Revalidation of Tax Exemption for Non-Profit Hospitals

Section 27(B) of the NIRC, as amended, imposes income tax at the rate of ten percent (10%) on taxable income of proprietary educational institutions and hospitals that are nonprofit, subject to the exceptions under Subsection (D).
Section 27(B) further provides that if gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income from all sources, the tax prescribed in Subsection (A) is imposed on the entire taxable income.
Section 27(B) defines “unrelated trade, business or other activity” as any activity not substantially related to the institution’s primary purpose or function.
The Circular is issued to uniformly apply guidelines laid down by the Supreme Court in Commissioner of Internal Revenue v. St. Luke’s Medical Center, Inc. (G.R. Nos. 195909 and 195960, September 26, 2012) by requiring re-evaluation of tax exemptions previously issued to certain hospitals.

The Circular requires all hospitals and non-stock, non-profit organizations operating hospitals that were issued tax-exempt rulings by the BIR to submit a request for revalidation of their tax-exempt status.
The Circular covers tax-exempt rulings granted under Section 30 of the NIRC to proprietary non-profit hospitals and to non-stock, non-profit entities operating hospitals.

Revalidation must be requested by submitting a set of documents to the Revenue District Office where the organization is registered.
The revalidation request must include a letter application stating the specific paragraph of Section 30 of the NIRC under which the organization seeks exemption.
The request must include copies of the corporation’s latest Articles of Incorporation and By-Laws duly certified by the Securities and Exchange Commission (SEC).
The request must include a Certificate of Registration with the BIR.
The request must include a Tax Clearance issued by the Revenue District Office where the corporation is registered.
The request must include copies of the Income Tax Returns or Annual Information Returns and Financial Statements for the last three years.
The request must include a statement of its modus operandi stating its sources of revenues.
During review, the Bureau may require submission of other documents as circumstances warrant.

After receipt of the application and supporting documents, the Revenue District Office must evaluate the request and determine whether the organization qualifies as an exempt corporation under Section 30 of the NIRC.
If the application is found insufficient, the corporation must be notified of such findings and the application with supporting documents must be returned.
If the application is found valid, the Revenue District Office must prepare a report stating why the organization qualifies to be tax-exempt under Section 30 of the NIRC.
The docket must be forwarded to the Office of the Regional Director for review.
If the Regional Director agrees with the Revenue District Office’s recommendation, the docket must be forwarded to the Office of the Assistant Commissioner, Legal Service.
The Law Division must review and evaluate the documents and, if in order, prepare the appropriate Certificate of Tax Exemption for signature of the Commissioner or the Commissioner’s duly authorized representative.

Tax-exempt rulings previously issued prior to November 1, 2012 granting tax exemption to proprietary non-profit hospitals or non-stock, non-profit entities operating hospitals under Section 30 of the NIRC no longer have validity.