BIR Ruling No. 432-14

October 28, 2014 BIR RULING NO. 432-14 Section 30(G) of the Tax Code of 1997; BIR Ruling No. 111-2014 Ecumenical Church Foundation, Inc. Rm. 200, Bp. La Verne D. Mercado Ecumenical Center 879 EDSA 1104 Quezon City Attention: Donna F. Fernandez Finance Unit Officer Gentlemen : This refers to your letter dated December 10, 2013 duly indorsed by Revenue Region No. 7-Quezon City requesting for the issuance of a certificate of tax exemption enjoyed by a civic league or organization not organized for profit but operated exclusively for the promotion of social welfare pursuant to Section 30 (G) of the Tax Code of 1997, as amended. It is represented that Ecumenical Church Foundation, Inc. with Taxpayer's Identification No. 004-521-724-000, 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. AN096-00228; and that the purposes for which it was incorporated are the following: 1) To foster human development in general and in particular for alleviation of poverty, promotion of social, economic, justice and self-reliance for socially and economically marginalized group of the Philippines; 2) To extend assistance to Christian churches, cooperatives and non-stock and non-profit organizations in the Philippines; 3) To assist projects of Christian churches, cooperatives and organizations within the community which foster human development and seek to correct social or economic imbalance; and ADEaHT 4) To promote savings as an integral part of the system in order to promote self-reliance of community groups. In reply, please be informed that Section 30 (G) provides for exemption of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare. An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. An organization embraced within this section is one which operated primarily for the purpose of bringing about civic betterment and social improvements. A perusal of the documents submitted by Ecumenical Church Foundation, Inc. shows that it is engaged in microfinance. The bulk or primary source of its revenues come from interest income and services fees from loans. Such proceeds are being used almost exclusively for its perpetuation. It appears that this activity is being carried on by Ecumenical Church Foundation, Inc. in a manner similar to organizations operated for profit. Thus, it is organized and operated principally for profit. The audited financial statements show that its major source of income comes from loans receivables that are collected within three months to five years with an interest rates imputes are 12% per annum on institutional loans and 30% per annum on microfinance loans. Organizations that promote social welfare should primarily promote the common good and general welfare of the people of the community as a whole. An organization is not operated exclusively for the promotion of social welfare if its primary activity is carrying on a business with the general public. An organization that is engaged in microfinance cannot be presumed to be a social welfare organization under Section 30 (G) of the Tax Code of 1997, as amended because microfinance is a business activity conducted by organizations operated for profit such as banks. (BIR Ruling No. 111-14 dated April 21, 2014) Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute. CDScaT Tax exemptions must be construed strictly against the taxpayer and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. In case of doubt, non-exemption must be favored. Taxes being the lifeblood of the government that should be collected without unnecessary hindrance, every precaution must be taken not to unduly suppress it. IN VIEW OF THE FOREGOING, this Office is of the opinion that Ecumenical Church Foundation, Inc. does not qualify for exemption under Section 30 (G) of the NIRC, as amended. It is therefore liable for Income Taxes imposed under Title II of the same Code and other applicable taxes such as Value-Added Tax (VAT) or Percentage Tax. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue