Del Rosario Bagamasbad & Raboca

January 14, 2009 BIR RULING [NSNP-(S30H-006) 020-09] Section 30 & 109 (H); BIR Ruling No. 149-95, 027-03, DA-283-04 & S30-040-02 Del Rosario Bagamasbad & Raboca Rosadel Building, 1011 Metropolitan Avenue Makati City Attention: Mr. Julius N. Raboca President, Bright Rock Schools, Inc. Gentlemen : This refers to your letter dated August 12, 2008 requesting on behalf of your client, Bright Rock Schools, Inc. for a ruling exempting it from payment of taxes. Documents show that Bright Rock Schools, Inc. (formerly, Raboca Foundation, Inc.) situated in 6370 Cabilogan St., Reyes Subdivision, Bugo, Cagayan de Oro City is a non-stock, non-profit educational institution existing under the laws of the Republic of the Philippines. It is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A199711708. The primary purpose for which it was incorporated is "to establish and operate an educational institution or learning center which shall provide courses of study in pre-school, elementary, secondary, technical and vocational subject to the laws of the Philippines." Currently, Bright Rock Schools, Inc. is granted an authority by the Department of Education to operate the Elementary, Course under Government Recognition (GR) No. 222, Series 2004 issued on December 22, 2006, the Complete Elementary Course under GR No. E-030, Series 2006 issued on September 23, 2004. In reply, please be informed that paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz. : "(3) All revenues and assets of non-stock non-profit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties. . . ." STCDaI The exemption under Section 4 (3), Article XIV of the 1987 Constitution refers to internal revenue taxes and customs duties, in appropriate cases, imposed by the national government on all revenues and assets of non-stock, non-profit educational used actually, directly and exclusively for educational purposes (BIR Ruling No. 248-88 dated June 6, 1988). Likewise, in recognition of the foregoing provision of the Constitution, Section 30 (H) of the Tax Code of 1997, as amended, specifically exempts a non-stock, non-profit educational institution from income tax. As a non-stock, non-profit educational institution, Bright Rock Schools, Inc., therefore, is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution. However, Bright Rock Schools, Inc. is subject to internal revenue taxes on income from trade or business or other activity the conduct of which is not related to the exercise or performance of its educational purposes or functions (Section 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Under Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, as amended, interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly end exclusively in pursuance of its purpose, as, an educational institution are exempt from the 20% final tax and 7-1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the 1997 Tax Code, as amended, subject to compliance with the conditions that as a tax-exempt educational institution it shall on an annual basis submit to the Revenue District Office concerned an annual information return and duly audited financial statement together with the following: a) Certification from their depository banks as to the amount of interest income earned from passive investment not subject to the 20% final withholding tax and 7-1/2% tax on interest income under the expanded foreign currency deposit system imposed by Section 27 (D) (1) of the 1997 Tax Code, as amended; b) Certification of actual utilization of the said income; and c) Board Resolution by the school administration on proposed projects ( i.e., construction and/or improvement of school buildings and facilities, acquisition of equipment, books and the like) to be funded out of the money deposited in banks or placed in money markets, on or before the 15th day of the fourth month following the end of its taxable year (Section 4, Finance Department Order No. 137-87; ENPS-012-98 dated November 25, 1993; BIR Ruling No. 46-00 dated September 26, 2000; and BIR Ruling No. DA-283-04 dated May 24, 2004) Bright Rock Schools, Inc.'s gross receipts from operations as a non-stock, non-profit educational institution are exempt from VAT pursuant to Section 109 (H) of the Tax Code of 1997, as amended. However, this exemption does not extend to other activities involving sale of goods and services which are subject to VAT imposed under Section 106 of the same Code. Hence, as long as Bright Rock Schools, Inc. will not engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, it will remain exempted from VAT (BIR Ruling No. 248-88 dated June 6, 1988; BIR Ruling No. DA-040-02 dated March 7, 2002; and BIR Ruling No. S30-027-2003 dated November 21, 2003). HaTSDA On the other hand, Bright Rock Schools, Inc.'s purchases, i.e., materials for repairs of its facilities, are subject to VAT imposed under Section 106 of the Tax Code of 1997, as amended. Such tax payment may legitimately be passed on to customers like non-stock, non-profit educational institutions (BIR Ruling No. 248-88 dated June 6, 1988). 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, or that the requirements herein stated are not complied with, 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