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 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
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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
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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
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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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