Copyright 1994-2005 CD Technologies Asia, Inc. 1 December 15, 1987 DOF ORDER NO. 137-87 SUBJECT : Rules and Regulations Implementing Section 4(3), Article XIV of the New Constitution — Pursuant to Section 79(b) of the Revised Administrative Code, the followingrules and regulations are hereby promulgated for the effective implementation of the provisions of the New Constitution, to wit: "Section 4(3), Article XIV — All revenues and assets of non-stock,non-profit educational institution used actually, directly and exclusively for educational purposes, shall be exempt from taxe s and duties . . ." SECTION 1. Scope
— This set of guidelines shall govern the availment of ex emption from the payment of internal revenue taxes and customs duties provided for under t he NationalInternal Revenue Code, and the Tariff and Customs Code, both as amended.1.1 Educational institution
— means a non-stock, non-profitcorporation/association duly registered under Philippine law, andoperated exclusively for educational purposes, maintained andadministered by private individuals or groups, and offering formaleducation, issued a permit, to operate by the Department of Education, Culture and Sports (DECS) in accordance with existinglaws and regulations.1.2. Educational Activity Includes
— 1.2.1. Instructing or training of individuals either through formaleducation. Formal education refers to the institutionalized,chronologically graded and hierarchically structurededucational system at all levels of education.1.3. Utilization by Educational Institution
— means1.3.1. Any amount in cash or in kind (including administrative Copyright 1994-2005 CD Technologies Asia, Inc. 2 expenses) paid or utilized to accomplish one or more purposes for which it was created cre ated or organized, includinggrant of scholarship to deserving students and professorialchairs for the enhancement of professional course.1.3.2. Any amount paid to acquire an asset used (or held for use)directly in car rying
out one or more purposes for which theeducational institution was created or organized, includingthe upgrading of existing facilities to support the conduct of t he above activities.1.3.3. Any amount in cash or in kind invested in an activity relatedto t he educational purposes for which it was created o r organized.1.3.4. Any amount set aside for a specific project subject/ prior toapproval of the Commissioner of Internal Revenue inwriting. Application thereof must contain the following:(i) the nature and purpose of the specific proje ct and theamount programmed therefor;(ii) a detailed description of the project, includingestimated costs, sources of any future funds expectedto be used for completion of the project, and thelocation or locations (general or specific) of any physical facilities to be acquired or constructed as part of the project; and(iii) a statement by an authorized official of thecorporation or association that the amount to be setaside w ill actually be disbursed for the specific project within two (2) years from the date of approval by the Commissioner of I nternal Revenue,unless the nature of the project is such that the two(2) year period is impracticable.1.3.5. Any amount set aside shall be evidenced by book entriesand documents showing evidence of deposits or investments, including investment of the funds so set aside,or other documents t hat the Commissioner may require.
Copyright 1994-2005 CD Technologies Asia, Inc. 3 1.4. Non-Profit
— means no part of the income inures directly or indirectly to any individual or member.1.5. Operated exclusively
— means primarily engaged in activitieswhich accomplish the educational purposes. To meet theoperational test, an organization must be engaged in ac tivitiesfurthering "public purposes" rather than private interests. It mustnot be operated for the benefit of designated individuals or the per sons who created it.1.6. Actually, Directly and Exclusively Used . — shall refer to the purpose for which the property is principally utilized for educational purposes.1.7. Revenues
— refer to income derived in pursuance of its purpose asan educational institution.1.8. Assets
— Any owned physical object (tangible) or right(intangible) having a money value; an item o r source of wealth,expressed in terms of its cost, depreciated cost, or less frequently,some other value; hence, any cost benefiting a future period.SECTION 2. Coverage of Exemption Under Section 4(3), Article XIV of the New Constitution
— The exemption herein contemplated refers to internal revenue taxes andcustoms duties, in appropriate cases, imposed by the national government on allrevenues and assets of non-stock, nonprofit educational institutions used actually,directly and e xclusively for educational purposes.2.1. Nonstock, non-profit educational institutions are exempt from taxon all revenues derived in pursuance of its purpose as aneducational institution and used actually, directly, and exclusivelyfor educational purposes. They shall, however, be subject tointernal revenue t axes on income from trade, business or other activity the conduct of which is not related to the exercise of performance by such educational institution of its educational purpose or function.2.2. Revenues derived from and assets used in the operations of cafeterias/canteens, dormitories, bookstores are exempt from
