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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

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REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City

July 22, 2013
REVENUE MEMORANDUM ORDER NO. 20 -2013

SUBJECT : 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

TO : All Revenue Officials and Personnel and Others Concerned
__________________________________________________________________

SECTION 1. Background. — Under Section 30 of the National Internal Revenue
Code of 1997 (NIRC) , as amended , certain corporations and associations are
exempt from pay ing on income received by them as such . The Bureau of Internal
Revenue (Bureau) accords tax -exempt status to these corpora tions and
associations by way of confirmatory BIR rulings or certificates of tax exemption
which are issued after due evaluation of documents submitted by said corporations
and associations.

By reason of the privilege granted by law, it is important for the Bureau to
enhance monitoring of these corporations an d associations in order to meet the
following objectives:

a. Ensure compliance with the conditions attached to the tax exemption
b. Ascertain the existence of other income derived from non -exempt
activities and provide p roper tax treatment thereon
c. Enforce the payment of other taxes for which no exemption was granted
under Philippine tax laws (e.g., withholding taxes, fringe benefits tax, and
documentary stamp tax)
d. Minimize tax leakages arising from inaccurate interpretation of relevant
tax laws and administrative issuances

This Order is hereby issued to prescribe policies and guidelines in the
processing of tax exemption applications and for the revalidation o f tax exemption
rulings/certificates of corporations and associations listed under Section 30 of the
NIRC, as amended.

SECTION 2. Application s for Tax Exemption and Revalidation .— Corporations
and associations enumerated under Section 30 of the NIRC, as amended, including
those which have been issued tax exemption rulings/certificates prior to June
30, 2012, shall file their respective Application s for Tax Exemption /Revalidation with
the Revenue District Office (RDO) where they are registered. Only corporations or
associations that are duly qualified under Section 30 of the NIRC , as amended, shall
be issued Tax Exemption Rulings.

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SECTION 3. General Documentary Requirements. – A corporation or association
shall submit the following documents :

a. Original copy of application letter for issuance of Tax Exemption Ruling.
The letter shall cite the particular paragraph of Section 30 of the NIRC , as
amended, under which the application for exemption /revalidation is being
based ;

b. Certified true cop y of the latest Articles of Incorporation and By -Laws
issued by the Securities and Exchange Commission ;

c. Original copy of Certification under Oath by an executive officer of the
corporation or association as to : (i) all previous amendments/ changes in
the Articles of Incorporation and By -Laws, (ii) manner of activities , and (iii)
the sources and disposition of income , if any, of the subject corporation or
association . If there are no amendments/ changes, the Certification shall
state this fact ;

d. Certified true copy of the Certificate of Registration with the BIR ;

e. Original copy of the Certification under Oath by the Treasurer of the
corporation or association as to the amount of income, compensation,
salaries or any emoluments paid by the corporation or association to its
trustees , offi cers and other executive officers . Provided, that , a
corporation sole , which, by its nature, does not have trustees , corporate
officers or executive officers need not submit the certification required
under this sub paragraph.

f. Original copy of the Certification issued by the RDO where the corporation
or association is registered that the corporation or association is not the
subject of any pending investigation, on -going audit, pending tax
assessment , administrative protest, claim for refund or issuance of tax
credit certificate, collection proceedings, or a judicial appeal ; or if thereby
be any, the Original copy of the Certification issued by the RDO on the
status thereof;

g. Certified true copies of the Incom e Tax Returns or Annual Information
Returns and Financial Statements of the corporation or association for the
last three (3) years; and

h. Original copy of a statement under Oath by an executive officer of the
corporation or association as to its modus operandi which shall include :

i. A full description of the past, present, and proposed activities of the
corporation or association ;
ii. A narrative description of anticipated receipts and contemplated
expenditures ; and

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iii. A detailed description of all revenues which it seeks to be exempted
from income tax. All other revenues which are not included in the
statement/ application shall be subject to income tax.

SECTION 4. Additional Requirements for Educational Institutions . — A non –
stock and non -profit educational institution under Section 30(H) of the NIRC, as
amended, shall submit the following documents in addition to those required under
Section 4 hereof:

a. Certified true c op y of government recognition /permit /accreditation to
operate as an educational institution issued by the Commission on Higher
Education (CHED), Department of Education (D ep Ed), or Technical
Education and Skills Development Authority (TESDA) ;

b. If the government recognition /permit/accreditation to operate as an
education institution was issued more than five (5) years prior to the
application for tax exemption /revalidation , an original copy of a current
Certificate of Operation /Good Standing , or other equivalent document,
issued by the appropriate government agency ( i.e., CHED, D ep Ed, or
TESDA) shall be submitted as proof that the non -stock and non -profit
educational institution is currently operating as such ; and

c. Original copy of Certificate of utilization of annual revenues and assets
by the Treasurer or his equivalent of the non -stock and non -profit
educational institution . In accordance with the guidelines set forth in
Section 1.3 of Department of Finance (DOF) Order No. 137 -87, the
Certificate shall provide a breakdown of the following:

i. Any amount in cash or in kind (including administrative expenses)
paid or utilized to accomplish one or more purposes for which the
educational institution was created or organized, including grant of
scholarship to deserving students and professorial chairs for the
enhancement of professional course.
ii. Any amount paid to acquire an asset used (or held for use) directly
in carrying out one or more purposes for which it was created or
organized, including the upgrading of existin g facilities to support the
conduct of the above activities.
iii. Any amount in cash or in kind invested in an activity related to the
educational purposes for which it was created or organized.
iv. Any amount set aside for a specific project , which must be suppo rted
by a Board Resolution issued by the school administration on
proposed projects (i.e. , construction and/or improvement of school
buildings and facilities, acquisition of equipment, books and the like)
to be funded out of the money deposited in banks or placed in money
markets, on or before the 15 th day of the fourth month following the
end of its taxable year .

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SECTION 5. General Guidelines in the Evaluation of the Application s for Tax
Exemptions /Revalidation . — The R evenue District Officer (RDO) shall :

a. Ascertain whether or not the corporation or association falls under any of
the organizations enumerated under Section 30 of the NIRC , as amended,
by examining its Articles of Incorporation and By -Laws and other
constitutive documents. The Articles of Incorporation m ust clearly state
that :

i. It is a non -stock, non -profit corporation or association;
ii. The purpose for which it was created is one of those enumerated
under Section 30 of the NIRC , as amended;
iii. No part of the corporation or association’s net income shall inure to
the benefit of any private individual ; and
iv. The trustees of the non -profit corporation or association do not
receive any compensation or remuneration.

The corporation or association’s constitutive documents shall :

i. Limit its purpose to those described in Section 30 of the NIRC, as
amended ;
ii. Not expressly permit activities that do not further its tax -exempt
purposes ; and
iii. Permanently dedicate its assets to its tax -exempt purposes.

A branch office of a foreign non -stock, non -profit corporation cannot
qualify as a tax -exempt corporation under Section 30 of the NIRC , as
amended .

b. Determine whether or not the corporation or association is operating as
an organization under Section 30 of the NIRC, as amended, by examining
its modus operandi , financial statements and other relevant documents .
The e xamination must show that:

i. Its earnings do not inure to the benefit of a ny private individual;
ii. It does not operate for the benefit of private interest such as
those of its founder or the founder’s family; and
iii. It does not operate for the purpose of conducting a trade or
business that is not related to its tax -exempt purpose .

c. Verify the corporation or association’s sources of revenues and other
transactions to determine which are taxable and non -taxable . Despite its
being a tax -exempt institution, it is subject to the corresponding internal
revenue taxes imposed under the NIRC, 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 (i.e. , rental
payment from their building/premises), which income is subject to income
tax .

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d. Verify whether or not the corporation or association has stop -filer cases,
accou nts receivable (AR) cases, etc. and require compliance by the
corporation or association .

e. Verify whether or not the corporation or association is the subject of any
pending investigation, on -going audit, pending tax assessment,
administrative protest, claim for refund or issuance of tax credit certificate,
collection proceedings, or a judicial appeal; and determine if the issues
involved therein warrant a denial of the application for tax
exemption /revalidation .

SECTION 6. Specific Guidelines in the Evaluation of the Application of
Corporations or Associations under Section 30 (E) of the NIRC, as amended .—

Corporations or associations which apply for tax exemption ruling under
Section 30 (E) of the NIRC, as amended, must meet all the following requirements:

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 of the NIRC , as
amended .

ii. Operational Test — mandates that the regular activities of the
corporation or association be exclusively devoted to the
accomplish ment of the purposes specified in paragraph ( E) of Section
30 of the NIRC , as amended . 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. Any profit must be plowed
back and must be devoted or used altogether for the furtherance of the
purpose for which the corporation or association was organized.

d. It must not be a branch of a foreign non -stock, non -profit corporation.

SECTION 7. Request for Additional Documents. — In the course of review of the
application for tax exemption /rev alidation , the Bureau may require additional
information or documents as the circumstances warrant.

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SECTION 8. Procedure. —

a. Upon receipt of the complete document ary requirements (docket) for the
application for tax exemption /revalidation , the RDO shall pre -evaluate the
same and shall determine whether or not the applicant qualifies as a n
exempt corporation or association under Section 30 of the NIRC, as
amended .

i. If based on the pre -evaluation , the RDO is of the position that the
corporation or association is qualified, he shall prepare a written
recommendation stating the factua l and legal bases therefor and
endorse the docket to the Office of the Regional Director for review.
If the Regional Director concurs with the RDO’s recommendation, the
docket shall be forwarded to the O ffice of the Assistant Commissioner,
Legal Service, Attention: Law Division. Otherwise, the docket shall be
returned to the RDO for appropriate action.

The Law Division shall further review and evaluate the documents
submitted by the applicant and the RDO’s recommendation. If the
same is in order, it shall prepare the appropriate Tax Exemption Ruling
for approval and signature of the Commissioner or his duly authorized
representative. Otherwise, the docket shall be returned to the R egional
Director for appropriate action.

ii. If based on the pre -evaluation, the RDO is of the position that the
corporation or association does not qualify, he shall notify in writing
the applicant of such findings , stat ing the factual and legal bases for
the denial. The applicant may appeal the denial to the Regional
Director within thirty (30) days from the date of receipt of the written
notice of denial.

If the application for tax exemption /revalidation is denied, the
corporation or association shall be held liable for income tax and shall be
accordingly assessed for deficiency taxes, inclusive of penalties and interest.

b. If the re is incomplete submission of the document ary requirement s, the
corporation or association shall be notified of such findings and the
documents already submitted shall be returned to the applicant for
submission/ completion .

SECTION 9. Validity of the Tax Exemption Ruling . — A Tax Exemption Ruling
issued under this Order shall be valid for a period of three (3) years from the date of
effectivity specified in the Ruling , unless sooner revoked or cancelled.

The Tax Exemption Rulin g shall be deemed revoked if there are material
change s in the character, purpose, or method of operation of the corporation or

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association which are inconsistent with the basis for its income tax exemption. The
revocation takes effect as of the date of the material change.

SECTION 1 0. Renewal of Tax Exemption Rulings . — Tax Exemption Ruling s may
be renewed upon filing of a subseguent . Application for Tax Exemption/Revalidation,
under same requirements and procedures provided herein. Otherwise, the
exemption shall be deemed revoked upon the expiration of the Tax Exemption
Ruling . The new Tax Exemption Ruling shall be valid for another period of thr ee (3)
year s, unless sooner revoked or cancelled .

SECTION 1 1. Effect of Failure to File Annual Information Return. — If a
corporation or 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 beginni ng the taxable year for which it failed to file an annual information
return, in addition to the sanction s imposed under Section 250 of the NIRC , as
amended .

SECTION 1 2. Transitory Provisions . — Tax exemption rulings or certificates
issued to corporations or associations listed under Section 30 of the NIRC, as
amended, prior to June 30, 2012 shall be valid until December 31, 2013. Tax
exemption rulings or certificates issued after June 30, 2012 shall continue to be valid
for a period of thr ee (3) year s form date of issuance , u nless sooner revoked or
cancelled .
SECTION 13. Repealing Clause. — Any revenue issuance which is inconsistent
with this Order is deemed revoked, repealed, or modified accordingly.

SECTION 14. Effectivity. — This Order shall take effect immediately .

(Original Signed)
KIM S. JACINTO -HENARES
Commissioner of Internal Revenue

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