BIR Ruling No. 408-11

October 26, 2011 BIR RULING NO. 408-11 Section 30 (E) of the Tax Code of 1997; BIR Ruling No. DA-457-99; BIR Ruling No. [NSNP-(S30E-158) 806-09]; BIR Ruling No. S-30-027-2006 Philippine Academy of Rehabilitation Medicine-Rehabilitation Advocacy, Research and Education Foundation (PARM-RARE), Inc. Unit 808 Future Point Plaza I 112 Panay Avenue, Quezon City Attention: Bee Giok Tan-Sales, M.D. President Gentlemen : This refers to your letter dated June 3, 2011 requesting on behalf of PARM-RARE, Inc. for the issuance of a Certificate of Tax Exemption enjoyed by non-stock, non-profit corporation under Section 30 (E) of the Tax Code of 1997, as amended. It is represented that PARM-RARE, Inc., with Taxpayer's Identification No. (TIN) 007-988-286-000, 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. CN201102555; and that the purposes for which it was incorporated are the following: 1. To promote and support the educational, scientific and socio-civic programs of the Philippine Academy of Rehabilitation Medicine; 2. To enhance health promotion, disability prevention and patient care through advocacy, research and education in the field of physical and rehabilitation medicine; 3. To support the full spectrum of research and teaching in the field of physical and rehabilitation medicine; DIETcC 4. To promote innovation in patient care through research and education in physical and rehabilitation medicine; and 5. To encourage qualified individuals of diverse backgrounds to pursue careers in all aspects of the field of physical and rehabilitation medicine. In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because PARM-RARE, Inc. has to prove by actual operation for at least three (3) years that it is really a corporation/association exempt from income tax under Section 30 (E) of the Tax Code of 1997, as amended. (BIR Ruling No. [NSNP-(S30E-158) 806-09] dated December 22, 2009) PARM-RARE, Inc. can file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month following the end of its taxable year as required under Section 24 of Revenue Regulations No. 2-40 dated February 10, 1940 (Collector vs. Sinco, G.R. L-9276 dated October 23, 1956) . 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. However, PARM-RARE, Inc. is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code 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 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. 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. DA-457-99 dated August 11, 1999) cITCAa It should be understood that PARM-RARE, Inc. shall be constituted as withholding agent of the government if it acts as an employer and its employee receives 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 expanded withholding tax provided for in Section 57 (B) of the Tax Code of 1997, also as implemented by Revenue Regulations No. 2-98, as amended. (BIR Ruling No. S-30-027-2006 dated June 23, 2006) 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. 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]. Finally, for purposes of securing a permanent exemption after the three (3)-year period, PARM-RARE, Inc. is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 1) Certified true copy of the Certificate of Registration with the SEC; 2) 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; c. That no part of the net income shall inure to the benefit of any its members; cIHSTC 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. 3) Certified true copy of the By-Laws; 4) Certified true copy of the Annual Information Returns and Financial Statements for the last three (3) years of operation; 5) Certification under oath that there has not been any change in the By-Laws, Articles of Incorporation, manner of activities as well as the sources and disposition of income; and 6) BIR Certificate of Registration. 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 of Internal Revenue