Notre Dame of Marbel University, Inc. is also 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 they are registered. (RMC No. 76-2003) cDAEIH Under Section 235 of the Tax Code of 1997, as amended, any provision of existing general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of accounts and other pertinent records of Notre Dame of Marbel University, Inc. to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. (BIR Ruling No. 170-11 dated May 25, 2011 and BIR Ruling No. 159-11 dated May 19, 2011) Please note that this tax exemption ruling shall be valid for a period of three (3) years from the date of issue, unless sooner revoked or cancelled. The tax exemption ruling may be renewed upon filing of a subsequent application for Tax Exemption/Revalidation provided under Revenue Memorandum Order (RMO) No. 20-2013, otherwise, the exemption shall be deemed revoked upon the expiration of its validity period. 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 Footnotes 1. P1,919,500.00 starting January 1, 2012.