BIR Ruling No. 388-14

October 15, 2014 BIR RULING NO. 388-14 Section 4 (3), Article XIV, 1987 Constitution; Sections 27 (A), (B), (D) (1), 30 (H); 57; 101 (A) (3); 105; 109 (H), 235; 236 (B); 237 of the 1997 Tax Code, as amended; Department Order No. 137-87, as amended by Department Order No. 92-88; Department Order No. 149-95; RMC No. 76-2003; BIR Ruling No. 459-13; BIR Ruling No. 455-13; BIR Ruling No. 438-13; BIR Ruling No. 059-13; BIR Ruling No. 548-12 Febias College of Bible, Inc. Karuhatan Road, Karuhatan, Valenzuela City 1441 Attention: Dr. Anacleto S. Carag, D. Min.,Ph. D. President Gentlemen : This refers to your letter dated October 21, 2013, requesting for a certificate of tax exemption enjoyed by non-stock, non-profit educational institutions pursuant to Paragraph 3, Section 4, Article XIV of the 1987 Constitution and Section 30 (H) of the Tax Code of 1997, as amended. It is represented that FEBIAS COLLEGE OF BIBLE, INC.,with Taxpayer's Identification No. 000-941-247-000, is a non-stock, non-profit educational institution duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 38456 dated May 30, 1969; that it is recognized by the government and permitted by the Department of Education (DepEd) in accordance with Government Recognition Nos. P-301, s. 2013 for the Nursery/Kindergarten Course effective as of school year 2013-2014, and by the Commission on Higher Education (CHED) to offer the following courses in accordance with Government Recognition Nos. herein enumerated: to wit: 1. GR No. 208, s. 1971 for Bachelor of Arts; 2. GR No. 004, s. 2010 for Master of Arts in Theology, Major in Christian Ministries; EHSIcT 3. GR No. 010, s. 2010 for Bachelor of Elementary Education, Major in Pre-School Education; 4. GR No. 018, s. 2010 for Bachelor of Arts in Christian Ministries. and that the purposes for which it was incorporated are the following: 1. To train pastors, Bible teachers, evangelists, missionaries, Christian Musicians, Christian educators and teachers; 2. To provide Biblically sound nursery, kindergarten and pre-school education; 3. To award academic and theological degrees or diplomas to those who qualify and are recommended by the administration and faculty of the college; 4. To solicit, receive and accept any donations, grants, bequests or legacies in connection with the primary objectives of the corporation; 5. To acquire, hold, buy, sell, exchange, hire or lease and to mortgage or otherwise encumber any property, real or personal, that may be necessary to carry out the purposes of the corporation; 6. To enter into contracts and agreements on matters necessary or incidental to the proper conduct of the corporate affairs or the corporation with any and all persons, firms, associations, or corporations existing in the Philippines or elsewhere; 7. Generally, to do such other things and transact all business as may be directly or indirectly incidental or conducive to the attainment of the above purposes or objectives. HSaCcE In support of its request, FEBIAS COLLEGE OF BIBLE, INC. has submitted the following required documents: 1. Original copy of application letter for issuance of Tax Exemption Ruling; 2. Certified true copy of the Certificate of Incorporation with the Securities and Exchange Commission (SEC); 3. Certified true copy of the amended Articles of Incorporation issued by the SEC which include the following: 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 property or income of the corporation shall inure to the benefit of any member, trustee or officer; d. That any member, trustee or officer do not receive any compensation or remuneration for their service to the aforementioned organization; and e. That in the event of dissolution, the existing assets of Febias College of Bible, Inc. will be passed on to another accredited NGO or organization of similar purpose or purposes or to the State for public purpose or purposes, or would be distributed by a competent court of justice to another accredited NGO to be used in such manner as in judgment of said court shall best accomplish the general purpose for which the dissolved organization was organized. STaCIA 4. Certified true copy of the amended By-Laws; 5. Original copy of Certification under Oath by its President 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 of the subject corporation or association; 6. Certified true copy of the Certificate of Registration with the BIR; 7. Original copy of the Certification under Oath by the Treasurer certifying that any member, trustee or officer do not receive compensation or remuneration for their service to the aforementioned organization (except the President who shall receive compensation as determined by the Board) and enumerating the executive officers receiving emoluments from the corporation; 8. Original copy of the Certification issued by the Revenue District Officer, RDO No. 24, Valenzuela City, that the corporation is not 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 judicial appeal; 9. Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation for the last three (3) years; 10. Original copy of a statement under Oath its as to its modus operandi; 11. Certified true copy of Government (DepEd, CHED,) Recognition Certificates; and EcSCAD 12. Original copy of Certification under oath by its Treasurer as to the utilization of annual revenues and assets. 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. 459-13 dated December 6, 2013) 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 Tax Code. However, if their gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived from all sources then the entire taxable income shall be subject to the regular corporate income tax rate prescribed under Section 27 (A) of the Tax Code." (Section 27 [B] of the Tax Code of 1997, as amended; 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 activity, the conduct of which is not substantially related to the exercise or performance by such educational institution of its primary purpose or function. (Section 27 [B], Tax Code of 1997) From the foregoing, and since FEBIAS COLLEGE OF BIBLE, 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. 459-13 dated December 6, 2013) However, FEBIAS COLLEGE OF BIBLE, 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) IcCDAS Likewise, FEBIAS COLLEGE OF BIBLE, 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 (1) (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 (1) (V) of the same Code if the gross sales or receipts from such sale of goods and services do not exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) which tax payment may legitimately be passed on to buyers of such goods and services. (BIR Ruling No. 455-13 dated November 27, 2013) Hence, as long as FEBIAS COLLEGE OF BIBLE, 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. 438-13 dated November 21, 2013) 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. 059-13 February 11, 2013) 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: TEaADS (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 FEBIAS COLLEGE OF BIBLE, INC. as ancillary activities and the same are located within its premises. In addition, gifts, donations, and other contributions received by FEBIAS COLLEGE OF BIBLE, 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 FEBIAS COLLEGE OF BIBLE, 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. aSTAHD FEBIAS COLLEGE OF BIBLE, INC. is advised to contact The Secretariat, Philippine Council for NGO Certification (PCNC),tel. nos. 782-1568, 715-9594, 715-2756 or telefax 715-2783. It must be emphasized that its tax exemption does not cover withholding taxes. As an educational institution, FEBIAS COLLEGE OF BIBLE, 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, FEBIAS COLLEGE OF BIBLE, 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) 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 FEBIAS COLLEGE OF BIBLE, INC. to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. (BIR Ruling No. 548-12 dated August 31, 2012) 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 a revocation upon the expiration of its validity period. HDICSa 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 Bureau of Internal Revenue