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            Taxation of Commission Earned by Non-Profit Organization (“Public Institution”) (September 4th, 2009)

            1.Factual Background


            1.1"A”is a non-profit organization ("Public Institution”) recognized as such for the tax exemption granted under section 9(2) of the Income Tax Ordinance. It is not engaged in any commercial activities.


            1.2A group of non-residents approached "A” with a view of purchasing certain real estate. "A” introduced the group to a vendor who entered into a transaction with the group. The vendor paid "A” a commission for brokering the sale.


            1.3"A”made no demand of the vendors for the commission and the brokering was not conditioned on remuneration which was entirely unexpected.


            1.4Thecommission will be used to further the aims of the Public Institution.


            1.5"A”did not receive in the past commissions and has no expectations to receive any in the future.


            2.Question Posed


            2.1Is "A” liable for income tax on the commission?


            2.2Is "A” liable for value added tax on the commission?


            3.Conclusions


            3.1The opinion concluded that the commission was exempt from income tax due to the fact that the commission lacked the business or commercial indicia, used to characterize taxable receipt for purposes of the Income Tax Ordinance.


            3.2Moreover, even if the commission was to be characterized as partaking of a business nature it would still be exempt from the tax due to certain provisions specifically applicable to Public Institutions pursuant to which quasi business income is not deemed taxable business income of such institutions.


            3.3The opinion reached the conclusion that no Value Added Tax was payable on the commission, because it lacked commercial characteristics and was not paid within the framework of an isolated transaction in the nature of trade as per section 2 of the Value Added Tax, Law 1975.


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