26 July 2013
The Commissioner of Internal Revenue (“CIR”) has issued Revenue Memorandum Order No. 20-2013 dated 22 July 2012 (“RMO”) prescribing policies and guidelines on the issuance of tax exemption rulings to qualified non-stock, non-profit corporations and associations under Section 30 of the Tax Code.
Under Section 30 of the Tax Code, certain corporations/associations that have been organized for non-profit purposes or for the exclusive benefit of its members are exempt from paying income tax on the income received by them as such. Connected thereto, the Bureau of Internal Revenue (“BIR”), after due evaluation of the documents submitted by these corporations/associations, confirms their tax-exempt status under Section 30 through rulings or certificates of tax exemption. To further enhance the monitoring of these corporations, the BIR through the RMO has prescribed policies and guidelines regarding the issuance/revalidation of tax exemption rulings.
The salient features of the RMO are as follows:
1. Corporations/associations that are exempt from tax under Section 30, including those with rulings/certifications, issued before 12 June 2012, have to file an application for tax exemption and revalidation of their existing tax exemption rulings/certifications. Their applications shall be filed with the Revenue District Office having jurisdiction over them.
2. The corporation/association must submit together with its application, a letter stating the specific proviso under Section 30 under which it claims exemption and certain general documents e.g. certified copy of the latest Articles of Incorporation, original copy of certification under oath by an executive officer of the corporation or association as to amendments/changes in the AOI and By-Laws, activities, sources/disposition of income of the corporation, certified true copies of ITRs, showing its entitlement and continuing compliance with Section 30 for tax exemption.
3. For corporations or associations under Section 30(E) of the Tax Code - religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans – the following requirements have to be satisfied:
a. It must be a non-stock corporation or association organized and operated exclusively for religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans.
b. It should meet the following tests:
i. Organizational Test -- requires that the corporation or association's constitutive documents exclusively limit its purposes to one or more of those described in paragraph (E) of Section 30.
ii. Operational Test -- mandates that the regular activities of the corporation or association be exclusively devoted to the accomplishment of the above purposes. A corporation or association fails to meet this test if a substantial part of its operations may be considered "activities conducted for profit".
c. 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.
d. It must not be a branch of a foreign non-stock, non-profit corporation.
4. The tax exemption ruling issued under this RMO shall be valid for a period of three (3) years from the date of effectivity specified in the ruling, unless sooner revoked or cancelled but if the corporation/ association which has been issued a tax exemption ruling fails to file its annual information return, it shall automatically lose its income tax-exempt status beginning the taxable year for which it failed to file an annual information return, in addition to the sanctions imposed under Section 250 of the Tax Code.
5. Tax exemption rulings or certificates issued to corporations or associations listed under Section 30 of the Tax Code, which have been issued prior to 30 June 2012, shall be valid until 31 December 2013. Those issued after 30 June 2012 shall continue to be valid for a period of three (3) years from date of issuance of the ruling/certificate.