BIR Ruling No. 528-12

August 23, 2012 BIR RULING NO. 528-12 Section 4 (3), Article XIV of the 1987 Constitution; Sections 27 (D) (1), 30 (H); 101 (A) (3); 105; 109 (H) of the Tax Code of 1997, as amended; BIR Ruling No. 170-2011; BIR Ruling No. 169-2011; BIR Ruling No. 159-2011; BIR Ruling No. 116-2011; BIR Ruling No. 073-2011 La Consolacion College, Bian, Inc. Sto. Tomas, Bian, Laguna Attention: Sr. Ma. Violeta E. Fulo, OSA General Treasurer Gentlemen : This refers to your letter dated November 14, 2011 requesting on behalf of LA CONSOLACION COLLEGE, BIAN, INC. for the issuance of a certificate of tax exemption enjoyed by a non-stock, non-profit educational institution under Section 30 (H) of the Tax Code of 1997 as amended. ASDTEa It is represented that LA CONSOLACION COLLEGE, BIAN, INC., with Taxpayer's Identification Number (TIN) 001-705-428, 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 Company Registration No. 145773 dated October 30, 1987; that among the purposes for which the School is incorporated are "to operate courses of primary, intermediate, secondary, collegiate, technical and/or vocational levels for which the certificates and/or diplomas may be awarded and the appropriate honors conferred" and "to provide a formal and non-formal venue of education dedicated to the formation and development of socially-conscious, value-oriented, Filipino Christian graduate with knowledge, skills, and competence, to enable him to meet the needs of everchanging situations in search of Christ through service to others in the efforts of building Christian Communities"; and that the School is granted the following government permits from the Department of Education, Culture and Sports (DECS) and the Commission on Higher Education (CHED): 1) DECS Government Recognition No. K-010 s. 1987 effective as of October 21, 1987 for Pre-Elementary Course duly certified by DEPED as of June 22, 2012; 2) DECS Government Recognition No. E-004 s. 1990 effective as of April 16, 1990 for Grades I-VI of the Elementary Course duly certified by DEPED as of June 22, 2012; 3) DECS Government Recognition No. 006 s. 1989 effective as October 5, for S.Y. 1989-1990 for the Complete Secondary Course duly certified by DEPED as of June 22, 2012; 4) CHED Government Recognition No. 038 Series of 2000 dated January 27, 2000 to conduct and operate the Bachelor of Arts in Psychology course effective CY 1999-2000 duly certified by CHED as of June 22, 2012; CTcSIA 5) CHED Government Recognition No. 163 Series of 1999 dated July 15, 1999 to conduct and operate the Bachelor of Science in Computer Science course effective CY 1999-2000 duly certified by CHED as of June 22, 2012; 6) CHED Government Recognition No. 155 Series of 1999 dated July 15, 1999 to conduct and operate the Bachelor of Science in Commerce course effective CY 1998-1999 duly certified by CHED as of June 22, 2012; 7) CHED Government Recognition No. 161 Series of 1999 dated July 15, 1999 to conduct and operate the Bachelor of Science in Office Administration course effective CY 1999-2000 duly certified by CHED as of June 22, 2012; 8) CHED Government Recognition No. 002 Series of 2004 dated March 3, 2004 to conduct and operate the Bachelor of Science in Information Management (BSIM) course effective CY 2004-2005 duly certified by CHED as of June 22, 2012; and 9) CHED Government Recognition No. 052 Series of 2005 dated June 6, 2005 to conduct and operate the Bachelor of Science in Hospitality Management (BSHM) course effective CY 2005-2006 duly certified by CHED as of June 22, 2012. In support of its request, LA CONSOLACION COLLEGE, BIAN, INC. has completely submitted on July 25, 2012 the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the SEC Certificate of Incorporation; 3) Certified true copy of the Amended 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 to establish and conduct an educational institution under Section 30 (H) of the Tax Code of 1997, as amended; EaICAD 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 Amended By-Laws; 5) Certified true copy of SEC 2011 General Information Sheet; 6) Certified true copy of BIR Certificate of Registration; 7) Certified true copies of the 2008, 2009 and 2010 Annual Information Returns and Financial Statements; 8) Certified true copies of current DEPED and CHED permits; 9) Original copy of Certification dated July 23, 2012 issued by CHED. In reply, please be informed that paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz. : "All revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties." Likewise, Section 30 (H) 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: xxx xxx xxx (H) A non-stock and non-profit educational institution; . . . ." A non-stock, non-profit educational institution is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. The exemption contemplated herein refers to internal revenue taxes imposed by the National Government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. (BIR Ruling No. 170-2011 dated May 25, 2011) From the foregoing, and since LA CONSOLACION COLLEGE, BIAN, INC. is a non-stock and non-profit educational institution as contemplated under the said provisions, it is exempt from the payment of taxes and duties on all its revenues and assets used actually, directly and exclusively for educational purposes. DEcTIS However, LA CONSOLACION COLLEGE, BIAN, INC. shall be subject to internal revenue taxes on income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institutions of their educational purposes or functions (Sec. 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Likewise, LA CONSOLACION COLLEGE, BIAN, INC.'s gross receipts from operations as a non-stock, non-profit educational institution are exempt from value-added tax (VAT) pursuant to Section 109 (H) of the 1997 Tax Code, as amended. (BIR Ruling No. 169-2011 dated May 25, 2011) However, other activities involving sale of goods and services not in connection with its primary purposes are subject to the 12% VAT imposed under Sections 106 and 108 of the Tax Code of 1997, as amended, or 3% percentage tax imposed under Section 116 in relation to Section 109 (V) of the same Code if the gross sales or receipts from such sale of goods and services do not exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) which tax payment may legitimately be passed on to buyers of such goods and services. (Revenue Regulations No. 16-2011) Hence, as long as LA CONSOLACION COLLEGE, BIAN, INC. will not engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, it will remain exempt from VAT. Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. 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. (BIR Ruling No. 159-2011 dated May 19, 2011) 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. aETDIc Under Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of its purpose as an educational institution, are exempt from the 20% final tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the Tax Code of 1997, subject to compliance with the conditions 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 their 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). Moreover, revenues derived from assets used in the operation of cafeterias/canteens and bookstores are exempt from taxation provided they are owned and operated by LA CONSOLACION COLLEGE, BIAN, INC. as ancillary activities and the same are located within its premises. (BIR Ruling No. 116-2011 dated April 12, 2011) In addition, gifts, donations, and other contributions received by LA CONSOLACION COLLEGE, BIAN, INC. as an educational institution, are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of said gift shall be used for administration purposes. (BIR Ruling No. 073-2011 dated March 14, 2011) HIaTCc Donors cannot avail of full deductibility for purposes of computing taxable income under Revenue Regulations No. 13-98 without the accreditation of LA CONSOLACION COLLEGE, BIAN, INC. as a donee institution with the Philippine Council for NGO Certification (PCNC). Organizations seeking certification shall file with the PCNC Secretariat a letter of intent to apply for certification and submit the necessary documents. If the applicant NGO has met the minimum criteria for certification, the Board gives a 3-year or 5-year certification to the organization and informs this Office which then issues to said organization a certification of Donee Institution Status. LA CONSOLACION COLLEGE, BIAN, INC. is advised to contact The Secretariat, Philippine Council for NGO Certification (PCNC), tel. nos. 7821-568; 7159-594; 7152-756 or telefax 7152-783. It must be emphasized that its tax exemption does not cover withholding taxes. As an educational institution, LA CONSOLACION COLLEGE, BIAN, INC. is constituted as withholding agent for the government required to withhold the tax on compensation income of its employees, or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the Tax Code of 1997, as amended. Moreover, LA CONSOLACION COLLEGE, BIAN, INC. is also subject to the payment of the annual registration fee of P500.00 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) Under Section 235 of the Tax Code of 1997, as amended, any provision of existing general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of accounts and other pertinent records of LA CONSOLACION COLLEGE, BIAN, INC. to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. 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. EcHIAC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue