BIR Ruling No. 654-12

December 20, 2012 BIR RULING NO. 654-12 Section 30 (E) of the Tax Code of 1997; BIR Ruling No. 174-11; BIR Ruling No. 165-11 Chesed Mission Society, Inc. Zone 1, Bani, Rosario, La Union Attention: Leslie T. Abuan Corp. Secretary Gentlemen : This refers to your letter dated 25 July 2012, requesting for the issuance of a certificate of tax exemption enjoyed by non-stock corporation or association organized and operated exclusively for religious and other purposes under Section 30 (E) of the Tax Code of 1997, as amended. DEcTIS It is represented that Chesed Mission Society, Inc. with Taxpayer's Identification No. 424-428-987-000, 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 Registration No. CN201230046; and that the purposes for which it was incorporated is appearing in its Articles of Incorporation are: 1. Religious Activities; 2. Preaching the Gospel; 3. To reach out the lost; and 4. To make disciple of Jesus Christ. In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because Chesed Mission Society, 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 (E) of the Tax Code of 1997, as amended. ( BIR Ruling No. 174-11 dated May 27, 2011 and BIR Ruling No. 165-11 dated May 17, 2011 ) Chesed Mission Society, 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. ( BIR Ruling No. 165-11 dated 7 June 2011 ) However, it 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, of any activity conducted for profit regardless of disposition thereof, which income should be returned for taxation. Likewise, interest income from currency bank deposits and yield or any other monetary benefit 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. ( BIR Ruling No. 174-11 dated May 27, 2011 and BIR Ruling No. 165-11 dated May 17, 2011 ) It should be understood that the said corporation/association shall be constituted as withholding agent for the government if it acts as an employer and its employees receive 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 withholding tax pursuant to Section 57 of the Tax Code of 1997, also as implemented by Revenue Regulations No. 2-98, as amended. ( BIR Ruling No. 174-11 dated May 27, 2011 and BIR Ruling No. 165-11 dated May 17, 2011 ) 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, Chesed Mission Society, Inc. is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 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; SDTIaE 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 true copy of the Annual Income Tax Returns and Financial Statements for the last three (3) years of operation; 6) Certification under oath that there has not been any change in the By-Laws, Articles of Incorporation, manner of activities as well as sources and disposition of income; and 7) 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