Revenue Memorandum Circular No. 51 - 2014 dated 6 June 2014

18 June 2014

The Commissioner of Internal Revenue (“CIR”) has issued Revenue Memorandum Circular (“RMC”) No. 51-2014 dated 6 June 2014 to clarify the parameters of ‘inurement’ which disqualifies a non-stock and/or non-profit corporation/association/organization from income tax exemption under Section 30 of the NIRC.

As per this Circular, the following are considered “inurements”:

1. Payment of compensation, salaries, or honorarium to its trustees or organizers;
2. Payment of exorbitant or unreasonable compensation to its employees;
3. Provision of welfare aid and financial assistance to members. An organization is not exempt from income tax if its principal activity is to receive and manage funds associated with savings or investment programs, including pension or retirement programs. This does not cover a society, order, association, or non-stock corporation under Section 30(C) of the NIRC providing for the payment of life, sickness, accident and other benefits exclusively to its members or their dependents;
4. Donation to any person or entity (except donations made to other entities formed for the purpose/purposes similar to its own);
5. Purchase of goods or services for amounts in excess of the fair market value of such goods or value of such services from an entity in which one or more of its trustees, officers or fiduciaries has an interest; and
6. When, upon dissolution and satisfaction of all liabilities, its remaining assets are distributed to its trustees, organizers, officers or members. Its assets must be dedicated to its exempt purpose.

The RMC states that it is effective immediately.