Holy Rosary Academy, Inc.

August 26, 2009 BIR RULING [NSNP-(S30H-085) 534-09] Sections 30 & 109 (H); BIR Ruling No. 149-95, 027-03, DA-283-04 & S30-040-02 Holy Rosary Academy, Inc. San Juan St. Molo, Iloilo City Attention: Sr. Ma. Remia T. Catoera, O.P. Principal Gentlemen : This refers to your letter dated April 17, 2008, indorsed to this Office from BIR Revenue District Office No. 74, Iloilo City, requesting for tax exemption. Documents show that Holy Rosary Academy, Inc. with Taxpayer Identification No. 001-773-324-000, is a non-stock, non-profit educational institution registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 88409 dated September 11, 1979. The primary purpose for which it was incorporated is "(t)o establish and maintain an institution of learning dedicated to the moral, academic, vocation, technical, sociological and economic needs of the youth of the Philippines as well as contribute to the advancement of the socio-economic development of the country." It is owned and managed by the Dominican Sisters of the Most Holy Rosary of the Philippines. Holy Rosary Academy, Inc. is granted an authority by the Department of Education to operate Kindergarten Course under Government Recognition (GR) No. 76, Series 1972 issued on August 10, 1972, Grades One and Two of the Elementary Course under GR No. 77, Series 1972 issued on August 10, 1972, Grades Three and Four of the Elementary Course under GR No. 25, Series 1974 issued on May 31, 1974, Grade Five of the Elementary Course under GR No. 50, Series 1975 issued on June 6, 1975, Grade Six of the Elementary Course under Temporary Permit No. 12-R-1, Series 1976 issued on April 6, 1976, First to Third Year of the Secondary Course under Recognition No. 115, Series 1957 issued on April 26, 1957, and Fourth Year of the Secondary Course under GR No. 157, Series 1958 issued on April 24, 1958. AIaSTE 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. . . ." 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 institutions 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, Holy Rosary Academy, Inc., therefore, is exempt from tax on all revenues derived in pursuance of its purpose as an educational institution. However, Holy Rosary Academy, 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 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 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 Sec. 27 (D) (1) of the 1997 Tax Code, as amended; b) Certification of actual utilization of the said income; and THcEaS 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; 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). Holy Rosary Academy, 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 Holy Rosary Academy, Inc. will not engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, Holy Rosary Academy, Inc. 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). On the other hand, Holy Rosary Academy, 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). HOWEVER, this ruling is subject to the condition that Holy Rosary Academy, Inc. shall submit a copy of its 2006 Annual Information Return. 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