REVENUE MEMORANDUM CIRCULAR NO. 67-2012 issued on October 31, 2012 circularizes the relevant portions of the Supreme Court Decision in G.R. Nos. 195909 and 195960 dated September 26, 2012, entitled “Commissioner of Internal Revenue –vs- St. Luke’s Medical Center, Inc.”.
       Based on the said Supreme Court Decision, the following provisions are specified in the Circular:
            a. Private non-profit hospitals and educational institutions whose gross income from                            unrelated trade, business or other activity does not exceed 50% of their total gross                          income derived from all sources shall pay a tax of 10% on their taxable income except                      those covered by Section 27(D) of the National Internal Revenue Code (NIRC). However,                  the following shall be subject to the tax prescribed under Section 27(A) of the NIRC or                     the regular corporate tax rate on their taxable income, except those covered by                              Section 27(D) of the NIRC:
                 i. Private non-profit hospitals and educational institutions whose gross income from                            unrelated trade, business or other activity exceeds 50% of their total gross income                           derived from all sources, or
                ii. Hospitals and educational institutions claiming to be within the coverage of Section                           27[B] of the NIRC that fail to meet the above definition of “proprietary” and “non-                            profit” In all cases, whether their Income Tax rates fall under Section 27[A] or 27[B] of                      the NIRC, the aforesaid institutions are likewise subject to other applicable taxes, if                          warranted.
            b. Non-stock, non-profit corporations or associations, which claim to be charitable                                institutions, yet, they fail to meet the definition of “charitable” institutions, are not                            entitled to Income Tax-exemption under Section 30[E] of the NIRC, as amended, and                       their taxable income shall be subject to ordinary 30% corporate rate under Section                         27(A) of the NIRC. They are likewise subject to other applicable taxes, if warranted.
            c. Non-stock, non-profit corporations or associations, which claim to be charitable or                            social welfare but are not organized and operated “exclusively” for charitable or social                    welfare purposes are not entitled to the Income Tax-exemption under Sections 30[E]                      and [G] of the NIRC, as amended, and their taxable income shall be subject to ordinary                    30% corporate rate under Section 27(A) of the NIRC, as amended. They are likewise                        subject to other applicable taxes, if warranted.
            d. Activities for profit should not escape the reach of taxation. Being a non-stock and non-                  profit corporation does not, by this reason alone, completely exempt an institution from                  tax. An institution cannot use its corporate form to prevent its profitable activities from                    being taxed.                                                                                                                                      The Court finds that St. Luke’s is a  corporation  that is not “operated  exclusively” for charitable or social welfare purposes insofar as its revenues from paying patients are concerned. This ruling is based not only on a strict interpretation of a provision granting tax exemption, but also on the clear and plain text of Section 30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be “operated exclusively” for charitable or social welfare purposes to be completely exempt from Income Tax. An institution under Section 30(E) and (G) does not lose its tax exemption if it earns income from its for-profit activities. Such income from for-profit activities, under the last paragraph of Section 30, is merely subject to Income Tax, previously at the ordinary corporate rate but now at the preferential 10% rate pursuant to Section 27(B).
        St. Luke’s fails to meet the requirements under Section 30[E] and [G] of the NIRC to be completely tax exempt from all its income. However, it remains a proprietary non-profit hospital under Section 27[B] of the NIRC as long as it does not distribute any of its profits to its members and such profits are reinvested pursuant to its corporate purposes. St. Luke’s, as a proprietary non-profit hospital, is entitled to the preferential tax rate of 10% on its net income from its for-profit activities.
           All concerned revenue officials and employees are directed to fully implement the decision of the Supreme Court in G.R. Nos. 195909 and 195960 by ensuring that the proper taxes are collected from private non-profit hospitals and educational institutions starting from January 1, 1998.