UE Center for Review and Special Studies, Inc.

February 19, 2009 BIR RULING [NSNP-(S30H-030) 109-09] S27 (D) (1); ENPS-001-99 UE Center for Review and Special Studies, Inc. C.M. Recto Avenue Espaa, Manila Attention: Dr. Ester Albano-Garcia President Gentlemen : This refers to your letter dated December 15, 2008 requesting for tax exemption pursuant to Section 4 (3), Article XIV of the 1987 Philippine Constitution. It is represented that UE Center for Review and Special Studies, Inc. is a non-stock, non-profit corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission under SEC Registration No. 75554 dated September 8, 1977; that it is recognized by the government and permitted by the Commission on Higher Education to operate a review center; and that the purposes for which it was incorporated are the following: 1. To organize, offer, hold, conduct, undertake and operate a review courses in accounting, dentistry, engineering, law, medicine, nursing and such other fields of discipline as may warrant the holding or operation of similar review courses, with a view to preparing candidates for the board and bar examinations, as well as for other government examinations including the civil service and related or other fields; sponsor and conduct seminars, conferences, symposia, teach-ins, live-in courses, conventions and other similar activities; to prepare and/or publish special studies, researches, treatises, monographs, books, reports and the like; to edit, publish or print a newsletter, gazette, bulletin or journal for the use and benefit of its reviewees and/or for the general public; and to assist the government or other private institutions or foundations in planning or developing special review and training courses; ADEaHT 2. To purchase, acquire, own, maintain, hold, sell, lease, exchange, or mortgage real and personal property or acquire interests in real or personal property in the furtherance of the aims and purpose of the corporation; 3. To rent, purchase, maintain, manage and operate review or seminar centers and/or their facilities; 4. To accept any gift, bequest or devise of any and all real and personal property from its members necessary, desirable or proper for such corporation to hold and acquire, as well as to sell, convey, lease or alienate, by onerous or by gratuitous title, any property of the corporation; 5. To collect, invest and reinvest all moneys and income coming to its and to hold some for the benefit of the corporation; 6. To take and hold property, real or personal, given, devised or bequeathed to it by its members in trust or otherwise, for any purpose specified herein or connected therewith or related thereto, and to administer the same as directed by the grantor; 7. To enter into, perform, and carry out contracts of every kind and nature and for any lawful purpose connected with the business of the corporation, or in any manner incident thereto, with any person, firm, association or corporation or with the government or any of its political sub-divisions; 8. To organize, conduct and carry on any lawful activity whatsoever which is necessary or incidental to the purposes of the corporation and generally to do all such other things and to perform all such other activities as may be directly or indirectly incidental or conducive to the attainment of the above objectives or any of them respectively; and 9. To provide and to exercise any and all powers and privileges now and hereinafter conferred by Philippine laws on corporations formed thereunder. In reply thereto, please be informed that paragraph 3, Section 4, Article XIV of the 1987 Constitution provides, viz. : HcACST "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." A non-stock, non-profit educational institution is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution and used actually, directly and exclusively for educational purposes. The exemption herein contemplated refers to internal revenue taxes imposed by the National Government on all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes. They shall, however, be subject to internal revenue taxes on income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institutions of their educational purposes or functions (Sec. 2, Finance Department Order No. 137-87, as amended by Finance Department Order No. 92-88). Moreover, educational services rendered by private educational institutions duly accredited by the Department of Education, Culture and Sports (DECS) and the Commission on Higher Education (CHED) and those rendered by government institutions as exempt from the value-added tax pursuant to Section 109 (m) of the 1997 Tax Code. However, 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. Accordingly, if UE Center for Review and Special Studies, 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). SaCIAE 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. Such being the case, UE Center for Review and Special Studies, Inc. being a non-stock, non-profit educational institution, is exempt from taxes and duties on all its revenues and assets used actually, directly and exclusively for educational purposes. However, it shall be subject to internal revenue taxes on its income from trade, business and other activity the conduct of which is not related to the exercise or performance by such educational institution of its educational purposes or functions. It may not be amiss to state that under Department Order No. 149-95 dated November 24, 1995 amending Department Order No. 137-87, interest income from currency bank deposits and yield from deposit substitute instruments used actually, directly and 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 Tax Code of 1997, 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 Tax Code of 1997; (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 (Sec. 4, Finance Department Order No. 137-87). Moreover, revenues derived from assets used in the operation of cafeterias/canteens and bookstores are exempt from taxation provided they are owned and operated by the educational institution as ancillary activities and the same are located within the school premises. DEcTCa It must be emphasized that its tax exemption does not cover withholding taxes. As an educational institution, it is constituted as withholding agent for the government required to withhold the tax on compensation income of its employees, or the withholding tax on income payments to persons subject to tax pursuant to Section 57 of the Tax Code of 1997. Under Section 235 of the Tax Code of 1997, any provision of existing general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of accounts and other pertinent records of UE Center for Review and Special Studies, Inc. to determine compliance with the conditions set forth in the certificate of tax exemption and tax liabilities, if any. (BIR Ruling No. ENPS-015-99 dated December 29, 1999) 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