BIR Ruling

September 15, 1972 Mr. Jose Raval 412 Gen. Geronimo Street Sampaloc, Manila S i r : This refers to your letters dated October 15 and November 3, 1971 requesting information as to the internal revenue taxes an association or organization to be organized by several inter-island shipping companies for their mutual protection, would be liable to. cdtech It is represented that the principal function of the proposed association or organization is to check the correctness of declared freight on cargoes shipped aboard vessels of the member companies; that if the employees of the association discover "short freight" that is, lesser freight has been charged on certain cargo, the employees of the association will collect the difference, and the collections will be turned over to the shipping company concerned. It is also represented that the association or organization will be non-stock and non-profit; and that the total expenses of the organization, including salaries of employees, transportation, office supplies, etc. will be contributed by each member shipping company, based on the number of hours of service performed by said employees of the organization for such company. It also appears in the proposed articles of incorporation of the association that among its main purpose is to conduct for the sole and exclusive benefit of the members of said members in accordance with rates prescribed by the government, as well as survey and superintendence and adjustment of claims for damages and losses suffered by cargos shipped through any vessel of said members. In reply, I have the honor to inform you that under the foregoing facts and circumstances, the association or organization is not subject to any internal revenue tax on business. Moreover, for income tax purposes the association or organization falls under the category of a business league exempt from income tax under Section 27(f) of the Tax Code. Thus, under the last part of Section 31 of Revenue Regulations No. 2, an association of persons who are engaged in the transportation business, whether by land or water, which is designed to promote the legitimate objects of such business, and all of the income of which is derived from membership dues and is expended for office expenses is exempt from tax. However, this Office may modify or reverse this ruling if upon investigation, the facts are not the same as those represented. In this connection, in case the proposed association is finally organized and registered in accordance with law, copies of its Articles of Incorporation and By-Laws; affidavit showing the character of the organization, the purpose of which it was organized, its actual activities, the sources of its income and its disposition and whether or not any of its income is credited to surplus or inures or may inure to the benefit of any private individual; and latest financial statement showing the assets, liabilities, receipts and disbursement of the association should be submitted to this Office. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue