BIR Ruling No. 441-14

October 30, 2014 BIR RULING NO. 441-14 Section 30 (E) of the Tax Code of 1997, as amended; BIR Ruling No. 168-11; BIR Ruling No. 155-11 Rufino Redoble Sr. Memorial Learning Center, Inc. Purok Bayabas, Central Glad Midsayap, Cotabato 9410 Attention: Marilyn R. Zamora President Gentlemen : This refers to your letter dated 11 April 2013 forwarded by Revenue District Office No. 108 Kidapawan City dated 17 April 2013 requesting for the issuance of a Certificate of Tax Exemption enjoyed by non-stock, non-profit educational institution under Section 30 of the Tax Code of 1997 as amended. It is represented that RUFINO REDOBLE SR. MEMORIAL LEARNING CENTER, INC.,with Taxpayer Identification Number (TIN) 419-366-771-000 is a non-stock, non-profit educational institution duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CN201228716 dated 5 January 2012; and that the purposes for which RUFINO REDOBLE SR. MEMORIAL LEARNING CENTER, INC. is formed are: 1) "To organize, establish, maintain, prescribe courses approved by the Department of Education (DepEd) and operate a progressive complete pre-school system devoted to the cause of Christian Education, to the growth and development of the intellectual, spiritual, social as well as physical capacity of each child, to the building and nurture of a firm moral values among the school pupils"; 2) "To provide for the holding and giving lectures, exhibitions, public meetings, convocations, seminars, educational demonstrations and conferences to advance the cause of the school"; 3) "To secure, print and/or publish books, pamphlets, manuals and other literature which will enrich the school curriculum"; 4) "To serve as an outreach arm of Glad Tidings United Methodist Church"; 5) "To do such act or acts incidental or appurtenant thereto and proper for the attainment of the above purposes which are permitted by the laws of the Republic of the Philippines and/or rules and regulations of the Securities and Exchange Commission (SEC)";and SaAcHE 6) "To receive tuitions and miscellaneous fees, accept donations, endowments, grants, legacies and instruments/devices comformably with existing applicable statutes". In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption. RUFINO REDOBLE SR. MEMORIAL LEARNING CENTER, INC. has to prove by actual operation for at least three (3) years that it is really an organization/association exempt from income tax under Section 30 of the Tax Code of 1997, as amended. Private non-profit educational institutions whose gross income from unrelated trade, business or other activity does not exceed fifty percent (50%) of their total gross income derived from all sources, shall pay a tax of ten percent (10%) on their taxable income except those covered by Section 27 (D) of the NIRC. However, if their gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of their total gross income derived from all sources then the entire taxable income shall be subject to the regular corporate income tax rate prescribed under Section 27 (A) of the NIRC. (Section 27 (B) of the NIRC and Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc., G.R. Nos. 195909 and 195960 dated 26 September 2012) Unrelated trade, business or other activity means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or its primary purpose or function. (Section 27 [B], Tax Code of 1997) RUFINO REDOBLE SR. MEMORIAL LEARNING CENTER, INC. shall file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month of the preceding accounting period following the start of its operation as an exempt organization 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. Hence, RUFINO REDOBLE SR. MEMORIAL LEARNING CENTER, 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. It should be understood that RUFINO REDOBLE SR. MEMORIAL LEARNING CENTER, 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. 168-11 dated May 25, 2011). ISTDAH 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 also 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 they are registered. (RMC No. 76-2003) Finally, for purposes of securing a tax exemption ruling after the three (3)-year period, RUFINO REDOBLE SR. MEMORIAL LEARNING CENTER, INC. shall file its application for Tax Exemption with the Revenue District Office (RDO) where it is registered and is required to submit the following documents pursuant to Revenue Memorandum Order (RMO) No. 20-2013: A) Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the Tax Code of 1997, as amended, under which the application for exemption/revalidation is being based. Moreover, the letter request should be a sworn statement executed under oath by the individual taxpayer or by the authorized official/representative of the corporation, partnership or entity containing the following: 1) Factual background of the request for ruling, including: a) names, addresses, and taxpayer identification numbers of all interested parties; b) a complete statement of the business reasons for the transaction; and c) a detailed description of the transaction or circumstances involved. 2) The issues/questions raised or conclusions sought to be confirmed by the taxpayer; 3) The legal grounds and the relevant authorities supporting the position of the taxpayer; 4) List of documents submitted; and 5) Affirmations stating that: a) a similar inquiry has not been filed and is not pending in another office of the Bureau; b) there is no pending case in litigation involving the same issue/s and the same taxpayer or related taxpayer; c) the issue/s subject of the request is not pending investigation, on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceeding or judicial appeal; and DaAISH d) the documents submitted are complete and that no other documents will be submitted in connection with the request (RMO 9-2014). B) Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission. The Articles of Incorporation must clearly state that: 1) It is a non-stock, non-profit corporation or association; 2) The purpose for which it was created is one of those enumerated under Section 30 of the NIRC, as amended; 3) No part of the corporation or association's net income shall inure to the benefit of any member, organizer, officer or any specific person or private individual; 4) The trustees or organizers of the non-profit corporation or association do not receive any compensation, remuneration, salaries or honorarium; and 5) In the event of dissolution, its assets shall be distributed to one or more entities formed for the purpose/purposes similar to its own or to the Philippine government for public purpose (Revenue Memorandum Circular No. 51-2014). C) Original copy of Certification under Oath by an executive officer of the corporation or association as to: 1) all previous amendments/changes in the Articles of Incorporation and By-Laws, 2) manner of activities, and 3) 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. 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 assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; or if thereby be 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; ACTISD 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: 1) A full description of the past, present, and proposed activities of the corporation or association; 2) A narrative description of anticipated receipts and contemplated expenditures; and 3) 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. I) Certified true copy of government recognition/permit/accreditation to operate as an educational institution issued by the Commission on Higher Education (CHED),Department of Education (DepEd),or Technical Education and Skills Development Authority (TESDA); J) If the government recognition/permit/accreditation to operate as an education institution was issued more than five (5) years prior to the application for tax exemption/revalidation, an original copy of a current Certificate of Operation/Good Standing, or other equivalent document, issued by the appropriate government agency ( i.e. , CHED, DepEd, or TESDA) shall be submitted as proof that the non-stock and non-profit educational institution is currently operating as such; and K) Original copy of Certificate of utilization of annual revenues and assets by the Treasurer or his equivalent of the non-stock and non-profit educational institution. In accordance with the guidelines set forth in Section 1.3 of Department of Finance (DOF) Order No. 137-87, the Certificate shall provide a breakdown of the following: 1) Any amount in cash or in kind (including administrative expenses) paid or utilized to accomplish one or more purposes for which the educational institution was created or organized, including grant of scholarship to deserving students and professorial chairs for the enhancement of professional course. 2) Any amount paid to acquire an asset used (or held for use) directly in carrying out one or more purposes for which it was created or organized, including the upgrading of existing facilities to support the conduct of the above activities. 3) Any amount in cash or in kind invested in an activity related to the educational purposes for which it was created or organized. 4) Any amount set aside for a specific project, which must be supported by a Board Resolution issued by the school administration on proposed projects ( i.e. , construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of the money deposited in banks or placed in money markets, on or before the 15th day of the fourth month following the end of its taxable year. EHcaAI 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 Bureau of Internal Revenue