BIR Ruling No. 451-13

November 27, 2013 BIR RULING NO. 451-13 Section 30 (E) of the Tax Code of 1997; BIR Ruling No. 158-11; BIR Ruling No. 157-11; BIR Ruling No. 138-11; BIR Ruling No. 075-11; BIR Ruling No. 058-11; BIR Ruling No. 024-11 Mother Ignacia National Social Apostolate Center, Inc. 214 N. Domingo St., Quezon City Attention: S. Maria Dolores D. Ferrandiz, RVM Executive Director Gentlemen : This refers to your letter dated May 21, 2012 and received by this Office on September 04, 2012 requesting on behalf of Mother Ignacia National Social Apostolate Center, 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 the Mother Ignacia National Social Apostolate Center, Inc. with Taxpayer's Identification No. 005-214-590-000, is a non-stock, non-profit charitable organization registered with the Securities and Exchange Commission (SEC) bearing Registration No. A1997-2714; and that the purpose for which it was incorporated is: " Second : That the purpose or purposes for which such corporation is incorporated are: To promote and operate a nationwide program for total human development geared to improving the quality of life of its clientele through Spiritual/Value Formation, Education, Economic, Socio-Cultural, Physical, Political and other Special. That the major programs and services of the association to accomplish its vision, mission and goals are the following: xxx xxx xxx MICRO-FINANCE: This program supports its partners by honing their entrepreneurial skills, providing them financial assistance for viable business ventures, and, when needed, enterprise consultancy. (Micro-Financing, Cooperatives, Entrepreneurship)" Mother Ignacia National Social Apostolate Center, Inc. 's Audited Financial Statement for fiscal years ending 2010 to 2012 likewise indicate that it is engaged in micro-financing activities. CSIDTc In support of its request, the Mother Ignacia National Social Apostolate Center, Inc. has completely submitted on November 13, 2012 the following documents: 1. Letter application for tax exemption; 2. Certified machine copy of the Certificate of Registration with the SEC; 3. Certified machine 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 of its members; 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. 4. Certified machine copy of the By-Laws; 5. Certified machine copy of the 2010 General Information Sheet; 6. Certified true copy of the Annual Information Returns for fiscal years ending 2010 to 2012 and Financial Statements for fiscal years ending 2010 to 2012; 7. BIR Certificate of Registration; and 8. Verification/Certification Against Forum Shopping. In reply, please be informed as follows: Income Tax Section 30 (E) of the 1997 Tax Code, as amended, provides, viz. : "Sec. 30. Exemptions from Tax on Corporations . The following organizations shall not be taxed under this Title in respect to income received by them as such: CIHTac xxx xxx xxx (E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person; . . ." The income tax exemption provided under Section 30 (E), however, does not extend to activities conducted for profit. The last paragraph of Section 30 of the Tax Code of 1997, as amended, provides: "Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made such income, shall be subject to tax imposed under this Code." (Underscoring supplied) To be exempt from income taxes, Section 30 (E) of the Tax Code of 1997 requires that a charitable institution must be "organized and operated exclusively" for charitable purposes. (Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc., G.R. Nos. 195909 and 195960 dated 26 September 2012) . Based on the foregoing, Revenue Memorandum Circular (RMC) No. 67-2012 provides: "Henceforth, non-stock, non-profit corporations or associations which claim to be charitable or social welfare but do * not organized and operated 'exclusively' for charitable or social welfare purposes as above-defined are not entitled to the income tax-exemption under Section 30 [E] and [G] of the NIRC, as amended, and their taxable income shall be subject to ordinary 30% corporate rate under Section 27 (A) of the NIRC, as amended. They are likewise subject to other applicable taxes, if warranted." Revenue Regulations (RR) No. 14-07 dated December 11, 2007 was issued to rationalize the tax exemptions of NGOs and the cooperatives engaging in microfinance activities based on existing laws and regulations and the relevant tax treatment of the profits derived in relation to their delivery of microfinance services. Section 5 of RR 14-05 provides: " SECTION 5. Tax Treatment of Microfinance Services Rendered by Non-governmental Organizations . All NGOs falling under the enumeration of Section 30 of the Tax Code of 1997, as amended, are exempt from income taxes, in respect of income received by them as such. However, income of such NGOs from microfinance activities, and which are not in respect of their registered activities covered by Section 30 of the tax Code of 1997, as amended, regardless of the disposition made such income, shall be subject to tax under the tax Code of 1997, as amended. AICTcE Similarly, non-stock, non-profit NGOs, whether or not engaged in microfinance activities, are still also required to file withholding tax returns and remit withholding taxes on all income payments that are subject to withholding as specified in Revenue Memorandum Circular No. 76-2003." (Emphasis supplied) Based on the foregoing, the income derived by Mother Ignacia National Social Apostolate Center, Inc. from its microfinance activities is subject to income tax under the Tax Code of 1997, as amended. Value-Added Tax Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code or to percentage tax under Section 116, whichever is applicable. Notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code: (BIR Ruling No. 157-2011 dated May 19, 2011) It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. Those exempt from the payment of VAT under Section 109 (1) (W) 1 are liable to pay percentage tax. Section 116 provides: "SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT) . Any person whose sales or receipts are exempt under Section 109 (V) [now Section 109(1)(W)] of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales of receipts: Provided, That cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed." As clearly stated in the law, non-VAT registered entities exempt under Section 109 (1) (W) of the NIRC, as amended, are covered by percentage taxes. 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Section 109. Exempt Transactions . (1) . . . (W) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00); Provided , That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer price Index, as published by the National Statistics Office (NSO).