Kaibigan Ermita Outreach Foundation, Inc.

June 2, 2010 BIR RULING [NSNP-(S30E-010) 034-10] Sec. 30; Sec. 101; NSNP(S30E-156)799-2009; NSNP(S30E-158)806-2009; NSNP(S30e-160)814-2009; DA-471-98 Kaibigan Ermita Outreach Foundation, Inc. 2546 Nakar St.,San Andres Bukid Manila Attention: Ms. Ma. Theresa Staub President Gentlemen : This refers to your letter dated March 8, 2010 requesting confirmation of its tax exempt status pursuant to Section 30 of the Tax Code of 1997, as amended. CTacSE It is represented that Kaibigan Ermita Outreach Foundation, Inc. with TIN 001-248-384-000 is a non-stock, non-profit organization registered with the Securities and Exchange Commission under SEC Registration No. 181131 dated November 30, 1993; that it is an accredited Philippine Council for NGO Certification donee institution with PCNC Registration No. 004-2005; that the BIR has already issued a Certificate of Tax Exemption but was lost because of the typhoon, as evidenced by the attached Affidavit of Loss; and that the purposes for which the organization is organized, among others are as follows, viz. : 1. To secure cooperation and assistance from government and non-government organizations and institutions both foreign and local in effecting for support for children at risks and their families; 2. To gather complete, prepare, hold, sell, convey, lease, mortgage, buy, acquire, encumber or otherwise deal with such property real or personal or mixed as the purposes of the corporation may permit or require; 3. To channel the energies of children at risks with their families of the urban poor communities, into useful and productive endeavors; 4. To improve the quality of life of children at risk with their families of the urban poor communities affording the means to change their conditions and transform their lives as useful citizens of the country; Based on the foregoing, this Office is of the opinion and so holds that the Kaibigan Ermita Outreach Foundation, Inc. falls within the purview of a non-stock, non-profit organization as contemplated under Section 30 (E) 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. However, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code of 1997 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 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 from 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 April 15 of each year a profit and loss statement and balance sheet with the 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 resources and disposition of income. AHDaET It should be understood that the said exempt non-stock, non-profit organization 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, 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. It is of course understood that its books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purposes of ascertaining whether it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its tax liabilities, if any, pursuant to Section 235 of the Tax Code of 1997. In addition, Section 101 (A) (3) of the Tax Code of 1997, as amended, provides that the following gifts or donations made by a resident, among others, shall be exempt from donor's tax: "(3) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthrophic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthrophic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthrophic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthrophy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation." [emphasis provided] The social welfare institution, as in this case, Kaibigan Ermita Outreach Foundation, Inc. should comply with the limitation under Section 101, Tax Code that "a maximum of thirty percent (30%) of the educational organization's income and revenue may be used for administrative purposes". Finally, all of the Kaibigan Ermita Outreach Foundation, Inc.'s income shall be devoted to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. TEHDIA Donations to donee institutions are tax-deductible and/or exempt from donor's tax (Section 34 (H) and Section 101 of the Philippine Tax Code). In other words, aside from being exempt from donor's tax, local donors, whether individual or corporate, can deduct the amount they have donated from their taxable income derived from trade or business as computed without the benefit of the deduction. Donations to some donee institutions, however, are subject to limited deductibility: 10% for individual donors and 5% for corporate donors. Thus, tax incentives such as those mentioned above encourage local donations and, especially in these times of dwindling financial resources from abroad, complement PCNC's aim to strengthen private sector participation in our country's social development. Premises being considered, since Kaibigan Ermita Outreach Foundation, Inc. is an organization accredited with the PCNC, this Office opines that gifts, donations and other contributions made to it are exempt from donor's tax pursuant to Section 101 (A) (3) of the Tax Code of 1997, as amended. Subject to the condition that not more than 30% of said gift shall be used by it for administration purposes and that the donors can avail of deduction for purposes of computing taxable income under Revenue Regulations No. 13-98. 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.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service