Bicol Upland Resources Development Foundation, Inc.

February 26, 2009 BIR RULING [NSNP-(S30E-019) 157-09] Sections 30 (E) & (G);NSNP (S30E-001) 001-2009 dtd. 1/6/09 Bicol Upland Resources Development Foundation, Inc. Kalaw Road, Alpine Village Bubat, Daet, Camarines Norte Attention: Senen A. Jerez President/CEO Gentlemen : This refers to your letter dated October 21, 2007, requesting exemption from payment of taxes being a non-stock, non-profit organization pursuant to Section 30 (E) of the Tax Code of 1997. TcHDIA Documents submitted disclosed that BICOL UPLAND RESOURCES DEVELOPMENT FOUNDATION, INC. (BURDFI, for short) with TIN: 000-534-345-000, is a non-stock, non-profit organization exclusively for scientific and social welfare purposes, registered with the Securities and Exchange Commission (SEC) on September 30, 1988 bearing SEC Registration No. 155871; that it has for its primary purposes, the following, to quote: "1. To serve as conduit, facilitator and implementor of programs and project concerning the utilization, rehabilitation, development and conservation of upland, lowland, coastal and marine resources in support to the goals and objectives of concerned individuals, local and international institutions and governments on sustainable environment and biodiversity conservation, poverty reduction and socio-economic growth of marginalized sectors and project beneficiaries; "2. To access, receive and use resources from local and international NGOs fund, donors, assisting organizations, concerned groups, governments and financial institutions to support a broad range of programs designed to conserve and restore natural resources, promote sustainable livelihoods, spur economic growth and support genuine social transformation among the marginalized sectors, beneficiaries and clients; "3. To engage in microfinance operations pursuant to Republic Act 8425 otherwise known as the "Social Reform and Poverty Alleviation Act" and its implementing rules and regulations and other related issuances of the government, as a strategy in reducing poverty among the members and other marginalized sectors; "4. To manage and disseminate information, raise awareness, advocate policy reforms, participate in good governance, management of infrastructures that promote sustainable environment, social equity, and economic growth and development; TDCcAE "5. To design, propose and execute strategic programs and projects that are devoted to improving the quality of life of marginalized communities such as but not limited to health and population management, socialized/mass housing for marginalized sectors, adult education, rural infrastructure, trainings and researches in cooperation with the academe and other concerned sectors, and other related works; and "6. To acquire, purchase, lease, rent, subdivide, sell, mortgage properties, enter into contracts, secure loans, invest and undertake other similar acts that are necessary to carry out the vision, mission, goal and purposes of the Foundation. In reply, please be informed as follows: Income Tax Based on the foregoing, this Office is of the opinion and so holds that BURDFI, is a corporation organized for the promotion of scientific and social welfare purposes as contemplated under Section 30 (E) & (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. It is requested that a copy of this letter of exemption be attached to the annual information return which BURDFI, 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. aEHASI 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). VAT 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. cTaDHS Accordingly, if BURDFI 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). 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. 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. 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. However, the above exemption from the 12% VAT does not extend to its purchase of goods or properties or services and importation of goods. 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). Donor's Tax Inasmuch as BURDFI is a 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. ACIESH 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). 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. CEDHTa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service