Father Simpliciano Foundation, Inc.

February 25, 2009 BIR RULING [NSNP-(S30C-006) 148-09] 30 (C) and (G);S30-047-01 Father Simpliciano Foundation, Inc. S. Dominic Savio St.,Better Living Subdivision 1701 Paraaque City Attention: Sr. Resmay M. Memorial, SFSC Board President/Directress Gentlemen : This refers to your letter dated September 27, 2008 requesting for Certificate Exemption from the payment of income tax and other internal revenue taxes. IDScTE It is represented that the Father Simpliciano Foundation, Inc. ,with Taxpayer's Identification No. 222-295-475-000, is a non-stock, non-profit domestic corporation duly registered with the Securities and Exchange Commission under SEC Registry No. A199802507 dated June 18, 1998 for the following purposes: 1. To act as a support group for the congregation of the Franciscan Sisters of the Sacred Hearts; to support their mission of promoting the interest of the underprivileged, the youth, the destitute, the handicapped, the orphans, the poor and the less fortunate, regardless of race or religion through social, cultural, charitable and benevolent activities, such as the establishment and operation of orphanages, nutrition centers, homes for abandoned, exploited and abused children, the support of schools, livelihood and training programs for the development of technical skills, ideas, vocational efficiency and personal discipline; 2. Maintain, equip, manage, support and operate institutions which will provide directly or indirectly, moral and material assistance to said beneficiaries; 3. To undertake such other charitable, civic, cultural, social welfare and humanitarian services for the good of the community at large. In reply, pleased be informed as follows: Income Tax Based on the foregoing, this Office is of the opinion and so holds that Father Simpliciano Foundation, Inc. is a corporation not organized for profit but operated exclusively for charitable purposes and for the promotion of social welfare as contemplated under Section 30 (C) and (G) of the Tax Code of 1997. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. 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, 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. aHTEIA It is requested that a copy of this letter of exemption be attached to the annual information return which Father Simpliciano Foundation, Inc. will file on or before the 15th day of the fourth month of each year. 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. It should be understood that the said exempt non-government 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). HOWEVER, this ruling is subject to the condition that Father Simpliciano Foundation, Inc. shall submit photocopies of its By-laws, Annual Information Returns and Financial Statements (balance sheet) for the past three (3) years in compliance with Revenue Memorandum Circular No. 14-2001. Otherwise, it shall be given a temporary exemption instead. 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. IDCScA 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 Father Simpliciano Foundation, Inc. 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 on 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). EAcCHI Donor's Tax Inasmuch as Father Simpliciano Foundation, Inc. is a charitable and social welfare institution, donations to it are exempt from the payment of donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. Deductibility of Donation Section 34 (H) (2) (C) of the Tax Code of 1997 provides that donations to an accredited non-government organization (NGO),which means a non-profit domestic corporation or association organized and operated exclusively for scientific, research, educational, character building and youth and sports development, health, social welfare, cultural or charitable purposes or a combination thereof, no part of the net income of which inures to the benefit of any private individual shall be deductible in full from the taxable business income of the donor depending on the donee's compliance with the level of administrative expense and utilization requirements. In case of failure on the part of the accredited NGO to comply with the level of administrative expense and utilization requirements, its donors shall be entitled only to the limited deductions (in an amount not in excess of 10% in the case of an individual, and 5% in the case of a corporation, of the donor's taxable income derived from trade, business or profession as computed without the benefit of Section 34 (H) of the Tax Code of 1997, as provided for under Section 34 (H) (1) of the same Tax Code. Donations, contributions or gifts actually paid or made within the taxable year to an accredited NGO shall be allowed full deductibility on the taxable year it was incurred pursuant to Section 34 (H) (2) (C) of the Tax Code of 1997 (BIR Ruling No. DA-124-2004, April 20, 2004 and BIR Ruling No. S30-016-2004 dated May 6, 2004). Accordingly, for purposes of full deductibility from the taxable business income of its donor, Father Simpliciano Foundation, Inc. must first be accredited with the Philippine Council for NGO Certification, Inc. (PCNC) which has been duly designated by the Secretary of Finance as the Accrediting Entity pursuant to Memorandum of Agreement dated January 29, 1998 executed by and between the Secretary of Finance and PCNC's Interim Chairman. For further inquiries on the accreditation and certification process, please contact PCNC at 6/F, SCC Building, CFA-MA Compound, 4427 Interior Old Sta. Mesa, 1016 Manila or call their office at 715-9594, 715-2756, 782-1568 and 715-2783 (telefax).You may also visit their website: http://www.pcnc.com.ph or email them at [emailprotected] . 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. cIADaC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service