BIR Ruling No. 375-13

October 10, 2013 BIR RULING NO. 375-13 Section 30 (F) of the Tax Code of 1997; BIR Ruling No. 158-11; BIR Ruling No. 156-11; BIR Ruling No. 153-11 Manabat Sanagustin & Co., CPAs The KPMG Center, 9F 6787 Ayala Avenue, Makati City Attention: Roberto L. Tan Principal, Tax Gentlemen : This refers to your letter dated June 16, 2011, requesting on behalf of your client, German-Philippine Chamber of Commerce and Industry, Inc. (GPCCI) requesting in effect for exemption from the payment of income tax under Sec. 30 (F) of the Tax Code of 1997, as amended. CaATDE It is represented that GPCCI (TIN: 006-981-503-000) 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. CN200803132; and that the purposes for which it was incorporated are the following: 1) To promote and facilitate bi-national interest, strong commercial and industrial relationships between the Federal Republic of Germany and the Republic of the Philippines as a whole and the interests of persons, firms or corporations engaged in such commerce and industry; 2) To cooperate with the Government of the Republic of the Philippines and public bodies in the Philippines in the furtherance of the economic development and prosperity of the Philippines with particular reference to the promotion of foreign investments; 3) To represent the interests of the Members of the Chamber, and cultivate friendly relationship between Germany and the Philippines and their people; 4) To offer and perform services and support for entities from Germany and the Philippines irrespective of whether or not those entities are Members of the Chambers; 5) To facilitate and intensify between trade between entities from Germany and the Philippines and to provide means for the convenient exchange of ideas concerning commerce and industry between said nations; 6) To initiate and maintain contacts between interested commercial circles and groups from Germany and Philippines; 7) To act as a representative of its Members on all issues of commercial interest vis--vis German and Philippine authorities and other institutions, such as European Chamber of Commerce of the Philippines, Inc. and the Philippine Chamber of Commerce, and other bilateral chamber; 8) To collect, collate, supply, provide and disseminate information relating to the economic situation in Germany and the Philippines, develop and update the business, economic, commerce, and industry, as well as commercial topics, via newsletters, annual reports and other publications; to provide means for the convenient exchange of ideas concerning commerce and industry between Germany and the Philippines; 9) To conduct events, such as seminars, discussion forums, workshops, press conferences and similar affairs; cDIaAS 10) To promote vocational training opportunities which are beneficial to the interests of German and Philippine companies; 11) To represent companies which conduct trade fairs or economic development activities; 12) To provide ways and means for specific projects of the Chamber as far as these comply with the laws of the Philippines and do not contravene the By-Laws of the Chamber; 13) To provide services to its Members, meeting their requirements and expectations in all respects in so far as these are economically feasible, comply with the law, and do not contravene the By-Laws of the Chamber; 14) To conduct activities in the bilateral interests of the companies from Germany and the Philippines; this approach shall be embodied in the resolutions of the Board of Directors of the Chamber, the sub-committees and other bodies of the Chamber; 15) To communicate with Chambers of Commerce and other public or private bodies throughout the world with a view of promoting measures for the facilitation of trade; and 16) Generally, to do all such things as may appear to be incidental, proper or conducive to the attainment of the above purposes and objectives, provided that the Chamber shall at all times be a non-political entity and shall not support with its funds any political or trade union organizations. In support of its request, GPCCI has completely submitted on November 26, 2012 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; ScEaAD 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) BIR Certificate of Registration; and 7) Other pertinent documents. In reply, please be informed as follows: Income Tax Section 30 (F) of the Tax Code of 1997, 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 (F) Business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual." Under the above-quoted provision, a non-stock and non-profit corporation organized as a business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual is exempt from income taxation. (BIR Ruling No. 365-11 dated October 5, 2011) GPCCI falls within the purview of an association contemplated under the above cited provision. Accordingly, it is exempt from the payment of income tax on income received by it as such organization. However, it is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 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. (BIR Ruling No. 365-11 dated October 5, 2011) Likewise, interest income from currency bank deposits and yield or any other monetary benefit 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. (BIR Ruling No. 365-11 dated October 5, 2011) CSIcTa 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. 365-11 dated October 5, 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. It should be understood that GPCCI shall be constituted as withholding agent for 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 withholding tax pursuant to Section 57 of the Tax Code of 1997, also as implemented by Revenue Regulations No. 2-98, as amended. (BIR Ruling No. 365-11 dated October 5, 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. Finally, 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]. Value-Added Tax 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, as amended, 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 VAT imposed in Sections 106 to 108 of the same Code. DTCAES 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 association (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 the association 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 GPCCI 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. 365-11 dated October 5, 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. However, the above exemption from the 12% VAT does not extend to its purchase of goods or properties or services and importation of goods. Hence, notwithstanding that it is a non-stock, non-profit association, 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 No. 365-11 dated October 5, 2011) Donor's Tax Pursuant to Section 101 of the 1997 Tax Code, only the following gifts or donations are exempt from donor's tax, viz. : "(A) In the case of Gifts Made by a Resident (1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized, or adopted children to the extent of the first ten thousand pesos (P10,000); DCSTAH (2) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government; and (3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited non-government organization, trust or philanthropic organization or research institution: Provided, however, that not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of this exemption, a 'non-profit educational and/or charitable corporation, institution, accredited, nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receives no compensation, and devoting all its income, whether student fees or gifts, donations, subsidies or other form of philanthropy, to the accomplishment and promotion of the purposes enumerated in the Articles of Incorporation." Based on the foregoing, GPCCI does not qualify as a donee organization and as such, any gift or donation made thereto by the donor/s is not exempt from the donor's tax. Deductibility of Donations In the light of the above, donations made to GPCCI are not deductible from the gross income of the donor/s as provided for under Section 34 (H) of the 1997 Tax Code. 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