Certificate of Tax Exemption No. 088-18

January 31, 2018 CERTIFICATE OF TAX EXEMPTION NO. 088-18 CERTIFICATE OF TAX EXEMPTION issued to KAPAMPANGAN DEVELOPMENT FOUNDATION, INC. Jesus A. Datu Medical Center, Don Pablo Street, Brgy. San Vicente, Bacolor, Pampanga TIN: 000-000-000-000 SEC Company Reg. No. 137413 This certifies that the above-named corporation has proven by actual operation that its primary purpose is one of those enumerated under Section 30 (E) of the National Internal Revenue Code of 1997, as amended. It is exempt from INCOME TAX only on the following revenues or receipts: 1) Donations from both local and abroad -nothing follows- subject to the provisions of applicable BIR rules and regulations and the tax exemptions, liabilities and responsibilities stated in the Terms and Conditions hereto attached and made an integral part hereof. It is liable, however, to all other taxes not enumerated above. This certification shall be valid for three (3) years from the date of issuance unless earlier revoked by this Office for violation of any provisions of applicable rules and regulations of BIR, or the terms and conditions herein set forth. This Certificate may be renewed upon filing of a subsequent application, for revalidation provided under Revenue Memorandum Order (RMO) No. 20-2013. Failure to renew this Certificate shall be deemed a revocation thereof upon the expiration of the three (3)-year period. This Certificate of Tax Exemption is being issued on the basis of the facts and documents as represented and submitted. However, if upon investigation, the BIR ascertains that the facts are different, then this Certificate shall be considered null and void. Issued this 31st day of January, 2018. aScITE CAESAR R. DULAY Commissioner of Internal Revenue (SGD.) CELIA C. KING Deputy Commissioner Resource Management Group ATTACHMENT TERMS AND CONDITIONS OF THE CERTIFICATE OF TAX EXEMPTION TAX EXEMPTIONS 1) INCOME TAX. KAPAMPANGAN DEVELOPMENT FOUNDATION, INC. is exempt from the payment of income tax only on revenues and receipts enumerated on the Certificate of Tax Exemption, provided, that no part of its net income or asset shall belong to, or inure to the benefit of any member, organizer, officer or any specific person. LIABILITY FOR INTERNAL REVENUE TAXES 1) INCOME TAX KAPAMPANGAN DEVELOPMENT FOUNDATION, INC. is subject to income tax on all its income/receipts/revenues not expressly exempted and stated in the Certificate of Tax Exemption. Moreover, it is subject to the corresponding internal revenue taxes imposed under National Internal Revenue Code of 1997, as amended, on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. Thus, revenues derived from paying patients shall be subject to income tax . Documents submitted disclosed that 'Hospital Income from the year received from PhilHealth were reclassified as part of donation and pledges.' The presence of 'PhilHealth Receivable' and 'SSS Receivable' in its financial statements presupposes the presence of paying patients. The services to these patients were not actually free since the finances or funds used by KAPAMPANGAN DEVELOPMENT FOUNDATION, INC. are being reimbursed by PhilHealth or SSS as the case may be, as part of their benefits from being members of PhilHealth or SSS. It should be understood that revenues derived from its services to paying patients shall be deemed as income received from "activities conducted for profit" which is subject to 10% as imposed by Section 27 (B) of the National Internal Revenue Code of 1997, as amended. In the case of Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc. , 1 it was held that: HEITAD "Thus, even if the charitable institution must be "organized and operated exclusively" for charitable purposes, it is nevertheless allowed to engage in "activities conducted for profit" without losing its tax-exempt status for its not-for-profit activities. The only consequence is that the "income of whatever kind and character" of a charitable institution "from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax." Prior to the introduction of Section 27 (B), the tax rule on such income from for-profit activities was the ordinary corporate rate under Section 27 (A). With the introduction of Section 27 (B), the tax rate is now 10%." xxx xxx xxx "The Court finds that St. Luke's is a corporation that is not "operated exclusively" for charitable or social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict interpretation of a provision granting tax exemption, but also on the clear and plain text of Section 30 (E) and (G). Section 30 (E) and (G) of the NIRC requires that an institution be "operated exclusively" for charitable or social welfare purposes to be completely exempt from income tax. An institution under Section 30 (E) or (G) does not lose its tax exemption if it earns income from its for-profit activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely subject to income tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27 (B). A tax exemption is effectively a social subsidy granted by the State because an exempt institution is spared from sharing in the expenses of government and yet benefits from them. Tax exemptions for charitable institutions should therefore be limited to institutions beneficial to the public and those which improve social welfare. A profit-making entity should not be allowed to exploit this subsidy to the detriment of the government and other taxpayers. xxx xxx xxx" Likewise, interest income from currency bank deposits and yield or any other monetary benefits from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the twenty percent (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 seven and one-half percent (7-1/2%) final withholding income tax pursuant to Section 27 (D) (1) in relation to Sec. 57 (A) both of the National Internal Revenue Code of 1997, as amended. 2) VALUE ADDED TAX If KAPAMPANGAN DEVELOPMENT FOUNDATION, 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 be liable for value added tax on the revenues derived therefrom. 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% value added tax pursuant to Sections 106 and 107 of the National Internal Revenue Code of 1997, as amended. 3) WITHHOLDING TAX KAPAMPANGAN DEVELOPMENT FOUNDATION, INC. shall be constituted as withholding agent for the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the National Internal Revenue Code of 1997, as amended, as implemented by Revenue Regulations No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the withholding tax pursuant to Section 57 of the National Internal Revenue Code of 1997, as amended, as implemented by Revenue Regulations No. 2-98, as amended. TAXPAYER'S DUTIES & RESPONSIBILITIES 1) KAPAMPANGAN DEVELOPMENT FOUNDATION, INC. is required to file on or before the 15th day of the fourth month following the end of the accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the preceding period and a certificate showing that there has not been any change in its By-laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. Copy of this Certificate of Tax Exemption shall be attached to the aforementioned Annual Information Return. ATICcS 2) Under Section 235 of the National Internal Revenue 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 organization or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which it has been granted tax exemptions or tax incentives, and its tax liabilities, if any. 3) Further, it is also required under Section 6 (C) in relation to Section 237 of the National Internal Revenue Code of 1997, as amended, to issue duly registered receipts or sales or commercial invoices for each sale or transfer of merchandise or for services rendered which are not directly related to the activities for which the Association is registered. (Revenue Memorandum Circular [RMC] No. 76-2003) 4) Finally, it is subject to the payment of registration fee of PhP500.00 as prescribed in Section 236 (B) of the National Internal Revenue Code of 1997, as amended. Footnotes 1. G.R. No. 195909 & G.R. No. 195960, September 26, 2012.