g. Commissioner of Internal Revenue v. St. Luke’s Medical Center, G.R. No.

195909 and 195960,

26 September 2012

There is no dispute that St. Luke’s is organized as a non-stock and non-profit charitable
institution. However, this does not automatically exempt St. Luke’s from paying taxes. This only refers to
the organization of St. Luke’s. Even if St. Luke’s meets the test of charity, a charitable institution is not
ipso facto tax exempt. To be exempt from real property taxes, Section 28(3), Article VI of the
Constitution requires that a charitable institution use the property “actually, directly and exclusively” for
charitable purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a
charitable institution must be “organized and operated exclusively” for charitable purposes. Likewise, to
be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be “operated
exclusively” for social welfare.

The Court finds that St. Luke’s is a corporation that is not “operated exclusively” for charitable or
social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is based
not only on a strict interpretation of a provision granting tax exemption, but also on the clear and plain
text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be “operated
exclusively” for charitable or social welfare purposes to be completely exempt from income tax. An
institution under Section 30(E) or (G) does not lose its tax exemption if it earns income from its for-profit
activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely
subject to income tax, previously at the ordinary corporate rate but now at the preferential 10% rate
pursuant to Section 27(B)

h. Abra Valley College, Inc. v. Aquino, 162 SCRA 106;

SC ruled that the more liberal and non-restrictive interpretation of the phrase “exclusively used for
educational purposes” may be allowed, but reasonable emphasis has always been made that exemption
extends to facilities which are incidental to and reasonably necessary for the accomplishment of main
purpose-education.

The use of the second floor of the building for residential purpose may find justification under the
concept of incidental use, which is complimentary to main purpose. However, it was raised in SC that
the first floor of said building was subjected to lease to Northern Marketing Corporation, and such
cannot be considered incidental.

Thus, Abra should be taxed, not for the use of the 2nd floor as residential but for the lease of first
floor, which is in nature of commerce. The half of the assessed tax was directed to be returned to Abra
to be fair
 i. Commissioner v. De La Salle University, G.R. No. 196596, 9 November 2019;

The Court in the case of YMCA significantly laid down the requisites for availing the tax
exemption under Article XIV, Section 4 (3), namely: (1) the taxpayer falls under the classification non-
stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation
is used actually, directly and exclusively for educational purposes.

We now adopt YMCA  as precedent and hold that:

1. The last paragraph of Section 30 of the Tax Code is without force and effect with respect to
non-stock, non-profit educational institutions, provided,  that the non-stock, non-profit
educational institutions prove that its assets and revenues are used actually, directly and
exclusively for educational purposes.

2. The tax-exemption constitutionally-granted to non-stock, non-profit educational institutions,

is not subject to limitations imposed by law.

The tax exemption granted by the Constitution to non-stock, non-profit educational institutions
is conditioned only on the actual, direct and exclusive use of their assets, revenues and income for
educational purposes.

Further, a plain reading of the Constitution would show that Article XIV, Section 4 (3) does not
require that the revenues and income must have also been sourced from educational activities or
activities related to the purposes of an educational institution. The phrase all revenues  is unqualified by
any reference to the source of revenues. Thus, so long as the revenues and income are used actually,
directly and exclusively for educational purposes, then said revenues and income shall be exempt from
taxes and duties.

j. Henares v. St. Paul College of Makati, G.R. No. 215383, 8 March 2017.

A non-stock and non-profit educational institution are constitutionally exempt from tax on all
revenues derived in pursuance of its purpose as an educational institution and used actually, directly and
exclusively for educational purposes. This constitutional exemption gives the non-stock, non-profit
educational institutions a distinct character. And for the constitutional exemption to be enjoyed,
jurisprudence and tax rulings affirm the doctrinal rule that there are only two requisites: (1) The school
must be non-stock and non-profit; and (2) The income is actually, directly and exclusively used for
educational purposes. There are no other conditions and limitations.

However with the passage of RMO No. 44-2016, this case which questions the validity of RMO
No. 20-2013 was rendered moot and academic. RMO No. 44-2016 clarified that non-stock,
nonprofit educational institutions are excluded from the coverage of RMO No. 20-2013.
i. Allocation of Income and Deductions

1. Section 50. Allocation of Income and Deductions. - In the case of two or more organizations, trades
or businesses (whether or not incorporated and whether or not organized in the Philippines) owned or controlled
directly or indirectly by the same interests, the Commissioner is authorized to distribute, apportion or allocate gross
income or deductions between or among such organization, trade or business, if he determined that such distribution,
apportionment or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income of any
such organization, trade or business.

2. Revenue Regulations No. 2-2013;

Thus, the Commissioner is authorized to make transfer pricing adjustments, in line with the
purpose of Section 50 to ensure that taxpayers clearly reflect income attributable to controlled
transactions and to prevent the avoidance of taxes with respect to such transactions.

3. Commissioner of Internal Revenue v. Filinvest Development Corporation, G.R. Nos. 163653

and 167689, 19 July 2011

It may also be seen that the CIR's power to distribute, apportion or allocate gross income or
deductions between or among controlled taxpayers may be likewise exercised whether or not fraud
inheres in the transaction/s under scrutiny. For as long as the controlled taxpayer's taxable income is not
reflective of that which it would have realized had it been dealing at arm's length with an uncontrolled
taxpayer, the CIR can make the necessary rectifications in order to prevent evasion of taxes.

7. Dealings in Property

a. Shares of Stocks:

1. Net capital gains from sale, barter, exchange, or other disposition of shares of stock of a domestic
corporation held as capital asset not listed and traded in the local stock exchange;
  - a final tax at the rate of fifteen percent (15%) is hereby imposed upon the net capital gains realized during
the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation,
except shares sold, or disposed of through the stock exchange

2. Sale, barter, exchange, or other disposition of shares of stock of a domestic corporation which are
traded and listed in the local stock exchange;

-There shall be levied, assessed and collected on every sale, barter, exchange, or other disposition of
shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax
at the rate of six-tenths of one percent (6/10 of 1%) of the gross selling price or gross value in money of the shares of
stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor.

3. If stocks are held as ordinary assets, what happens to the resulting gain or loss?;