BIR Ruling No. 439-12

June 27, 2012 BIR RULING NO. 439-12 Sec. 30 NIRC; RMC No. 14-01; BIR RR 13-98 Metro Cebu Harbor Pilots Co., Inc. Pilot House Pier 1, Waterfront Quezon Blvd. San Roque, Cebu City Attention: Zennen A. Tabanao Chief, Special Investigation Division Gentlemen : This refers to BIR Regional Ruling dated 28 April 1999 granting tax exemption to Metro Cebu Harbor Pilots Co., Inc. as a civic league or organization not organized for profit but operated exclusively for promotion of social welfare pursuant to Section 30 (G) of the Tax Code, as amended. In a memorandum dated 25 April 2012, the Special Investigation Division, Revenue Region No. 13, Cebu City sought the assistance of this office to rule on the issue as to whether or not Metro Cebu Harbor Pilots Co., Inc. is a civic league or organization not organized for profit but operated exclusively for promotion of social welfare under to Section 30 (G) of the Tax Code, as amended, and therefore, entitled to tax exemption. Please be informed that Revenue Regulations No. 13-98 dated 8 November 1998 has explicitly provided a concrete definition, purposes and activities that a corporation must engaged into for it to qualify as a civic league or organization as contemplated by Section 30 (G) of the Tax Code, as amended, to wit: "Section 1 (A). "Non-stock, non-profit corporation or organization. shall refer to a corporation or association/organization referred to under Section 30 (E) and (G) of the Tax Code created or organized under Philippine laws exclusively for one more of the following purposes: xxx xxx xxx (vii) social welfare (L) Social welfare purposes" shall refer to and include (i) Undertaking and/or assisting in the amelioration of the living conditions of distressed citizens particularly those who are handicapped by reasons of poverty, youth, physical and mental disability, illness, old age and natural disasters, including assistance to cultural minorities; TIaDHE (ii) Pursuing a program for the protection and development of children and youth, such as providing services for drop-outs, pre-school children of low-income working mothers, and physically handicapped children; (iii) Providing for the rehabilitation of the youth and disabled adults, released prisoners, drug addicts, alcoholics, mentally retarded, hansenites and similar cases; and (iv) Providing for services to squatter families and to displaced workers. However, as provided in the Articles of Incorporation of the Metro Cebu Harbor Pilots Co., Inc. its purposes are as follows: "PRIMARY PURPOSE To furnish and render pilotage services to coastwise and foreign ships within the limits of the Cebu Pilotage district, in accordance with the law of the Philippines and of the rules and regulations promulgated by the Department of Finance Bureau of Customs and/or Cebu Port Authority. SECONDARY PURPOSES 1. To purchase, acquire, own, lease, sell and convey real properties such as lands, buildings, factories and warehouses and machineries, equipment and other personal properties as may be necessary or incidental to the conduct of the corporate business, and to pay in cash, shares of its capital stock, debentures and other evidences of indebtedness, or other securities, as may be deemed expedient, for any business or property acquired by the corporation; 2. To borrow or raise money to meet the financial requirements of its business by the issuance of bonds, promissory notes and other evidences of indebtedness, and to secure the repayment thereof by mortgage, pledge, deed of trust or lieu upon the properties of the corporation or to issue pursuant to law shares of its capital stock, debentures and other evidences of indebtedness in payment for properties acquired by the corporation or for money borrowed in the prosecution of its lawful business; EcIDaA xxx xxx xxx 5. To enter into lawful arrangement for sharing of profits, . . . xxx xxx xxx 8. To conduct and transact any and all lawful business, . . . Nothing in the enumerated purposes above will indicate that Metro Cebu Harbor Pilots Co., Inc. , had been created for social welfare purposes. Neither did it show that it has operated exclusively for the promotion of social welfare purposes. Apparently, the reason for the creation of the corporation is to engage in the business of pilotage services for profit. Therefore, Metro Cebu Harbor Pilots Co., Inc. , is not and has never been a civic league or organization not organized for profit but operated exclusively for the promotion of social welfare as contemplated by Section 30 (G) of the Tax Code of 1997, as amended. Article 7 of the Articles of Incorporation also revealed the fact that Metro Cebu Harbor Pilots Co., Inc., is a stock corporation with a capital stock of Twenty Five Million Pesos (P25,000.000.00): "SEVENTH: That the authorized capital stock of said corporation is TWENTY FIVE MILLION (P25,000,000.00), Philippine Currency, and said capital stock is divided into Two Hundred Fifty Thousand (250,000) shares with a par value of One Hundred (P100.00) Pesos each . And as stated in the attached General Information Sheet filed with the SEC, the corporation has from January 2010 until January 2012 declared cash dividends in the total amount of Two Million Pesos (Php2,000.000.00), bolstering the fact that Metro Cebu Harbor Pilots Co., Inc. , is a not a non-stock, non-profit corporation. aSIHcT Additionally, Revenue Memorandum Circular No. 14-01 dated 12 March 2001 has provided the lists of requirements to be submitted by a taxpayer in order to be granted a tax exemption, to wit: "2. TAX EXEMPTION UNDER SECTION 30 OF THE TAX CODE OF 1997 xxx xxx xxx b) Articles of Incorporation which must include the following provisions: i) that the corporation is a non-stock, non-profit; ii) that the primary purpose for which it was created is one of those enumerated under Sec. 30 of the Tax Code of 1997; iii) that no part of the net income shall inure to the benefit of any of its members; iv) that the trustees do not receive any compensation; and v) in case of dissolution, assets of the corporation shall be transferred to similar institution or to the government. " Evidently, the Articles of Incorporation of Metro Cebu Harbor Pilots Co., Inc. , is contrary to the conditions/requirements set forth under Revenue Memorandum Circular No. 14-01 . Based on the foregoing, this Office hereby revokes the certificate of tax exemption granted to Metro Cebu Harbor Pilots Co., Inc. on 28 April 1999. caCSDT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue