INTERNAL Revenue Commissioner Kim Jacinto-Henares has softened her stand against nonstock, nonprofit entities claiming tax exemption, issuing another memorandum which states that tax-exempt entities under the Constitution do not need to secure a tax-exemption ruling to enjoy such exemption.
Henares issued Revenue Memorandum Order (RMO) 34-2014, clarifying her earlier memorandums regarding the tax-exempt status of nonstock, nonprofit entities that claim tax-exempt status under Article XIV, Section 4(3) of the Constitution, which provides that: “All revenues and assets of nonstock, nonprofit educational institutions used actually, directly and exclusively for educational purposes shall be exempt from taxes and duties.”
Henares’s new memorandum repeals certain provisions of RMO 20-2013, as amended by RMO 28-2013, including the provision requiring a valid and subsisting tax-exemption ruling on the part of the taxpayer, “otherwise, the exemption shall be deemed revoked upon the expiration of the tax-exemption ruling.”
Under RMO 20-2013, as amended by RMO 28-2013, entities claiming certain tax exemptions must file for a renewal of their tax-exemption rulings every three years; and that all existing tax-exemption rulings or certificates issued prior to June 30, 2012, are deemed expired as of December 31, 2013, while those issued after June 30, 2012, shall be valid for a period of three years from date of issue, unless sooner revoked.
This RMO 20-2013 had been the subject of a preliminary injunction issued by the Regional Trial Court in Makati City earlier this year upon the petition of Saint Paul College of Makati, claiming tax exemption on its educational and religious activities as granted by the Constitution.
Now, the new memorandum issued by Henares adopts a softer stance against nonstock, nonprofit entities, as it defines the nature of a tax-exemption ruling as a mere validation or confirmation of the tax-exempt status claimed by a non-stock, nonprofit entity.
“Tax-exemption rulings do not confer tax exemptions, which are not provided for by law. Nor can tax-exemption rulings abrogate those exemptions that are granted by the law. In the review of applications for tax-exemption rulings, the bureau merely seeks to validate/confirm whether the conditions set forth by law for the grant of tax exemption are present or whether such conditions have been complied with by the applicant,” the new memorandum said.
“Consistent with the above nature of tax-exemption rulings, the absence of a valid, current and subsisting tax-exemption ruling will not operate to divest qualified entities of the tax exemption provided under the Constitution, or Section 30 of the Tax Code,” the memorandum added.
With the new memorandum issued by Henares, the effect of a failure to secure a tax-exemption ruling would not amount to the exemption being revoked as provided for by RMO 20-2013. However, the memorandum said that “nonstock, nonprofit entities which fail to secure a tax-exemption ruling for a given taxable year or shorter period (as in the case of late filers) are duty bound to prove compliance with the conditions laid down by the law and other pertinent administrative issuances in the event of a tax investigation.”
In the case of withholding agents, such as banks, however, the regulations are more strict, as the new memorandum retains the requirements laid down by Revenue Memorandum Circular 8-2014, which provides that withholding agents must demand for a valid and subsisting tax-exemption ruling from their payees, such as their depositors, before payment of the related income, such as interests on bank deposits.
“In accordance with RMC 08-2014, the failure of the nonstock, nonprofit entity to present its valid, current and subsisting tax-exemption ruling to the appropriate withholding agents shall subject such entity to the payment of the withholding taxes due on their transactions.
David Cagahastian