John Paul Integrated Montessori School of Jalajala, Inc.

September 22, 2009 BIR RULING [NSNP-(S30H-102) 608-09] Sections 30 & 109 (H); BIR Ruling No. 065-99, DA-417-98 & DA-244-04 John Paul Integrated Montessori School of Jalajala, Inc. #56 G. De Borja St. Brgy. 3rd District Dalig Jalajala Rizal 1990 Attention: Engr. Isias I. Mendoza President Gentlemen : This refers to your letters dated September 15, 2008 and May 15, 2009, indorsed to this Office from BIR Revenue District Office No. 46, Cainta/Taytay, Rizal, requesting for tax exemption. Documents show that you are a non-stock, non-profit educational institution, with Taxpayer Identification No. 235-527-777-000, registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CN200405742 dated April 12, 2004. The primary purpose for which it was incorporated is "(t)o establish and operate an educational institution or learning center which shall provide courses of study in pre-elementary, elementary and secondary courses subject to the laws of the Philippines." You were granted authority by the Department of Education, Region IV A-Calabarzon (Pasig City) to operate Nursery-Kinder-Prep of the Pre-Elementary Course under Government Recognition (GR) No. K-036, Series 2006 issued on March 7, 2007, Grades I-VI of the Elementary Course under GR No. E-025, Series 2006 issued on March 7, 2007, and Complete Secondary Course under GR No. 025, Series 2008 issued on March 23, 2009. 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. . . ." ISTCHE 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, you are exempt from tax on all revenues derived in pursuance of its purpose as an educational institution. However, you are 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 your purpose as an educational institution is 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 you 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 your 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 c) Board Resolution by your 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 your 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). Your 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 you will not engage in the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, you 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). DcTaEH On the other hand, your purchases, i.e., materials for repairs of your 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