BIR Ruling No. 496-11

December 15, 2011 BIR RULING NO. 496-11 Section 30 (G) of the Tax Code of 1997, as amended; BIR Ruling No. 179-2011; BIR Ruling No. 154-2011; BIR Ruling No. 148-2011; BIR Ruling No. 147-2011; BIR Ruling No. 144-2011 Sr. Maria Bertilla Vangelista Home for Children, Inc. Barangay San Sebastian, Mataasnakahoy, Batangas 4223 Attention: Sr. Gina B. Seron, SFT Administrator Gentlemen : This refers to your letter dated July 12, 2011 requesting on behalf of SR. MARIA BERTILLA VANGELISTA HOME FOR CHILDREN, INC. for the issuance of a Certificate of Tax Exemption pursuant to Section 30 (G) of the Tax Code of 1997, as amended. It is represented that SR. MARIA BERTILLA VANGELISTA HOME FOR CHILDREN, INC. with Taxpayer's Identification Number (TIN) 007-212-249, is a non-stock, non-profit corporation duly organized under the laws of the Philippines, registered with the Securities and Exchange Commission (SEC) under Registration No. CN200900806 dated January 26, 2009; that it is authorized by the Department of Social Welfare and Development (DSWD) to operate as a social welfare and development agency implementing Residential Care Programs and Services for poor, orphaned and neglected children under Registration Certificate and License to Operate issued on January 25, 2010 and valid until January 24, 2013; and that among the purposes for which it is incorporated under its SEC Articles of Incorporation are: 1) To establish, operate and administer, maintain, equip, and support social welfare institutions such as orphanages, day care centers, nutrition centers, homes for neglected, poor and abandoned children and children in difficulties whose needs cannot be adequately provided by their families; and 2) Subject to compliance with national and international regulations and procedures, to operate and administer placement service for the adoption of children so that they may receive the love, care, protection and opportunities they need for their total development. cTIESa In support of its request, SR. MARIA BERTILLA VANGELISTA HOME FOR CHILDREN, INC. submitted the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the Certificate of Incorporation with the SEC; 3) Certified true 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 (G) of the Tax Code of 1997, as amended; c) That no part of the net income shall inure to the benefit of any its members; d) That the trustees do not receive any compensation; and e) In case of dissolution, assets of the organization shall be transferred to similar institution or to the government. 4) Certified true copy of the By-Laws; 5) Certified true copy of the 2011 General Information Sheet; 6) Certified true copies of the 2010 Annual Income Tax Return and Audited Financial Statement; 7) Certified true copy of BIR Certificate of Registration; and 8) Certified true copy of DSWD Registration Certificate and License to Operate In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because SR. MARIA BERTILLA VANGELISTA HOME FOR CHILDREN, INC. has to prove by actual operation for at least three (3) years that it is really a corporation/association exempt from income tax under Section 30 of the Tax Code of 1997, as amended. caAICE SR. MARIA BERTILLA VANGELISTA HOME FOR CHILDREN, INC. can file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month following the end of its taxable year 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. However, SR. MARIA BERTILLA VANGELISTA HOME FOR CHILDREN, 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 SR. MARIA BERTILLA VANGELISTA HOME FOR CHILDREN, 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. 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 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 the Association is registered [Revenue Memorandum Circular (RMC) No. 76-2003]. Finally, for purposes of securing a permanent exemption after the three (3)-year period, SR. MARIA BERTILLA VANGELISTA HOME FOR CHILDREN, INC. is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 1) Certified true copy of the Certificate of Registration with the SEC; 2) Certified true 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; DHITCc c) That no part of the net income shall inure to the benefit of any 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. 3) Certified true copy of the By-Laws; 4) Certified true copy of the Annual Information Returns and Financial Statements for the last three (3) years of operation; 5) Certification under oath that there has not been any change in the By-Laws, Articles of Incorporation, manner of activities as well as the sources and disposition of income; 6) BIR Certificate of Registration; 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