Aranas Consunji Barleta

December 1, 2009 BIR RULING [NSNP-(S30E-145) 741-09] Sec. 30 (E); S-30-102-2008 dtd. 06/11/2008 Aranas Consunji Barleta Unit 106 G/F Le Metropole Building 326 Tordesillas cor. De la Costa Sts., Salcedo Village, Makati City Attention: Atty. Ma. Louella M. Aranas Treasurer Gentlemen : This refers to your letter dated November 25, 2009 requesting on behalf of your client Kahit Hindi Pasko Foundation, Inc. ("KHP") for exemption from the payment of income tax, filing of the corresponding income tax return under Section 30 of the Tax Code of 1997, as amended, value-added tax and donor's tax. Documents submitted to this Office disclosed that Kahit Hindi Pasko Foundation, Inc. is a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997, as amended; that it is duly registered with the Securities and Exchange Commission under SEC Registration No. CN200917899 dated November 16, 2009 with Taxpayer Identification Number (TIN) 007-467-969; and that the main objective for which the corporation was formed is to help alleviate poverty in the Philippines through charitable programs and activities addressed to aid the impoverished brethren nationwide. In reply, please be informed as follows: Income Tax This Office cannot yet issue the requested ruling/certificate of tax exemption. It has to prove by actual operation for at least three (3) years that it is really an organization/association exempt from income tax under Section 30 (E) of the Tax Code of 1997, as amended. It shall file the necessary annual information return instead of an income tax return on or before April 15 of each year following the start of its operation as an exempt organization as required under Section 24 of Revenue Regulations No. 2. Based on such information return, the BIR Revenue District Office which has jurisdiction over Kahit Hindi Pasko Foundation, Inc. shall conduct the necessary investigation on its activities undertaken during the period. The letter of exemption shall thereafter be issued depending upon the result of our investigation. SAEHaC However, Kahit Hindi Pasko Foundation, Inc. shall be subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997, as amended, on income derived from any of its properties, real or personal, or 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 instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to 20% final withholding tax; provided, however, that the interest income it derives from a depository bank under the expanded foreign currency deposit system shall be subject to a final withholding tax of 7 1/2% pursuant to Section 27 (D) (1) in relation to Section 57 (A) of the Tax Code of 1997, as amended. Moreover, as a non-stock and non-profit exempt entity, Kahit Hindi Pasko Foundation, Inc., is required to file on or before the 15th day of the fourth month following the end of the cooperative's 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 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 should be understood that Kahit Hindi Pasko Foundation, Inc. shall be constituted as a withholding agent for the government if it acts as an employer and any of its employees receives compensation income subject to withholding tax, or if it makes payments to individuals or corporations subject to the withholding tax provided for in Section 57 of the Tax Code of 1997, as amended. Finally, Kahit Hindi Pasko Foundation, Inc.'s books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining whether it has complied the conditions under which it may be granted tax exemption or tax incentives and/or has paid its tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. 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. SAaTHc 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. 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 Kahit Hindi Pasko Foundation, 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). aTCADc Donor's Tax Inasmuch as the Foundation being a charitable 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, as amended, subject to the condition that not more than thirty percent (30%) of said gift shall be used for administration purposes. This ruling is being issued on the basis of the foregoing facts as presented. 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