December 18, 2000
BIR RULING NO. 071-00
Sec. 282 RR 2-98 159-98 MS. SONIA T. de VERA 2040 A.T. Mapua Sta. Cruz, Manila Madam : This refers to your letter dated September 30, 1999 addressed to the Honorable Secretary Edgardo B. Espiritu duly endorsed and received by this Office on October 12, 1999 collecting a ten percent (10%) professional fee (reward) granted under Section 282 of the the 1997 Tax Code based on the fines that shall be collected from the non-stock, non-profit educational institutions, particularly the Catholic Educational Association of the Philippines (CEAP), allegedly for failure to comply with the registration requirements imposed under the Tax Code. Your request is premised on your presumption that since this Office had discussed BIR Ruling No. 159-98 dated November 11, 1998 to CEAP through its legal counsel, Atty. Sabino Padilla, Jr., dispositive portion of which specifically states that — "Thus, since all revenues and assets of the said educational institutions which are being used actually, directly and exclusively for educational purposes are exempt from taxes, which includes internal revenue taxes under the National Internal Revenue Code; your opinion that said institutions are exempt from the aforementioned BIR-registration requirements, is hereby confirmed."
the said educational institutions did not and will no longer register their books of accounts and business name, as well as comply with the printing requirements and issuance of receipts and sales invoices, as provided for under Sections 232, 237 and 238 of the Tax Code of 1997, respectively; that you opined that while these non-stock, non-profit educational institutions can be exempted from internal revenue taxes enumerated under Section 21(a) to (f) of the Tax Code (sic), it may still be Copyright 1994-2006
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liable from "such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal Revenue (BIR)" under item (g) of the same section of the Tax Code; that you believed that such other taxes may include such withholding taxes collected which are also required to be withheld and remitted by the said non-stock, non-profit educational institutions to the BIR; that effectively, to be able to do this, the BIR needs the books of accounts and other relevant accounting records to examine its compliance with the provision of the withholding tax regulations; that you categorically opined, in not so many words, that these institutions, though exempt from taxes should still comply with the bookkeeping regulations as they are not being exempt since they are as well, directly liable to withhold and remit the withholding taxes on their income payments; that if they have not complied with such registration requirements, it is but proper for the BIR to collect fines from them; and that for the alleged fines to be collected, you are of the opinion that you are entitled to a ten percent (10%) professional fee (or reward) being given to the informer under Section 282 of the Tax Code of 1997. SHTaID
In reply, please be informed that pursuant to said Section 282 of the Tax Code of 1997, pertinent portion of which provides, thus: "SEC. 282. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods. — "(A) For Violations of the National Internal Revenue Code. — Any person, except an internal revenue official or employees, or other public official or employee, or his relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Internal Revenue, leading to the discovery of frauds upon the internal revenue laws and violations thereof, thereby resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty party and/or the imposition of any fine or penalty, shall be rewarded in a sum equivalent to ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One million pesos (P1,000,000) per case, whichever is lower. The same amount of reward shall also be given to an informer where the offender has offered to compromise the violation of law committed by him and his offer has been accepted by the Commissioner and collected from the offender: Provided , That should no revenue, surcharges or fees be actually recovered or collected, such person shall not be entitled to a reward: Provided, further , That the information mentioned herein shall not refer to a case already pending or previously investigation or examined by the Commissioner of any of his deputies, agents or examiners, or the Secretary of Copyright 1994-2006
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Finance or any of his deputies or agents: Provided, finally, That the reward provided herein shall be paid under rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner."
an amount equivalent to ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One million pesos (P1,000,000) per case, whichever is lower, shall be rewarded to any person, except an internal revenue official or employee, or other public official or employee, or his relative within the sixth degree of consanguinity, for having voluntarily given definite and sworn information, not yet in possession of the BIR, leading to the discovery of frauds upon internal revenue law or violations of any of the provisions thereof. Based on the foregoing, for you to claim a reward, you should have been able to furnish this Office a definite and sworn information of any fraud or violation committed under the provisions of the Tax Code. Your implied presumption that since these non-stock, non-profit educational institutions are deemed to be the duly constituted withholding agents of the government, the BIR, in its aforesaid BIR Ruling No. 159-98 exempting them from registration requirements, had also failed to constitute them as withholding agents, is without legal basis in law and in fact. You should note that BIR Ruling No. 159-98 does not, in any manner, exempt these non-stock, non-profit organizations from the Withholding Tax Regulations, i.e., Revenue Regulations No. 2-98, implementing Sections 79(A) and 57(B) of the Tax Code. Various BIR rulings pertaining to non-stock, non-profit educational institutions, have categorically stated, thus — "It must be emphasized that its tax exemption does not cover withholding taxes. As an educational institutions, it is constituted as withholding agent for the government required to withhold the tax on compensation income of its employees, or the expanded withholding tax on income payments to persons subject to tax pursuant to Section 57(B) of the Tax Code of 1997."
their distinct obligations as the duly constituted withholding agents for the government. Likewise, on the matter of how the BIR can monitor the activities of these non-stock, non-profit educational institutions, if you are only diligent enough in going through with various BIR rulings on the matter, you will note that this Office requires these institutions to file an annual information return, thus, "Under Section 235 of the Tax Code of 1997, any provision of existing Copyright 1994-2006
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general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of account and other pertinent records of the institution to determine compliance with the conditions set forth in the certification of tax exemption and tax liabilities, if any." SIcTAC
In connection with BIR Ruling No. 159-98, this Office while confirming the exemption from registration requirements of these non-stock, non-profit educational institutions (i.e., CEAP), has, however, consistently required each and every institution to submit an annual statement and information return relating to their activities. Moreover, the exemption does not cover exemption from being the duly constituted withholding agent for the government. Accordingly, since a BIR ruling can never be a basis of granting an informer's reward, your collection of your supposed professional fee of 10% (reward) of the supposed fine for the alleged violations of the withholding tax regulations, is hereby denied for lack of legal basis. Furthermore, payment and collection of professional fee (or reward) presupposes that you were able to furnish a definite and sworn information, not yet in possession of the BIR, leading to the discovery of frauds upon internal revenue law or violation of any of the provisions thereof. Finally, your advice/information as to the filing of annual information statement and return and the constitution of these tax-exempt taxpayer/s as withholding agent/s, are already covered in our various tax monitoring regulations and duly outlined in Revenue Regulations No. 2-98, which compliance thereof are also being defined in every ruling that this Office issues.
Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group
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