Hospital of the Infant Jesus Pediatric Residents' Alumni Association, Inc.

February 3, 2009 BIR RULING [NSNP-(S30C-004) 065-09] Sec. 30 (C) Hospital of the Infant Jesus Pediatric Residents' Alumni Association, Inc. 1556 Laon Laan Road, Sampaloc, Manila Attention: Dr. Margarita Luisa Agapinan-Alfonso President Gentlemen : This refers to your letter dated October 28, 2008 requesting tax exemption under Section 30 of the 1997 Tax Code, as amended. Documents submitted disclose that Hospital of the Infant Jesus Pediatric Residents' Alumni Association, Inc. ("HIJPRAAI" for brevity) is a non-stock, non-profit organization registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CN200813785 with SEC Certificate of Incorporation dated September 8, 2008; that the purposes for which it was incorporated are the following: 1. Serve as a link among the graduates of the Pediatric Residency Training Program of the Hospital of the Infant Jesus. 2. To help facilitate the continuing pediatric education of its members and maintain the high standard of professional skills and ethics in the practice of the specialty. that the membership of the association is comprised exclusively of Alumni Pediatric Resident Physicians of Hospital of the Infant Jesus; that the sources of funds of the association comes from membership dues, donations from members and friends; that the association has fundraising activities to sustain the charity fund of the members and chosen indigent patients of the association; that no part of its income inures to the benefit or profit of any private individual or entity, nor distributable as dividend, compensation, or any other form of remuneration or pecuniary benefit to its Trustees, officers, members, donors or contributors; and that in case of dissolution, the remaining assets of the corporation shall be distributed to another foundation or non-stock, non-profit corporation of the same or similar nature and objectives. ISAaTH Income Tax Based on the foregoing, this Office cannot as yet issue the requested certificate of tax exemption because HIJPRAAI has yet to prove by actual operation for at least three (3) years that it is really an organization/association exempt from income tax under Section 30 (C) of the Tax Code of 1997, as amended. HIJPRAAI can file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month of the preceding accounting period following the start of its operation as an exempt organization as required under Section 24 of Revenue Regulations (Rev. Regs.) No. 2 ( Collector vs. Sinco, G.R. No. L-9276 dated October 23, 1956) .Based on such information return, we shall conduct the necessary investigation on the activities undertaken during the period. This letter of exemption shall thereafter be issued depending upon the result of our investigation. However, HIJPRAAI 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 the said exempt organization shall be constituted as withholding agent of 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 (Rev. Regs.) 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 Rev. Regs. No. 2-98, as amended (BIR Ruling No. S30-047-01 dated June 5, 2001) . 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 organization 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. 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. cICHTD Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests),or government entity. 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. 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. Accordingly, if HIJPRAAI is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 & DA-043-2004 dated February 4, 2004) . Likewise, revenue from contributions, and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. Hence, notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code (VAT Ruling No. 119-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004) . Finally, for purposes of securing a permanent exemption after the three (3)-year period, HIJPRAAI is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: IcESaA 1) SEC Registration 2) Amended Articles of Incorporation which must include 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 Section 30 of the Tax Code of 1997; 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; e. In case, of dissolution, assets of the corporation shall be transferred to similar institution or to the government; 3) By-laws; 4) Annual Information Returns for the past three (3) years; and 5) Financial Statements for the past three (3) years. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service