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December 18, 2000

BIR RULING NO. 071-00

Sec. 282 RR 2-98 159-98

MS. SONIA T. de VERA2040 A.T. MapuaSta. Cruz, Manila

Madam :

This refers to your letter dated September 30, 1999 addressed to the HonorableSecretary Edgardo B. Espiritu duly endorsed and received by this Office on October12, 1999 collecting a ten percent (10%) professional fee (reward) granted underSection 282 of the 1997 Tax Code based on the fines that shall be collected from thenon-stock, non-profit educational institutions, particularly the Catholic EducationalAssociation of the Philippines (CEAP), allegedly for failure to comply with theregistration requirements imposed under the Tax Code.

Your request is premised on your presumption that since this Office haddiscussed BIR Ruling No. 159-98 dated November 11, 1998 to CEAP through itslegal counsel, Atty. Sabino Padilla, Jr., dispositive portion of which specifically statesthat

"Thus, since all revenues and assets of the said educational institutionswhich are being used actually, directly and exclusively for educational purposesare exempt from taxes, which includes internal revenue taxes under the NationalInternal Revenue Code; your opinion that said institutions are exempt from theaforementioned BIR-registration requirements, is hereby confirmed."

the said educational institutions did not and will no longer register their books ofaccounts and business name, as well as comply with the printing requirements andissuance of receipts and sales invoices, as provided for under Sections 232, 237 and238 of the Tax Code of 1997, respectively; that you opined that while thesenon-stock, non-profit educational institutions can be exempted from internal revenuetaxes enumerated under Section 21(a) to (f) of the Tax Code (sic), it may still be

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liable from "such other taxes as are or hereafter may be imposed and collected by theBureau of Internal Revenue (BIR)" under item (g) of the same section of the TaxCode; that you believed that such other taxes may include such withholding taxescollected 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 toexamine its compliance with the provision of the withholding tax regulations; thatyou categorically opined, in not so many words, that these institutions, though exemptfrom taxes should still comply with the bookkeeping regulations as they are not beingexempt since they are as well, directly liable to withhold and remit the withholdingtaxes on their income payments; that if they have not complied with such registrationrequirements, it is but proper for the BIR to collect fines from them; and that for thealleged fines to be collected, you are of the opinion that you are entitled to a tenpercent (10%) professional fee (or reward) being given to the informer under Section282 of the Tax Code of 1997. SHTaID

In reply, please be informed that pursuant to said Section 282 of the Tax Codeof 1997, pertinent portion of which provides, thus:

"SEC. 282. Informer's Reward to Persons Instrumental in theDiscovery of Violations of the National Internal Revenue Code and in theDiscovery and Seizure of Smuggled Goods.

"(A) For Violations of the National Internal Revenue Code. Anyperson, except an internal revenue official or employees, or other public officialor employee, or his relative within the sixth degree of consanguinity, whovoluntarily gives definite and sworn information, not yet in the possession of theBureau of Internal Revenue, leading to the discovery of frauds upon the internalrevenue laws and violations thereof, thereby resulting in the recovery ofrevenues, surcharges and fees and/or the conviction of the guilty party and/orthe imposition of any fine or penalty, shall be rewarded in a sum equivalent toten percent (10%) of the revenues, surcharges or fees recovered and/or fine orpenalty 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 aninformer where the offender has offered to compromise the violation of lawcommitted by him and his offer has been accepted by the Commissioner andcollected from the offender: Provided, That should no revenue, surcharges orfees be actually recovered or collected, such person shall not be entitled to areward: Provided, further, That the information mentioned herein shall not referto a case already pending or previously investigation or examined by theCommissioner of any of his deputies, agents or examiners, or the Secretary of

baniquedresulting in the recovery

baniquedconviction

baniquedimposition of any fine or penalty,

baniquedimposed and collected

baniquedper case,

baniquedwhichever is lower.

baniquedoffered to compromise

baniquedaccepted

baniquedno

baniquedactually recovered or collected,

baniquednot

baniquednot

baniquedcase already pending

baniquedpreviously investigation

baniquedexamined

Baniqued that if they have not complied with such registrationrequirements, it is but proper for the BIR to collect fines from them; and that for thealleged fines to be collected,

Baniqued to be collected,

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Finance or any of his deputies or agents: Provided, finally, That the rewardprovided herein shall be paid under rules and regulations issued by theSecretary of Finance, upon recommendation of the Commissioner."

an amount equivalent to ten percent (10%) of the revenues, surcharges or feesrecovered 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 aninternal revenue official or employee, or other public official or employee, or hisrelative within the sixth degree of consanguinity, for having voluntarily given definiteand sworn information, not yet in possession of the BIR, leading to the discovery offrauds 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 ableto furnish this Office a definite and sworn information of any fraud or violationcommitted under the provisions of the Tax Code. Your implied presumption thatsince these non-stock, non-profit educational institutions are deemed to be the dulyconstituted withholding agents of the government, the BIR, in its aforesaid BIRRuling No. 159-98 exempting them from registration requirements, had also failed toconstitute them as withholding agents, is without legal basis in law and in fact. Youshould note that BIR Ruling No. 159-98 does not, in any manner, exempt thesenon-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 TaxCode. Various BIR rulings pertaining to non-stock, non-profit educationalinstitutions, have categorically stated, thus

"It must be emphasized that its tax exemption does not coverwithholding taxes. As an educational institutions, it is constituted aswithholding agent for the government required to withhold the tax oncompensation income of its employees, or the expanded withholding tax onincome payments to persons subject to tax pursuant to Section 57(B) of the TaxCode of 1997."

their distinct obligations as the duly constituted withholding agents for thegovernment.

Likewise, on the matter of how the BIR can monitor the activities of thesenon-stock, non-profit educational institutions, if you are only diligent enough in goingthrough with various BIR rulings on the matter, you will note that this Office requiresthese institutions to file an annual information return, thus,

"Under Section 235 of the Tax Code of 1997, any provision of existing

baniquedfor having voluntarily given definiteand sworn information,

baniquedCondition for entitlement to reward

baniquedhad also failed toconstitute them as withholding agents,

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general or special law to the contrary notwithstanding, the Revenue DistrictOfficer shall conduct an audit of annual information return filed, the books ofaccount and other pertinent records of the institution to determine compliancewith the conditions set forth in the certification of tax exemption and taxliabilities, if any." SIcTAC

In connection with BIR Ruling No. 159-98, this Office while confirming theexemption from registration requirements of these non-stock, non-profit educationalinstitutions (i.e., CEAP), has, however, consistently required each and everyinstitution to submit an annual statement and information return relating to theiractivities. Moreover, the exemption does not cover exemption from being the dulyconstituted withholding agent for the government.

Accordingly, since a BIR ruling can never be a basis of granting an informer'sreward, your collection of your supposed professional fee of 10% (reward) of thesupposed fine for the alleged violations of the withholding tax regulations, is herebydenied for lack of legal basis. Furthermore, payment and collection of professional fee(or reward) presupposes that you were able to furnish a definite and sworninformation, not yet in possession of the BIR, leading to the discovery of frauds uponinternal revenue law or violation of any of the provisions thereof.

Finally, your advice/information as to the filing of annual informationstatement and return and the constitution of these tax-exempt taxpayer/s aswithholding agent/s, are already covered in our various tax monitoring regulationsand duly outlined in Revenue Regulations No. 2-98, which compliance thereof arealso being defined in every ruling that this Office issues.

Very truly yours,

(SGD.) LILIAN B. HEFTIDeputy Commissioner

Legal & Inspection Group

baniquedAccordingly, since a BIR ruling can never be a basis of granting an informer'sreward, your collection of your supposed professional fee of 10% (reward) of thesupposed fine for the alleged violations of the withholding tax regulations, is herebydenied for lack of legal basis.

baniquedpresupposes that you were able to furnish a definite and sworninformation,