David Cagahastian

January 2, 2014
STORY BIR MEMORANDUM AGAINST EDUCATIONAL INSTITUTIONS
The Bureau of Internal Revenue (BIR) will stand by the revenue memorandum that r
equires non-stock and non-profit corporations and associations claiming tax exem
ption to prove their tax-exempt status every three years, amidst a petition file
d at the Makati City regional trial court seeking an injunction against the said
memorandum.
The Makati City regional trial court branch 42 issued last week a temporary rest
raining order against BIR Revenue Memorandum Order No. 20-2013, and has set a he
aring on January 8 for the BIR to show cause why a preliminary injunction should
not issue.
The petition for injunction was filed by St. Paul College of Makati, apparently
taking the cudgels for some 1,200 similarly situated schools which are fellow me
mbers of the Catholic Educational Association of the Philippines (CEAP).
Before the petition was filed by St. Paul College of Makati, the CEAP sent a let
ter dated September 30, 2013 to BIR Commissioner Kim Henares, reiterating that t
he BIR had already ruled way back in 1998 that member-schools of CEAP are exempt
from certain registration requirements of the BIR because it had been found at
that time that the CEAP member-schools had been using their revenues and assets
exclusively for educational purposes.
St. Paul College cites as a legal basis Article XIV, Section 4(3) of the Constit
ution which provides that: "All revenues and assets of non-stock, non-profit edu
cational institutions used actually, directly, and exclusively for educational p
urposes shall be exempt from taxes and duties."
However, it is already settled by the Supreme Court that any revenues and assets
of these non-stock, non-profit educational institutions that are not used direc
tly for educational purposes are subject to tax.
Even the letter of CEAP acknowledged that the BIR ruling in 1998 had made a rese
rvation regarding the exemption of educational institutions from registration re
quirements of the BIR, such that if the CEAP member-school engages in any busine
ss activity or transaction which is not for educational or religious purposes, t
hen the exemption from the registration requirements will not apply.
"Thus, if the member-schools engaged in any business activity or transaction on
which its Constitutional tax exemption is not applicable, such as lease of real
property for commercial use, the aforementioned BIR registration requirements wi
ll have to be complied with," said the CEAP's letter to Henares.
"This notwithstanding, we should point out that CEAP s member-schools have likewise
secured their own BIR Rulings confirming their tax exemption," the letter added.
Now, with Revenue Memorandum Order No. 20-2013, Henares wants to see whether the
se BIR rulings on the tax exemptions of educational institutions are still updat
ed.
Henares said there is nothing unconstitutional in requiring entities engaged in
educational, religious or charitable endeavors to prove that they are tax-exempt
as they claim to be, noting that it has always been the rule that there are req
uirements to be complied with before tax exemptions granted under the Constituti
on and the National Internal Revenue Code (NIRC) can be availed of.

Under Henares' memorandum, the tax exemption rulings/certificates issued before

June 30, 2012 shall be valid only up to December 31, 2013. Those issued after Ju
ne 30, 2012 shall continue to be valid for up to three years from date of issue.
The memorandum requires entities which claim tax exemption under Section 30 (E)
of the NIRC to provide certain documentary requirements to prove their qualifica
tions for tax exemption. Additional documentary requirements are imposed on educ
ational institutions to ensure that their transactions are not outside the scope
of the tax-exempt transactions.
Section 30 (E) of the NIRC provides that: "The following organizations shall not
be taxed under this Title in respect to income received by them as such: (E) no
n-stock corporation or association organized and operated exclusively for religi
ous, charitable, scientific, athletic, or cultural purposes, or for the rehabili
tation of veterans, no part of its net income or asset shall belong to or inures
to the benefit of any member, organizer, officer or any specific person." (Davi
d Cagahastian)