BIR Ruling No. 392-13

October 25, 2013 BIR RULING NO. 392-13 Section 30 (J), Section 27 (D) (1) in relation to Section 57 (A), Section 105 of the Tax Code of 1997, as amended; Revenue Regulations No. 02-40; BIR Ruling No. 438-11 Timpuyog Daguiti Irrigators Association TI Region I (TIARI), Inc. NIA RO Compound Bayaoas Urdaneta City Pangasinan 2428 Attention: Oftociano M. Manalo President Gentlemen : This refers to your letter dated 7 December 2012 requesting for the issuance of a certificate of tax exemption enjoyed by a non-stock, non-profit corporation pursuant to Section 30 (J) of the National Internal Revenue Code of 1997 (NIRC). It is represented that TIMPUYOG DAGUITI IRRIGATORS ASSOCIATION TI REGION I (TIARI), INC. is a non-stock, non-profit corporation with Taxpayer Identification No. 425-088-365-000 duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission under SEC Registration No. CN201230066; and that among the purposes for which the Association is organized are, to wit: "1. To act as representative of all members of the Confederation in the region in all local executive and legislative public hearings on irrigation, agricultural and rural development programs and projects at the regional level; 2. To serve as a channel for the provision of technical, logistical assistance to PFIAs of government agencies (Gas), non-government organizations (NGOs) and private institutions (PIs); HCEaDI 3. To hold regular meetings of all provincial federation Presidents and BODs to discuss and receive issues and concerns for the benefit of all the member-federations in the region; 4. To establish and operate economic and livelihood programs and services for member-federations; 5. To assist or act as an agent or representative of its member-federations in marketing their farm produce; 6. To serve as a body in pooling financial as well as physical resources of member-federations which may be required in the pursuit of larger scale business activities, depending upon the capabilities of member-federations; 7. To represent the member-federations at the National Confederation of Irrigators Associations (NCIA); 8. To initiate and co-sponsor provincial and/or regional IA Congress and symposium for the purpose of enhancing IA participation in irrigations, agricultural and rural development in the region; 9. To enter into an agreement with other Gas, NGOs and/or PIs that will provide programs and other support services to enhance farm productivity in the irrigated areas in the region; and 10. To adopt policies that would promote strong collaborative efforts between IAs, NIA and/or other Gas, NGOs, PIs." AacCIT In reply, pleased be informed that this Office cannot as yet issue the requested certificate of tax exemption because you have to prove by actual operation for at least three (3) years that TIARI, INC. is really an organization/association exempt from income tax under Section 30 of the Tax Code of 1997, as amended. You should file the necessary annual information return on or before the 15th day of the fourth month of the preceding accounting period following the start of your operation as an exempt organization as required under Section 24 of Revenue Regulations (Rev. Regs.) No. 2. Based on such information return, we shall conduct the necessary investigation on the activities undertaken during the period. The letter of exemption shall thereafter be issued depending upon the result of our investigation. TIARI, INC. is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997, as amended, 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. Likewise, interest income from currency bank deposits and yield or any other monetary benefits 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 depositary 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. Moreover, it is required to file on or before the 15th month 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 expense 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. 117-10 dated November 4, 2010) ADcHES It should be understood that the said exempt non-government organization shall be constituted as withholding agent of the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax provided for in Section 57 (B) of the Tax Code of 1997, also as implemented by Rev. Regs. No. 2-98, as amended. 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, TIARI, INC. 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]. For purposes of securing a Tax Exemption Ruling after the three (3)-year period, TIARI, INC. is required to submit the following documents pursuant to Revenue Memorandum Order No. 20-2013: DCaSHI a) Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the NIRC, as amended, under which the application for exemption/revalidation is being based; b) Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission; c) Original copy of Certification under Oath by an executive officer of the corporation or association 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, if any, of the subject corporation or association. If there are no amendments/changes, the Certification shall state this fact. d) Certified true copy of the Certificate of Registration with the BIR; e) Original copy of the Certification under Oath by the Treasurer of the corporation or association as to the amount of income, compensation, salaries or any emoluments paid by the corporation or association to its trustees, officers and other executive officers. Provided, that, a corporation sole, which, by its nature, does not have trustees, corporate officers or executive officers need not submit the certification required under this subparagraph. SDATEc f) Original copy of the Certification issued by the RDO where the corporation or association is registered that the corporation or association is not the subject of any pending investigation, on-going audit, pending tax assessments, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or judicial appeal; or if thereby any, the Original copy of the Certification issued by the RDO on the status thereof; g) 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 h) Original copy of a statement under Oath by an executive officer of the corporation or association as to its modus operandi which shall include: i) A full description of the past, present, and proposed activities of the corporation or association; ii) A narrative description of anticipated receipts and contemplated expenditures; and iii) A detailed description of all revenues which it seeks to be exempted from income tax. All other revenues which are not included in the statement/application shall be subject to income tax. 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. EHCDSI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue