Parochial Schools Association of the Diocese of Novaliches (PSA-NOVA), Inc.

October 28, 2009 BIR RULING [NSNP-(S30C-027) 680-09] 30 (C);S-30-086-2007 Parochial Schools Association of the Diocese of Novaliches (PSA-NOVA),Inc. Good Shepherd Cathedral, Regalado Avenue Fairview park, Quezon City Attention: Rev. Fr. Albert N. Delvo School Director Gentlemen : This refers to your letter dated September 15, 2008 requesting for exemption from the payment of income tax and the filing of the corresponding income tax return under Section 30 of the Tax Code of 1997 as amended and value-added tax (VAT). Documents submitted to this Office show that PSA-NOVA, Inc. is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CN200420003 dated January 04, 2005; and that the purpose or purposes for which the corporation was formed are the following: 1. To assist PSA-Nova members in their ministry of accompanying the schools towards total development empowering them to be docile to Christ and the Church, and making them sensitive to the signs of the times and responsive to the life and aspirations of all especially the poor; 2. To develop academic skills and competence to promote excellence through relevant programs that will enable all the members of the school community secure quality of life for their families in the service of the whole community; 3. To awaken and develop critical awareness in the members of the school about issues affecting the church and society and so enable them to respond adequately to the call of community-building and social transformation according to the sound principles of Christian morality; cAEaSC 4. To strengthen religion and positive values as the core of the curriculum; 5. To enhance partnership and co-responsibility among the laity, religious and clergy in managing and developing schools as evangelization arms of the respective parishes and of the whole Diocese; 6. To exercise dynamic educational leadership characterized by creative fidelity, humble and faithful service and accountability in then stewardship of material goods; and 7. To foster bonding, sharing and support among member-schools. and that no part of the income which the foundation may obtain as an incident to its operation shall be distributed as dividends to its members, trustees or officers. In reply, please be informed as follows: Income Tax Based on the foregoing, this Office is of the opinion and so holds that PSA-NOVA, Inc. is a corporation organized for the exclusive benefit of the members as contemplated under Section 30 (C) of the Tax Code of 1997, as amended. 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, as amended. 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. ITDHSE It is requested that a copy of this letter of exemption be attached to the annual information return which the Association will file on or before the 15th day of the fourth month of each year. Under Section 235 of the Tax Code of 1997, 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 shall be subject to 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 (RMC No. 89-78 dated October 30, 1973 publishing the amendment effected by P.D. No. 1457 to then Section 324 now Section 235 in relation to Section 232 of the Tax Code, as amended). It should be understood that the said Association 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 amended, and 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 same Code, also as implemented by Rev. Regs. No. 2-98, as amended. Finally, 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]. Value-Added Tax (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. 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. EHTADa 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 PSA-NOVA, 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 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). 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service