BIR tightens rules on granting of tax breaks

The Bureau of Internal Revenue has tightened the rules on the granting of tax exemption to non-profit organizations—including schools, religious groups and charitable institutions.

In a memorandum order issued this week, the BIR said all tax-exemption certificates received by non-profit organizations after June 30, 2012, would be effective for only three years from the date of issuance.

Tax exemptions granted prior to the said date would be valid only until Dec. 31 this year.

Tax exemption privileges may be renewed but an organization has to apply for renewal, submit necessary documents and pass evaluation to be conducted by tax personnel.

Evaluation entails the scrutiny of revenue sources and expenditures of the non-profit organization. For instance, a non-profit organization will lose its tax-exempt status if a portion of its net income will be found to personally benefit an individual.

“No part of the corporation or association’s net income shall inure to the benefit of any private individual,” the BIR said in Revenue Memorandum Order No. 20-2013 signed by Revenue Commissioner Kim Henares.

Also, the BIR said, trustees of a non-profit group should not be receiving any compensation or remuneration to keep the organization’s tax-exempt status.

The tax bureau likewise clarified that tax-exempt non-profit groups still have to remit to the government withholding tax and fringe benefits tax on compensation of their employees, as well as documentary stamp tax.

The BIR also said that income derived from sources other than those specified in the application for tax-exemption was taxable.

“The memorandum aims to minimize tax leakages arising from inaccurate interpretation of relevant tax laws and administrative issuance,” the BIR said.

The memorandum also stated that tax exemption is granted only to Filipino non-profit organizations. Branches of foreign non-profit groups are subject to taxes, it added.