BIR Tax Exemption of Non-stock, Non-Profit Corporations Philippines

By: Garry S. Pagaspas

Once again, the Bureau of Internal Revenue (BIR) has been under fire lately with the issuance of the  Revenue Memorandum Order No. 20-2013 (RMO 20-2013) dated July 22, 2013 entitled “Prescribing the Policies and Guidelines in the Issuance of Tax Exemption Rulings to Qualified Non-Stock, Non-profit Corporations and Associations under Section 30 of the National Internal Revenue Code of 1997, as amended”.

Let us try to discuss the features of this new Revenue Memorandum Order No. 20-2013 (RMO 20-2013) and see for ourselves the new rules for BIR tax exemption of non-stock, non-profit corporations in the Philippines.

Only qualified corporations or associations will be exempted 

Under RMO 20-2013, only corporations or corporations that are duly qualified under Section 30 of the tax Code, as amended, shall be issued Tax Exemption Rulings. Corporations or associations which apply for tax exemption ruling under Section 30(E) of the Tax Code, as amended, must meet the following:

  1. It must be a non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for rehabilitation of veterans.
  2.  Must meet organizational test which means that it should limit its purposes to one or more described in Section 30(E) of the Tax Code, as amended.
  3. Must meet operational test which mandates that regular activities of the corporation be exclusively devoted to accomplishment for its purpose, otherwise, it should be considered as “activities conducted for profit” and thus, taxable
  4. All the net income or assets of the corporation or association must be devoted to its purpose/s and no part of its net income or asset accrues to or benefits any member or specific person.
  5. It must not be a branch of a foreign non-stock, non-profit corporation.

Non-stock and non-profit corporation or association claiming exemptions under Section 30 of the Tax Code, as amended, but is not qualified will be subjected to regular income taxes. This however, may not apply to corporations claiming tax exemptions under special laws or under other provisions of the Tax Code, as amended, other than Section 30 thereof.

Validity of Tax Exemption Ruling

Under RMO 20-2013, a Tax Exemption Ruling in the Philippines shall be valid for three (3) years from date specified in the Ruling, unless, sooner revoked or cancelled. It shall be deemed revoked if there are material changes in the character, purpose, or method of operation of the corporation or association which are inconsistent with the basis for its income tax exemption.

Tax Exemption Ruling could be renewed upon filing an Application for Tax Exemption / Revalidation under the same requirements and procedures provided under RMO 20-2013. Upon approval, the same shall be valid for another three (3) years, unless sooner revoked or cancelled.

Status of Tax Exemptions issued prior to June 30, 2012

Under RMO 20-2013, tax exemption rulings or certificates issued to corporations or associations listed under Section 30 of the Tax Code, as amended, shall be valid as follows:

  • Issued prior to June 30, 2012 shall be valid until December 31, 2013. 
  • Issued July 1, 2012 or onwards shall be valid for a period of three (3) years from the date of issuance, unless sooner revoked or cancelled.

For those who would fail to file an application for revalidation on December 31, 2013, RR 20-2013 implies that they have lost their income tax exemption.

Processing of Certificate of Tax Exemption

Applications for tax exemptions are required to be filed with the BIR Revenue District Office (RDO) of  registration along with the required documentary requirements for securing BIR Tax Exemption of non-stock, non-profit corporations or associations in the Philippines. After pre-evaluation and findings of the RDO on the qualifications, the RDO shall prepare a recommendation stating the factual and legal bases, and endorse the same to the Office of the Regional Director.

Upon concurrence of the Regional Director, it will forward the docket to the Office of the Assistant Commissioner, Legal Service, Attention: Law Division who shall further review and evaluate the documents submitted. Upon finding in order, the Law Division shall prepare the Tax Exemption Ruling for approval and signature of the Commissioner of Internal Revenue or duly authorized representative.

At the pre-evaluation under RDO level, the applicant may file an appeal to the Regional Director within thirty (30) days from receipt of the RDO denial stating the factual and legal basis for denial.

Documentary requirements

RMO 20-2013 provides specific list of requirements for securing BIR Tax Exemption rulings and certificates. The various requirements are directed to further evaluate the qualifications of the applicant non-stock, non-profit corporation or association. It is not an all inclusive list and BIR may further require additional documentary requirements, if it deem necessary.

Summary

In sum, the BIR is now quite meticulous with the provision of BIR Tax Exemption in seeing to it that only those qualified under a particular provision of law could enjoy the benefits of income tax exemption. The mere fact that a corporation is registered as a non-stock and non-profit is not conclusive as to its income tax exemption as it has to duly establish the fact and the legal basis on its claim for exemption. Failure to do so would mean disqualification, and thus, being subject to income tax.

While RMO 20-2013 has a pending case now for the determination of its validity, we suggest that non-stock and non-profit still pursue with the application to avoid being subjected to tax on its non-profit operations.


garry s pagaspasGarry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for about ten (10) years now helping out taxpayers on tax compliance, tax savings, tax assessments, tax refunds, financial statements audit, and other related professional accounting services. He is presently a frequent speaker of Tax and Accounting Center, Inc. and you may send him mail at garry.pagaspas(@)taxacctgcenter.org.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.orgor you may post a question at Tax and Accounting Center Forum and participate therein.


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