Tax notes: Tax exemption rules for non-stock, non-profit corporations

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Monday, August 5, 2013


TAX exempt corporations listed under Section 30 of the 1997 National Internal Revenue Code, as amended, are exempt from income tax, except those whose income was earned from activities conducted for profit. However, the tax exemption granted under the law is not automatic and absolute.

In order to avail tax exempt status, non-stock, non-profit organizations are required to secure confirmatory rulings or certificates of tax exemption from the Bureau of Internal Revenue (BIR). The tax exemption privileges of these organizations are not absolute since it does not cover all types of income and activities.

To properly implement the tax exemption of non-stock, nonprofit corporations, the BIR recently issued Revenue Memorandum Order (RMO) No. 20-2013, which prescribes the policies and guidelines for the applications for tax exemption, revalidation of tax exemption certificates and application for confirmatory BIR rulings. RMO No. 20-2013 lists a series of documentary requirements to be submitted by qualified non-stock, non-profit corporations together with their respective applications for tax exemption/revalidation with the Revenue District Office where they are registered.

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Furthermore, the RMO provides the following causes of revocation of the tax exemption certificate or ruling: a) If there are material changes in the character, purpose, or method of operation of the corporation or association which are inconsistent with the basis for income tax exemption confirmed in the tax exemption ruling; b) Non-renewal and non-revalidation of tax exemption certificate; and c) If the corporation which has been issued a tax exemption ruling fails to file an annual information return.

Tax exemption rulings or certificates issued prior to June 30, 2012 shall be valid until Dec. 31, 2013 pursuant to the new rules of the RMO. As for those issued after June 30, 2012, the certificate shall continue to be valid for three years from issuance date, unless sooner revoked or cancelled.

Published in the Sun.Star Cebu newspaper on August 06, 2013.

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