QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 4-2013)
Under Section 27(B) of the NIRC (as amended), proprietary educational institutions and hospitals which are nonprofit are generally taxed at 10% on their taxable income, subject to exceptions (e.g., those covered by Subsection (D) and conditions such as the “unrelated trade, business or other activity” threshold).
If the gross income from unrelated trade, business or other activity exceeds 50% of the total gross income from all sources, the 10% tax applies to the entire taxable income (instead of the exempt treatment applicable in other circumstances).
To require hospitals and non-stock, non-profit organizations operating hospitals that were granted tax-exempt rulings to secure revalidated tax exemption rulings/certificates by submitting documents for re-evaluation.
Commissioner of Internal Revenue v. St. Luke’s Medical Center, Inc. (G.R. Nos. 195909 and 195960, Sept. 26, 2012). It laid down guidelines for determining whether a proprietary non-profit hospital may be exempt from income tax, prompting re-evaluation of previously issued exemptions.
All hospitals and non-stock, non-profit organizations operating hospitals that were issued tax-exempt rulings by the BIR.
The letter application must state the specific paragraph of Section 30 of the NIRC under which the organization seeks exemption.
Copies of the latest Articles of Incorporation and By-Laws duly certified by the Securities and Exchange Commission.
A Certificate of Registration with the BIR.
A Tax Clearance issued by the Revenue District Office where the corporation is registered.
Copies of the Income Tax Returns or Annual Information Returns and Financial Statements for the last three years.
A statement describing how the organization operates, including its sources of revenues.
The Revenue District Office evaluates the application and determines whether the organization qualifies as an exempt corporation under Section 30 of the NIRC.
The organization is notified and the application with supporting documents should be returned.
A report is prepared and the docket is forwarded to the Office of the Regional Director for review; if agreed, it is forwarded to the Office of the Assistant Commissioner, Legal Service, which reviews documents and, if in order, prepares the Certificate of Tax Exemption for signature of the Commissioner or authorized representative.
All rulings issued prior to November 1, 2012 that grant tax exemption to proprietary non-profit hospitals or to non-stock non-profit entities operating hospitals under Section 30 of the NIRC are no longer valid.
Earlier BIR-issued tax exemption rulings covered by the circular (issued prior to Nov. 1, 2012) no longer remain valid, meaning the organization must obtain revalidated exemption to maintain tax-exempt status.
No. The circular requires revalidation and re-evaluation of whether the entity qualifies under Section 30 of the NIRC, reflecting that prior exemptions may not be valid absent the required revalidated certificate.