North East Luzon Foundation, Inc.

June 23, 2009 BIR RULING [NSNP-(S30C-016) 386-09] NSNP; RMC 14-2001 North East Luzon Foundation, Inc. No. 70 Diamond St., Plaridel Heights Subdivision Santiago City, Province of Isabela Attention: Ms. Maristela Y. Tabuan President/CEO Gentlemen : This refers to your letter dated October 20, 2008 indorsed to this Office by the Regional Director of Revenue Region No. 3, Tuguegarao City, on June 16, 2009, requesting for a certificate of tax exemption in favor of the North East Luzon Foundation, Inc. (formerly, Cagayan Valley Farmers Workers Association, Inc.), a nonstock, nonprofit beneficiary association with Taxpayer Identification No. 006-289-111-001, duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A199717282. North East Luzon Foundation, Inc. ("NELFI", for brevity) purposes for which it was incorporated are as follows: "To uplift the living conditions of members by assisting them in the establishments of livelihood facilities, services and enterprises; to encourage the members in the effective utilization of local resources in livelihood activities and thereby improve the living condition in the community; to acquire loans and other financial accommodations from the government and private lending institutions in order to finance productive livelihood enterprises; to assist and support the members in the promotion of their business; to develop and harness the people's participation in every economic activity toward the development of the community through self-help and self-reliance; to offer and provide the members including their families, opportunities to participate actively in any program relative to the promotion and encouragement of small business entrepreneurs." The trustees of the organization are not receiving any compensation, and in case of dissolution, its assets shall be transferred to similar institution or to the government. STHAID In reply thereto, please be informed that Section 30 (C) of the Tax Code of 1997, as amended, exempts from income taxation beneficiary associations operating for the exclusive benefit of the members. Accordingly, and since NELFI is a non-stock, non-profit beneficiary association, it is therefore exempt from tax on all revenues derived in pursuance of its purpose as such. However, it is subject to internal revenue taxes on income from other activity the conduct of which is not related to the exercise or performance of its purposes or functions. Moreover, it is subject to the corresponding taxes imposed under the Tax Code of 1997, as amended, on its income derived from any of its properties, real or personal, regardless of the disposition thereof, which income should be returned for taxation. Likewise, interest income from its currency bank deposits and yield or any other monetary benefit from deposit substitute instruments and from trust funds and similar arrangements received by the organization, and royalties, derived from sources within the Philippines, if any, shall be 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 28 (A) (7) (a) in relation to Section 57 (A), both of the Tax Code of 1997, as amended. Moreover, as a tax-exempt association, NELFI is required to file on or before the 15th day of the fourth month of the preceding accounting period a Profit and Loss Statement and Balance Sheet with Annual Information Return under oath, stating its gross income and expenses incurred during the year 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. Further, under Section 235 of the Tax Code, as amended, 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, i.e., NELFI, shall be subject to periodic examination by the BIR for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liabilities, if any. It should be understood that NELFI shall be constituted as withholding agent of the government if it acts as an employer and any of its employee receives compensation income subject to withholding tax, 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. (BIR Ruling No. S-30-023-99 dated March 15, 1999) SDATEc 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service