ITAD Ruling No. 041-04

May 3, 2004 ITAD RULING NO. 041-04 NIRC - Sections 30 (E), 106 (A) (2) (c), 108 (B) (3) 109 (q), R.A. 4169 BIR Ruling [DA-045-01] dated March 22, 2001; BIR Ruling No. DA-ITAD-91-03 dated July 3, 2003 Foster Parents Plan, Inc. 2nd Floor CJV Building 108 Aguirre St., Legaspi Village Makati City, Philippines Attention: Ms. Jiji S. Bugna Operations Support Manager and Acting Country Director Gentlemen : This refers to your letter dated July 9, 2003, forwarded to this Office by Atty. Cesar A. Pangilinan, Chief, Legal Division of Revenue Region No. 8, Makati City on September 18, 2003, applying for exemption from payment of all internal revenue taxes. It is represented that Foster Parents Plan, Inc. (FPPI) is a non-profit, non-denominational child welfare agency organized under the laws of the State of New York, USA; that FPPI is registered with the Advisory Committee on Voluntary Foreign Aid of the International Cooperative Administration, a voluntary relief agency qualified to participate in the relief program in the Philippines under the terms and conditions embodied in the US Embassy's Diplomatic Notes Nos. 1071 and 3001; that it was granted license to operate in the Philippines by the Department of Commerce and Industry under Securities and Exchange Commission (SEC) Registration No. 358 on June 22, 1961; that FPPI, purely humanitarian in character, conducts program in over 40 countries, including the Philippines, for the care, maintenance, education, training and well-being of children orphaned and distressed or otherwise made destitute; that the sources of its funds are monthly cash grants from foster parents and donations from various international agencies or corporations; that all expenses are defrayed only in support of FPPI's approved programs and projects for children and their families and communities and the development and maintenance of its day-to-day operation; and, that under Republic Act No. 4169 which took effect on August 8, 1964, FPPI is exempt from the payment of internal revenue taxes. Based on the above representations, you now request for a ruling to the effect that FPPI, being an international organization with tax-exemption privileges, be exempt from the payment of all internal revenue taxes. In reply, please be informed that Section 30(E) of the National Internal Revenue Code of 1997 (NIRC) provides, viz : SEC. 30. Exemptions from Tax on Corporations . The following organizations shall not be taxed under this Title in respect to income received by them as such: xxx xxx xxx (E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, 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; Moreover, Section 106(A)(2)(c) and Section 108(B)(3) of the NIRC respectively provides, viz : SEC. 106. Value-added tax on Sale of Goods or Properties . (A) . . . (2) [Zero-rated Sales.] The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. (Emphasis supplied) SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . (B) Transactions Subject to Zero Percent (0%) Rate . The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; (Emphasis supplied) Furthermore, Section 109 of the NIRC provides, viz : SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws , except those under Presidential Decree Nos. 66, 529 and 1590; (Emphasis supplied) xxx xxx xxx Relative thereto, Republic Act No. 4169 provides, viz : AN ACT TO AMEND REPUBLIC ACT NUMBERED THREE THOUSAND FIVE HUNDRED AND THIRTY-EIGHT, ENTITLED "AN ACT TO EXEMPT THE FORD FOUNDATION AND ITS GRANTS FROM THE PAYMENT OF GIFT, FRANCHISE, SPECIFIC, PERCENTAGE, REAL PROPERTY, AND ALL OTHER TAXES, DUTIES AND FEES AND TO EXEMPT FOREIGN PERSONNEL ENGAGED IN THE FORD FOUNDATION PROGRAM FROM THE PAYMENT OF INCOME TAX," BY EXTENDING TO THE ROCKEFELLER FOUNDATION, AGRICULTURAL DEVELOPMENT COUNCIL, INC., FOSTER PARENTS PLAN, INC., AND THEIR FOREIGN PERSONNEL ENGAGED IN THEIR RESPECTIVE PROGRAMS SIMILAR EXEMPTIONS. Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled: "SECTION 1. The provisions of existing laws or ordinances to the contrary notwithstanding, the Ford Foundation, the Rockefeller Foundation, the Agricultural Development Council, Inc., and the Foster Parents Plan, Inc., shall be exempt from the payment of gift, franchise, specific, percentage, real property and all other taxes , duties and fees provided under existing laws or ordinances. This exemption shall extend to goods imported under the Ford Foundation, the Rockefeller Foundation, the Agricultural Development Council, Inc., or the Foster Parents Plan, Inc., grants for relief, medical, scientific, educational and training purposes to government organizations and private institutions recognized by the government and to goods brought in or imported for the personal use of foreign personnel whose services are paid by the Ford Foundation, the Rockefeller Foundation, the Agricultural Development Council, Inc., or the Foster Parents Plan, Inc., or from funds granted by these foundations: Provided, however , That this exemption is without prejudice to the collection of customs duties and taxes on goods or articles brought or imported into the Philippines for the use of such foreign personnel should such goods or articles brought or imported into the Philippines for the use of such foreign personnel should such goods or articles subsequently be sold, transferred or exchanged in the Philippines to persons or entities not entitled to exemption from said customs duties and taxes pursuant to existing laws and regulations governing the matter." (Emphasis supplied) xxx xxx xxx" Based on the above provisions, a nonstock corporation organized exclusively for charitable purposes is exempt from tax 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. Also, Sections 106(A)(2)(c), 108(B)(3) and 109(q) of the NIRC subjects to zero percent VAT sales by VAT-registered persons, and/or, exempts from VAT, sales of goods and services to persons and entities whose tax treatment under special laws or international agreements to which the Philippines is a signatory effectively subjects to zero percent or necessarily exempts such sales of goods and services to them. It is worthy to note that the above-quoted Republic Act, which, to date, is still effective as certified by the Office of the House of Representatives, Legislative Operations Department in its letter dated November 10, 2003, clearly provides exemption from the payment of gift, franchise, specific, percentage, real property and all other taxes to FPPI. In view thereof, this Office is of the opinion and so holds that FPPI, being a child welfare agency of a purely humanitarian character which conducts program in the Philippines for the care, maintenance, education, training and well-being of children orphaned and distressed or otherwise made destitute, non-profit and non-denominational, is exempt from the payment of internal revenue taxes namely: percentage (including tax on franchises) VAT and ad valorem tax imposed on its purchases of goods and services, donor's tax (formerly gift tax), and all other taxes for which Foster Parents Plan, Inc. would otherwise be directly or indirectly liable, pursuant to Sections 30(E), 106(A)(2)(c), 108(B)(3) and 109(q) of the NIRC and R.A. No. 4169. ( BIR Ruling [DA-045-01] dated March 22, 2001; BIR Ruling No. DA-ITAD-91-03 dated July 3, 2003 ) However, such exemption applies only to the payment of income tax on income received by FPPI as such. Insofar as the income derived by FPPI from any of its properties, real or personal, or any activity conducted by it for profit regardless of the disposition thereof shall be subject to the corresponding internal revenue taxes imposed under the NIRC. ( BIR Ruling [DA-045-01]; BIR Ruling [DA-383-98] dated August 24, 1998 ) This ruling is issued on the basis of the facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service