Association of Makati Industries, Inc.

July 13, 2009 BIR RULING [NSNP-(S30F-003) 434-09] Section 30; BIR Ruling No. S30-085-99 Association of Makati Industries, Inc. 5/F, Comfoods Building Sen. Gil Puyat corner Don Chino Roces Ave. Makati City Attention: Mr. Francisco Aquino President Gentlemen : This refers to your letter dated September 24, 2008 requesting for a certificate of tax exemption particularly in VAT payment. Documentary evidence submitted disclosed that Association of Makati Industries, Inc. is a non-stock, non-profit corporation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 9589. Its primary purpose is as follows: "To work for the improvement and promote the general business conditions in the Municipality of Makati, Rizal; to create, encourage and maintain increased civic interest, high business standards, safe and permanent foundation for manufacturing and industrial interests; and SECONDARY To promote the best interests and well being of all the industrial and business community in the Municipality of Makati, Province of Rizal; and to correct trade abuses and unfair business practices; to compile and distribute information to its members for their benefit and to the public in general for promotional purposes; to aid and protect its members; to attract desirable capital and investments in the area so as to promote closer cooperation between the Government and the members and coordination of mutually beneficial activities between them; and to do all such other things and enjoy such other powers as are requisite, necessary or incidental to those hereinbefore mentioned." In reply, please be informed that under Section 30 (F) of the Tax Code of 1997, as amended, business league, chamber of commerce, or board of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder, or individual is exempt from income taxation. DTIaHE Based on the foregoing, this Office is of the opinion and so holds that Association of Makati Industries, Inc. falls within the purview of the term "business league", which is organized not for profit and no part of its income inures to the benefit of any private stockholder or individual contemplated under Section 30 (F) of the Tax Code of 1997, as amended. Accordingly, it is exempt from tax on all revenues derived in pursuance of its purpose as a business league. However, it is subject to internal revenue taxes on income from other activities the conduct of which is not related to the exercise or performance of its purposes or functions. Moreover it is subject to the corresponding taxes imposed under the Tax Code of 1997, as amended, on its income derived from any of its properties, real or personal, regardless of the disposition thereof, which income should be returned for taxation. Likewise, interest income from its currency bank deposits and yield or any other monetary benefits from deposit substitute instruments and from trust funds and similar arrangements received by the organization, 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 28 (A) (7) (a), in relation to Section 57 (A), both of the Tax Code of 1997, as amended. Moreover, as a tax-exempt organization, Association of Makati Industries, Inc. should file an annual information return on or before the 15th day of the 4th month following the end of its taxable 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. HOWEVER, this ruling is subject to the condition that the Association shall submit to the Revenue District Office concerned photocopy of its 2006, 2007 and 2008 Annual Information Returns and its 2008 Audited Financial Statement (balance sheet) in compliance with RMC No. 14-2001. On the issue of exemption from VAT payment, Section 105 of the Tax Code 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 imposed in Sections 106 to 108 of the same Code. acHETI 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. Accordingly, if the Association 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 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 the Association does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code 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% (then 10%) 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). 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. cHCIDE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service