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BIR Ruling No. 240-2020: Denial of Tax Exemption Application

Posted by on February 18th, 2022

On May 21, 2020, the BIR issued ruling No. 240-2020 to respond to a letter dated July 27, 2017 from N. Co, a non-stock, non-profit association, with regards to its application for tax exemption certificate.

In its reply, the BIR cited Revenue Memorandum Circular (RMC) NO. 51-2014 which clarified that in order for an entity to qualify as a non-stock and non-profit corporation/association/organization exempt from income tax under Sec. 30 of the NIRC Code of 1997, as amended, it’s earnings or assets shall not insure to the benefit of any of its trustees, organized, officers, members or any specific person. The following are considered “inurements” of such nature:

  1. The payment of compensation, salaries or honorarium to its trustees or organizers.

However, the submitted financial statements of N. Co showed that it pays honorarium. Moreover, more than 50% of the operating income of the corporation was used for administrative expenses. The payment of honorarium to the members of the corporation is considered a distribution of the equity (including the net income). This is a form of private inurements which the law prohibits in the organization and operation of the non-stock, non-profit corporation and violates the requirement that no part of the net income or assets of the corporation shall inure to the benefit of any individuals or specific person.

In view of the foregoing, the BIR determined that N. Co cannot be qualified as a non-stock, non-profit corporation under Sec. 30 (E) of the NIRC of 1997 as amended and shall be treated as an ordinary corporation subject to thirty percent (30%) income tax rate pursuant to Sec. 27 (A) and other internal revenue taxes imposed by the NIRC of 1997, as amended.

Attached herewith also is the abovementioned BIR ruling for your reference. If you need assistance on any tax matters, you may email us at

Click to access S30E-0240-2020.pdf