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2013 tax-exemption guidelines for non-stock,

nonprofit corporations
SECTION 30 of the National Internal Revenue Code of 1997 (NIRC), as amended, explicitly lists
the corporations and associations that are exempt from income tax, except those whose income
was earned from “activities conducted for profit.” But before any tax exemption may be
appealed for and its benefits availed of, it is necessary to secure a confirmatory Bureau of
Internal Revenue (BIR) ruling or a certificate of tax exemption.

Apart from legal and constitutional bases, several implementing regulations have been issued
that provide guidelines for the tax exemption of corporations or associations listed under Section
30 of the NIRC. The most recent of which is Revenue Memorandum Order (RMO) 20-2013,
issued by the BIR on July 22, which specifically prescribes the new policies and guidelines in
issuing tax-exemption rulings for qualified non-stock, non-profit corporations and associations,
whether as first-time applicants or for revalidation.

Pursuant to this RMO, tax-exemption rulings or certificates issued to corporations or

associations prior to June 30, 2012, shall be valid until December 31, 2013. Those issued after
June 30, 2012, shall continue to be valid for three years from the date of issuance, unless
revoked or canceled earlier.

Under Section 2 of the RMO, applications for tax exemption/revalidation must be filed with the
revenue district office (RDO) where the concerned corporation or association is registered,
before it is forwarded to the legal services of the national office for a second review and
elevated to the BIR commissioner for signature. Sections 3 and 4 pertain to the documentary
requirements to be submitted, while Section 8 discusses the procedures to be followed. For the
general guidelines under Section 5, the RDO concerned shall ascertain whether the corporation
or association falls under any of the organizations listed under Section 30 of the NIRC by
examining its articles of incorporation, by-laws and other constitutive documents; modus
 operandi, financial statements and other relevant documents; and sources of revenues and
other transactions to determine which are taxable and non-taxable.

In addition, the RDO shall check whether there are stop-filer or accounts-receivable cases and
verify whether the corporation or association is the subject of any pending administrative,
judicial or quasi-judicial proceeding that may warrant a denial of the application for tax
exemption/revalidation.

In order for a tax-exemption ruling/revalidation to be issued, the specific guidelines mentioned in

Section 6 must be strictly complied with by the applicant. To wit:

 It must be a non-stock corporation or association organized and operated exclusively for

religious, charitable, scientific, athletic or cultural purposes, or for the rehabilitation of veterans;

 It should meet the organizational test, which requires that the corporation or association’s
constitutive documents exclusively limit its purposes to one or more of those described in
paragraph E of Section 30 of the NIRC; and the operational test, which mandates that the
regular activities of the corporation or association be exclusively devoted to the accomplishment
of the purposes specified in paragraph E of Section 30 of the NIRC;

 All the net income or assets of the corporation or association must be devoted to its purpose/s,
and no part of its net income or asset accrues to or benefits any member or specific person. Any
profit must be plowed back and must be devoted or used altogether for the furtherance of the
purpose for which the corporation or association was organized; and
 It must not be a branch of a foreign non-stock, nonprofit corporation.
 It is significant to note that if a corporation or association that has been issued a tax-exemption
ruling fails to file its annual information return, it shall automatically lose its income tax-exempt
status beginning the taxable year for which it failed to file that return, in addition to the sanctions
imposed under Section 250 of the NIRC.

Accordingly, compliance with the above clear-cut requirements and new guidelines introduced
by RMO 20-2013 is a must. In view of the deadline set, affected taxpayers must secure the
necessary ruling/revalidation at the soonest possible time. Otherwise, the entitlement to the
benefits of tax exemption may be lost.

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The author is a senior associate of Du-Baladad and Associates Law Offices, a member-firm of
World Tax Services Alliance.

The article is for general information only, and is neither intended nor should be construed as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article to
any actual or particular tax or legal issue should be supported by a professional study or advice.
If you have comments or questions about the article, e-mail the author
at filamer.miguel@bdblaw.com.ph or call 403-2001 local 360.