Revalidation of tax exemption of non-stock, non-profit organizations

Corporations and associations under Section 30 of the National Internal Revenue Code (NIRC), as amended, including those that received tax exemption rulings/certificates prior to June 30, 2012, must file their respective Applications for Tax Exemption/Revalidation with the Revenue District Office (RDO) where they are registered.

General documentary requirements

A corporation or association applying for tax exemption or revalidation of its tax exemption must submit the following documents:

1. 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, on which the application for exemption/revalidation is being based.

2. Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission

3. Original copy of certification under oath by an executive officer of the corporation or association as to: (a) all previous amendments/changes in the Articles of Incorporation and By- Laws, (b) manner of activities, and (c) 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.

4. Certified true copy of the Certificate of Registration with the Bureau of Internal Revenue (BIR)

5. 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, officers 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 subparagraph

6. 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, ongoing audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; or if there be any, the original copy of the certification issued by the RDO on the status thereof

7. Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the last three years

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

a) A full description of the past, present, and proposed activities of the corporation or association

b) A narrative description of anticipated receipts and contemplated expenditures

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

In the course of review of the application for tax exemption/revalidation, the BIR may require additional information or documents as the circumstances warrant. There is also a separate listing of the additional requirements for non-stock, nonprofit educational institutions.

Guidelines for the evaluation of application

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

1. 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.

2. It should meet the following tests:

a. 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

b. Operational test – mandates that the regular activities of the corporation or association be exclusively devoted to the accomplishment 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.

Validity of tax exemption ruling

The tax exemption ruling shall be valid for a period of three years from the date of effectivity of the ruling, unless sooner revoked or cancelled.

The tax exemption ruling shall be deemed revoked if there are material changes in the character, purpose, or method of operation of the corporation or association that are inconsistent with the basis for its income tax exemption. The revocation takes effect as of the date of the material change.

Renewal of tax exemption rulings

The tax exemption ruling may be renewed upon filing of a subsequent Application for Tax Exemption /Revalidation, under the 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 three years, unless sooner revoked or cancelled.

(Revenue Memorandum Order No. 20-2013, July 22, 2013)

Tax Brief – August 2013

Punongbayan and Araullo