BIR Ruling No. 391-14

October 15, 2014 BIR RULING NO. 391-14 Section 30 (F) of the Tax Code of 1997, as amended; BIR Ruling No. 375-13; BIR Ruling No. 469-12; BIR Ruling No. 365-11 The Canadian Chamber of Commerce of the Philippines, Inc. Unit 1406, Antel 2000 Corporate Center, 121 Valero Street, Salcedo Village, Makati City 1200 Attention: Ms. Heidi H. Del Pilar Office Manager Gentlemen : This refers to your letter dated November 25, 2013, applying in behalf of THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. for a tax exemption certificate under Section 30 (F) of the Tax Code of 1997, as amended. It is represented that THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. with Taxpayer's Identification No. (TIN) 001-075-799-000, is a corporation duly organized under the laws of the Philippines, registered with the Securities and Exchange Commission (SEC) under Registration No. 170064 dated October 27, 1989; and that among the purposes for which it was incorporated are the following, to wit: 1. To facilitate and foster contact and communication between the Canadian and Philippine business communities; 2. To assist in the development and promotion of Canadian business in the Philippines and South East Asia; ScaEIT 3. To keep the Corporation informed about current political and economic development in Canada, Philippines and in South East Asia; 4. To represent and expenses the opinions of the Government policies and procedures as it affects overseas business; 5. To provide opportunities together for social purposes. In support of its request, THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. 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 Registration/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. Any remaining assets shall be contributed to other Canadian associations in existence at the time of dissolution and thereafter remaining funds or assets shall be distributed to charitable associations. ADHcTE 3. Certified true copy of the New By-Laws which include the following provisions: a. Trustees shall not receive any compensation for their service as such; b. The Canadian Chamber of Commerce of the Philippines, Inc. is a non-stock, non-profit organization; c. No individual shall benefit from its net income, and that no less than seventy percent (70%) of the total fund of the corporation will be used for projects/purposes, and not more than thirty percent (30%) of the said fund shall be utilized for administrative expenses. 4. Certification under Oath by its Executive Director 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 corporation; 5. Certified true copy of the Certificate of Registration with the BIR; 6. Certification under Oath by the Treasurer certifying that the officers, directors/trustees of the corporation do not receive any salary, compensation or any kind of emoluments; 7. Certification issued by the Revenue District Officer, RDO No. 50, South Makati, that the corporation has no pending investigation and claim for refund; ESCacI 8. 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 9. Original copy of a statement under Oath by the Executive Director of the corporation as to its modus operandi . In reply, please be informed as follows: Income Tax Section 30 (E) of the 1997 Tax Code, as amended, provides, viz. : "Sec. 30. E x emptions 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 corporation or association 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 inure to the benefit of any private stockholder or individual is exempt from income taxation. (BIR Ruling No. 375-13 dated October 10, 2013) Wherefore, THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. falls within the purview of an association contemplated under Section 30 (F) of the Tax Code of 1997, as amended. Accordingly, it is exempt from the payment of 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. 375-13 dated October 10, 2013) aEACcS 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. 469-12 dated July 17, 2012) It should be understood that THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. 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. 469-12 dated July 17, 2012) 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 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 value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. 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 organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. SATDEI Accordingly, if THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall be liable for VAT. (BIR Ruling No. 365-11 dated October 5, 2011) Notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Sections 106 to 108 of the said Code. 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 THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. 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) DHaEAS 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); (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." CDHcaS Based on the foregoing, THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. 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 Donation In the light of the above, donations made to THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. are not deductible from the gross income of the donor/s as provided for under Section 34 (H) of the 1997 Tax Code. Moreover, THE CANADIAN CHAMBER OF COMMERCE OF THE PHILIPPINES, INC. 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. 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]. (BIR Ruling No. 181-13 dated May 20, 2013) DAEICc It is requested that a copy of this letter of exemption be attached to the aforementioned Annual Information Return. 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 with the same requirements and procedures provided under Revenue Memorandum Order (RMO) No. 20-2013. Failure to renew the Tax Exemption Ruling shall be deemed a revocation thereof upon the expiration of the three (3)-year period. The new Tax Exemption Ruling shall be valid for another period of three (3) years, unless sooner revoked or cancelled. 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