Divina & Uy

June 25, 2009 BIR RULING [NSNP-(S30E-075) 393-09] DA 196-06 Divina & Uy Law Offices 8th Floor, Pacific Star Building Sen. Gil Puyat Avenue Corner Makati Avenue Makati City Attention: Atty. James Benedict F. Panopio and Atty. Marian Joanne K. Co Gentlemen : This refers to your letter dated March 2, 2009 stating that your client, Equitable Foundation, Inc.,is a non-stock, non-profit corporation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 59026 dated November 10, 2005 with Tax Identification Number (TIN) 230-001-399-493; that it was organized to participate in a significant and enduring human enterprise by engaging in non-profit social welfare, cultural and charitable activities for the purpose of advancing the social and economic well-being of their fellow citizens; and that no part of the income which the organization may obtain as an incident to its operation is distributed as dividends to its members, trustees or officers, subject to the provisions of the Corporation Code on dissolution. Based on the foregoing representations, you now request confirmation of your opinion that 1. The income derived by Equitable Foundation, Inc. is exempt from income tax provided in Section 30 (E) of the Tax Code of 1997, and as such, need not file an income tax return concerning said income; 2. The income payments made to a tax-exempt corporation under Section 30 (E) of the Tax Code of 1997, as amended, is not subject to creditable withholding tax, as provided for in Section 2.57.5 (B) (3) of Revenue Regulations No. 2-98, as amended; 3. The fees or dues which it held in trust and used solely for administration expenses of the association shall likewise be exempt from income tax and consequently from withholding tax; 4. The income derived from the sale of real property owned by Equitable Foundation, Inc. having been derived from a single and isolated transaction in furtherance of the purposes for which the foundation was established, cannot be considered income from the productive use of its property and, therefore, the same is not subject to income tax and consequently, to the creditable withholding tax; HEDaTA 5. Any sale of property made by the Equitable Foundation, Inc. is not subject to value-added tax provided for in Section 105 in relation to Sections 106, 107 and 108 of the Tax Code of 1997, since such sale is a single and isolated transaction made in connection with its non-stock, non-profit activities and not made in the course of its trade or business; 6. Any donation made in favor of the Equitable Foundation, Inc. is exempt from the payment of donor's tax pursuant to Section 101 (A) (3) and Section 101 (B) (2) of the Tax Code of 1997, as amended, subject to the condition that not more than 30% of said gift shall be used by the donee for administration purposes, and that the Deed of Donation is likewise not subject to documentary stamp tax; and 7. Finally, pursuant to Section 34 (H) of the Tax Code of 1997 and Section 3 of Revenue Regulations No. 13-98, donations, contributions or gifts made to Equitable Foundation, Inc. shall be fully deductible from the taxable income of the donor. In reply thereto, please be informed that your opinion is hereby confirmed as follows: Income Tax and Withholding Tax Equitable Foundation, Inc. being a social welfare institution is within the ambit of Section 30 (E) of the Tax Code of 1997 and therefore exempt from 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. TIaDHE Fees and Dues Held in Trust In BIR Ruling No. DA196-06 dated March 28, 2006 ,this Office ruled that "the fees or dues which it held in trust and used solely for administration expenses of the association shall likewise be exempt from income tax and consequently from withholding tax." Accordingly, any fees or dues which it held in trust and used solely for administration expenses of the Equitable Foundation, Inc. shall be exempt from income tax and consequently, from withholding tax. Single and Isolated Transaction This Office cannot as yet issue a determinative ruling relative to the income to be derived by Equitable Foundation, Inc. on its sale of real property from a single and isolated transaction, considering that the issue is based on hypothetical situation which is one of those covered by no ruling area under Revenue Bulletin No. 1-2003. Donor's Tax Inasmuch as the donee is a social welfare institution, donation from its benefactors is 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. Moreover, the Deed of Donation is not subject to documentary stamp tax. However, the acknowledgement on said deed is subject to the documentary stamp tax of P15.00 imposed under Section 188 of the Tax Code of 1997, as amended. Value-Added Tax The BIR has ruled that for as long as the revenues are derived by the non-stock, non-profit organization from its "non-stock, non-profit activities" the same are exempt from the 12% VAT. Thus, in BIR Ruling No. DA263-2003 dated August 11, 2003 which is a reiteration of BIR Ruling No. 023-03 dated March 3, 2003, this Office ruled that TDcEaH "In the instant case, the sale of real property is not the business of Metroclub, since the real property subject of the proposed sale is being held neither for sale to customers, nor primarily for lease in the ordinary course of trade or business, the same shall be exempt from VAT pursuant to Section 109 (w) of the Tax Code of 1997, as implemented by Section 4.103-B (w) (1) of Revenue Regulations No. 7-95, as amended." Accordingly, any sale of property made by Equitable Foundation, Inc. in connection with its non-stock, non-profit activities and not made in the course of trade or business is not subject to VAT. It is requested that a copy of this letter of exemption be attached to the annual information return which Equitable 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 they have been granted tax exemptions or tax incentives, and their 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 employee receives 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. Moreover, income payments made to Equitable Foundation, Inc., as a tax-exempt corporation, is not subject to creditable withholding tax pursuant to Section 2.57.5 (B) (3) of Revenue Regulations No. 2-98, as amended. 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