BIR Ruling No. 466-14

November 19, 2014 BIR RULING NO. 466-14 Section 30 of the Tax Code of 1997, as amended; BIR Ruling No. 357-13 ADD Foundation International, Inc. ADDFII Head Office 909 Brgy. PHILAM, EDSA, Quezon City Attention: Atty. Fredelino O. Tudio Chairman and President Rhea Sasondoncillo Corporate Treasurer Gentlemen : This refers to your letter dated 15 August 2011 requesting for the issuance of a certificate of tax exemption enjoyed by a non-stock corporation or association under Section 30 of the Tax Code of 1997, as amended. It is represented that ADD FOUNDATION INTERNATIONAL, INC., with Taxpayer Identification Number (TIN) 007-268-285-000, 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 Company Registration No. CN200904439 dated 23 March 2009; and that the purposes for which ADD FOUNDATION INTERNATIONAL, INC. are: 1) "To operate, maintain, and supervise pursuant to existing laws, any/all charitable associations or organizations that it shall put up anywhere in the Philippines or outside its territory, subject to laws of the country where it may be established, including, but not limited to, their facilities such as: orphanages, transient homes or hospices, and hospitals or clinics"; a) "To put up, operate, manage, and maintain, anywhere in the Philippine or abroad, a Dialysis Clinic to be known as the ADD FOUNDATION INTERNATIONAL DIALYSIS CLINIC"; 2) "To coordinate with government and the social welfare agencies on projects which will benefit the poor and the needy, whether within or outside the Philippines"; 3) "To provide legal assistance and moral reformation program to inmates in municipal, city or national penitentiaries"; 4) "To organize assistance program, legal and/or financial, to needy overseas workers and their dependents"; caIEAD 5) "To provide free public medical and dental assistance in cooperation with medical or dental associations and pharmaceutical companies willing to give gratuitous medicines or professional services on medical and dental missions in urban areas in Metro Manila and in the provinces nationwide; and whenever possible to encourage and coordinate with any group or association of professionals, especially the legal profession, to render also their services free to the public during such medical and dental missions"; and 6) "To give commendations or awards for assistance or services rendered by any individual, organization, association or government agency to the Foundation's advocacy of charity and social justice". In reply, please be informed that while it appears from the purposes enumerated under the Amended Articles of Incorporation of ADD FOUNDATION INTERNATIONAL, INC. that the organization may qualify under either Section 30 (E) or (G) of the Tax Code of 1997, as amended, which provide: "Section 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: 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; xxx xxx xxx (G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;" however, the purposes of ADD FOUNDATION INTERNATIONAL, INC. also allows the same "to put up, operate, manage, and maintain, anywhere in the Philippine or abroad, a Dialysis Clinic to be known as the ADD FOUNDATION INTERNATIONAL DIALYSIS CLINIC" which activity would not fall within the contemplation of a non-stock, non-profit organized and operated exclusively for charitable or social welfare purposes. The Supreme Court, in the case of Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc. (G.R. No. 195909 & G.R. No. 195960, September 26, 2012) , declared: ". . . [T]o be exempt from income taxes, Section 30 (G) of the NIRC requires that the institution be "operated exclusively" for social welfare. However, the last paragraph of Section 30 of the NIRC qualifies the words "organized and operated exclusively" by providing that: 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 of such income, shall be subject to tax imposed under this Code. In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts "any" activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt. This paragraph qualifies the requirements in Section 30 (E) that the "[n]on-stock corporation or association [must be] organized and operated exclusively for . . . charitable . . . purposes . . . ." It likewise qualifies the requirement in Section 30 (G) that the civic organization must be "operated exclusively" for the promotion of social welfare." DCIAST In the above-cited case, the Supreme Court interpreted the term "exclusive" citing the case of Lung Center of the Philippines v. Quezon City (G.R. No. 144104, June 29, 2004) , which held that: "[e]xclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." . . . The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitution and the law. Solely is synonymous with exclusively." Being a non-stock and non-profit corporation does not, by this reason alone, completely exempt an institution from tax. 1 Thus, statutes granting tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken. Otherwise stated, taxation is the rule, exemption is the exception. The burden of proof rests upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed. 2 (BIR Ruling No. 357-2013 dated September 26, 2013) In view of the foregoing, your request for the exemption of ADD FOUNDATION INTERNATIONAL, INC. as a non-stock, non-profit corporation under Section 30 (G) of the Tax Code of 1997, as amended, is hereby denied for lack of factual and legal basis. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Footnotes 1. Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc. [G.R. No. 195909 & G.R. No. 195960, 26 September 2012]. 2. Quezon City and The City Treasurer of Quezon City vs. ABS-CBN Broadcasting Corporation [G.R. No. 166408, 6 October 2008].