BIR Ruling No. 391-12

June 8, 2012 BIR RULING NO. 391-12 Section 4 (3), Article XIV of the 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. 170-2011; BIR Ruling No. 169-2011; BIR Ruling No. 159-2011; BIR Ruling No. 116-2011; BIR Ruling No. 073-2011 De La Salle John Bosco College, Inc. 8311 La Salle Drive, Mangagoy, Bislig City Surigao del Sur Attention: Ofelia S. Fugoso, AFSC President Gentlemen : This refers to your letter dated February 25, 2010 requesting for the issuance of a certificate of tax exemption enjoyed by a non-stock, non-profit educational institution under Section 30 (H) of the Tax Code of 1997 as amended. It is represented that the DE LA SALLE JOHN BOSCO COLLEGE, INC. (formerly John Bosco College, Inc.) with Taxpayer's Identification Number (TIN) 000-555-932, is a non-stock, non-profit educational corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. 23568 dated August 15, 1963; that the primary purpose for which the School is formed is "to organize, establish, maintain and conduct a progressive catholic institution of learning of a high academic standing which will emphasize cultural and spiritual development, moral character, and scientific research and, to this end, operate colleges and schools giving elementary, secondary, collegiate and post-graduate courses as well as vocational scientific and artistic courses in accordance with up-to-date and modern educational theories and methods"; and that it is granted the following government permits from the Department of Education (DepEd), Commission on Higher Education (CHED) and Technical Education and Skills Development Authority (TESDA): 1) DECS Government Recognition No. 146, s. 1963 dated June 3, 1963 for the Complete Elementary Course (Day); EacHSA 2) DECS Government Recognition No. 57, s. 1967 dated May 17, 1967 for the Fourth Year Secondary Course (Day); 3) CHED Government Recognition No. (GR) R13-464108-05, Series of 2009 dated May 26, 2009 to conduct and operate the Bachelor of Science in Information Technology (BSIT) AY 2008-2009; 4) CHED Certificate of Authority (CA) No. 16-036L Series of 2007 dated July 25, 2007 to operate the Bachelor of Science in Computer Science ladderized program effective School Year (SY) 2007-2008; 5) CHED Government Recognition No. (GR) R13-340402-11, Series of 2007 dated June 19, 2007 to conduct and operate the Bachelor of Science in Office Administration (BSOA) AY 2007-2008; 6) CHED Government Recognition No. (GR) R13-140101-4030415-01, Series of 2001 dated December 13, 2001 to conduct and operate the Bachelor of Elementary Education, Area of Concentration in Mathematics, English Language and General Science effective Collegiate Year (CY) 2000-2001; 7) CHED Government Recognition No. (GR) R13-464101-02, Series of 2002 dated June 10, 2002 to conduct and operate the Bachelor of Science in Computer Science effective Collegiate Year (CY) 2002-2003; 8) Certificate of TVET Program Registration No. WTR 0815042043 dated August 15, 2008 for a program on Shielded Metal Arc Welding NC II; DHEcCT 9) Certificate of TVET Program Registration No. WTR 0815042042 dated August 15, 2008 for a program on Consumer Electronics Servicing NC II; 10) Certificate of TVET Program Registration No. WTR 0815042014 dated May 15, 2008 for a program on Caregiving NC II; 11) Certificate of TVET Program Registration No. WTR 075042104 dated May 10, 2007 for a program on Building Wiring Installation NC II; 12) Certificate of TVET Program Registration No. WTR 0715042103 dated April 12, 2007 for a program on Automotive Servicing NC II; 13) Certificate of TVET Program Registration No. WTR 0715042105 dated May 10, 2007 for a program on Machining NC II; 14) Certificate of TVET Program Registration No. WTR 0815042044 dated August 15, 2008 for a program on Motorcycle Small Engine Servicing NC II; 15) Certificate of TVET Program Registration No. WTR 0815042042 dated August 15, 2008 for a program on Consumer Electronics Servicing NC II; 16) Certificate of TVET Program Registration No. WTR 0515042004 dated May 12, 2005 for a program on Two-Year in Criminology NC II; 17) Certificate of TVET Program Registration No. WTR 0615042003 dated May 22, 2006 for a program on Two-Year Practical Nursing NC II; and 18) Certificate of TVET Program Registration No. WTR 0815042037 dated July 30, 2008 for a program on Barista NC II; In support of its request, DE LA SALLE JOHN BOSCO COLLEGE, INC. has completely submitted on April 26, 2012 the following documents: 1) Letter application for tax exemption; HaEcAC 2) Certified true copy of the SEC Certificate of Incorporation; 3) Certified true copy of the Amended 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 to establish and conduct an educational institution under Section 30 of the Tax Code of 1997, as amended; c) That the corporation "shall not be conducted for pecuniary profit. No distribution of property of the corporation or of dividends among incorporators and/or members of the corporation shall be made and all income of the corporation, whether from students' fees, or gifts, donations, subsidies or other forms of philanthropy shall be devoted exclusively to the accomplishment and promotion of the purposes and objects for which the corporation is organized"; and d) That "in the event of dissolution of the corporation, its remaining assets after the payment of its liabilities shall be conveyed and transferred to the De La Salle Brothers, Inc., or to a member school of the De La Salle Brothers, Inc., or to a Lasallian school established or organized by the De La Salle Brothers, Inc., or to such non-stock and non-profit corporation dedicated to religious, educational, scientific or philanthropic pursuits, or to the Republic of the Philippines or any of its agencies or instrumentalities or political subdivisions as the members of the corporation may decide". 4) Certified true copy of the Amended By-Laws; 5) Certified true copy of SEC General Information Sheet; 6) Certified true copies of Comparative 2007 and 2008, 2008 and 2009 Financial Statements; and 7) Certified true copies of current government permits from CHED, DepEd and TESDA. 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: CAcEaS 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. From the foregoing, and since DE LA SALLE JOHN BOSCO COLLEGE, 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. However, DE LA SALLE JOHN BOSCO COLLEGE, 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, DE LA SALLE JOHN BOSCO COLLEGE, 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. (BIR Ruling No. 159-2011 dated May 19, 2011) 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 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. (Revenue Regulations No. 16-2011) Hence, as long as DE LA SALLE JOHN BOSCO COLLEGE, 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. 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. 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: TcDHSI (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 DE LA SALLE JOHN BOSCO COLLEGE, INC. as ancillary activities and the same are located within its premises. In addition, gifts, donations, and other contributions received by DE LA SALLE JOHN BOSCO COLLEGE, 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 DE LA SALLE JOHN BOSCO COLLEGE, 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. DE LA SALLE JOHN BOSCO COLLEGE, 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, DE LA SALLE JOHN BOSCO COLLEGE, 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. AHcDEI Moreover, DE LA SALLE JOHN BOSCO COLLEGE, 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 DE LA SALLE JOHN BOSCO COLLEGE, INC. to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. 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