By: Tax and Accounting Center Philippines
Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 51-2014 dated 6 June 2014 entitled “Clarifying the Inurement Prohibition under Section 30 of the National Internal Revenue Code of 1997”
In relation to the pronouncement of the Supreme Court in the Case of Commissioner of Internal Revenue (CIR) versus St. Lukes Medical Center, Inc. under G.R. No. 195909 and 195960 dated 26 September 2012 the following terms where defined:
Non-stock corporation Philippines
“Non-stock” means “no part of its income is distributed as dividends to its members, trustees, or officers” and that any profit “obtained as an incident to its operations shall, whenever necessary and proper, be used for the furtherance of the purpose or purposes for which the corporation was organized”.
Non-profit corporation Philippines
“Non-profit” means that “no net income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institution’s purpose and all its activities conducted not for profit”.
Inurement prohibition under Section 30
In relation to the above, the BIR has clarified that in order to qualify as a non-stock and / or non-profit corporation or association or organization exempt from income tax in the Philippines under Section 30 of the National Internal Revenue Code (NIRC), as amended, its earnings or assets shall not inure to the benefit of any of its trustees, organizers, officers, members or any specific person.
Under RMC 51-2014, the following are considered “inurements” of such nature:
All other issuance inconsistent with RMC No. 51-2014 are hereby repealed or modified accordingly.
The present pronouncements on non-stock and non-profit seems to be meticulous on the stick signification of non-stock and non-profit for purposes of tax exemptions and BIR seem to be clear on that. Accordingly, non-stock and non-profit corporations are advised to review its operations in line with the recent developments on the requirements for tax exemption of non-stock and non-profit corporations in the Philippines. They should exert extra effort in seeing to it that their operations complies with the requirements to avoid unnecessary consequence.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at info(@)taxacctgcenter.org)
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