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157998819 Cir Vs St Lukes Essay

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Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc., G.R. No. 195909, September 26, 2012

Commissioner of Internal Revenue vs. St. Luke's Medical Center, Inc.

G.R. No. 195909 September 26, 2012

In a nutshell:

St. Luke’s Medical Center, Inc. (St. Luke’s) is a hospital organized as a non-stock and non-profit corporation. St. Luke’s accepts both paying and non-paying patients. With respect to its non-paying patients, St. Luke’s is exempted from income tax pursuant to Sec. 30 (E) and (G) of the NIRC for being a non-stock corporation or organization operated exclusively for charitable or social welfare purposes. Accepting paying patients does not destroy the exemption of St. Luke’s under Sec. 30 of the NIRC. Instead, the last paragraph of Sec. 30 of the NIRC provides that St. Luke’s activities conducted for profit, regardless of the disposition of such income, shall be subject to tax imposed under this Code.

What is the income tax rate to be applied to St. Luke’s activities conducted for profit? With respect to its paying patients, St. Luke’s is subject to the 10% preferential tax rate of proprietary non-profit hospitals under Section 27(B).

Relevant Sections:

Before discussing the case, let us take a look at the relevant sections of the law in question.

Section 27(B) of the National Internal Revenue Code (NIRC) states:

(B)  Proprietary Educational Institutions and Hospitals.   ̶ Proprietary educational institutions and hospitals which are non-profit shall pay a tax of ten percent (10%) on their taxable income except those covered by Subsection (D) hereof:  Provided, That if  the  gross  income  from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions or hospitals from all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire taxable income. For purposes of this Subsection, the term ‘unrelated trade, business or other activity’ means any trade, business or other activity, the conduct of which is not substantially related to the exercise or performance by such educational institution or hospital of its primary purpose or function. A ‘proprietary educational institution’ is any private  school  maintained  and  administered  by  private  individuals  or groups  with  an  issued  permit  to  operate  from  the  Department  of Education, Culture and Sports (DECS), or the Commission on Higher Education (CHED), or the Technical Education and Skills Development Authority (TESDA), as the case may be, in accordance with existing laws and regulations. (Emphasis supplied)

In comparison, Section 30(E) an...

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