BIR Ruling No. 452-13

November 27, 2013 BIR RULING NO. 452-13 Section 4 (3), Article XIV, 1987 Constitution; Department Order No. 149-95; ERP-107-2012 Unionbank of the Philippines UnionBank Plaza Meralco Ave. cor. Onyx & Sapphire Roads Ortigas Center, Pasig City Attention: Ms. Cecille Ma. G. Gaston Business Development Manager Ms. Jocelyn L. Sampedro Head, Business Development Gentlemen : This refers to your letter dated January 31, 2013 requesting on behalf of the De La Salle University, Incorporated reconfirmation of its tax exemption from the 20% percent and 7.5% final taxes on its interest income derived from local and foreign currency deposits imposed under Section 27 (D) (1) of the Tax Code of 1997, as amended. DTaAHS Documents submitted show that BIR Ruling No. 107-2012 dated March 5, 2012 was issued in favor of the De La Salle University, Incorporated exempting it from the 20% final tax and 7.5% final tax on its interest income from local banks deposits and foreign currency deposits. In reply, please be informed that the De La Salle University, Incorporated, being a non-stock, non-profit educational institution, continues to be exempt from the payment of the 20% final tax and 7.5% tax on interest income derived from local and foreign currency money market placements, bank deposits, deposit substitutes, trust funds and/or similar or like arrangements or investments, imposed under Section 27 (D) (1) of the Tax Code of 1997, as amended, and as provided for under Department Order No. 149-95 dated November 24, 1995, amending Finance Department Order No. 137-87 , subject to the compliance that, as a tax-exempt educational institution, it shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly audited financial statement together with the following: (a) Certification from its depository banks as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) (1) of the Tax Code of 1997; (b) Certification of actual utilization of the said income; and (c) Board Resolution 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 (Sec. 4, Finance Department Order No. 137-87). Under Section 4 of Finance Department Order No. 137-87, the information return should be filed annually on or before the 15th day of the 4th month following the end of the taxable year. However, De La Salle University, Incorporated shall be subject to internal revenue taxes on its income from trade, business or other activity the conduct of which is not related to the exercise or performance of its educational purpose or function (Section 2.1 of Finance Department Order No. 137-87, as amended by Finance Department Order No. 149-95). Pursuant to Section 27 (B) of the NIRC and the Supreme Court Decision in G.R. Nos. 195909 and 195960 dated 26 September 2012, entitled " Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc. ", 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. "Proprietary" means private, following the definition of a "proprietary educational institution" as "any private school maintained and administered by private individuals or groups" with a government permit. "Non-profit" means no net income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institution's purposes and all its activities conducted not for profit. Conversely, private non-profit educational institutions whose gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of their total gross income derived from all sources shall be subject to the regular corporate income tax rate prescribed under Section 27 (A) of the NIRC. 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. STIcEA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue