BIR Ruling

April 27, 1977 2nd Indorsement Respectfully returned to the Honorable, Undersecretary of Local Government and Community Development, Quezon City, the attached papers relative to the request of the Filipino Cooperative Wholesale Society, Inc., Quezon City, for exemption from the payment of advance sales tax on its importation of 500 units of agricultural semi-automatic Knapsack sprayers "Wonderful" brand under the provisions of Presidential Decree No. 175. cdt It appears from the documents submitted that the Filipino Cooperative Wholesale Society, Inc. (FCWS) is a cooperative registered and re-registered with the Department of Local Government and Community Development under DLGCD Certificate of Re-registration No. KAT-044 RR dated September 1, 1975; that it is a cooperative federation with different consumers cooperatives as its members; that said cooperative is originally registered with the Cooperative Administration Office under Republic Act. No. 2023; that is formed primarily to provide goods, services and other requirements of its members; and that under its articles of incorporation, it may, among others: 1. Purchase, produce and supply in wholesale quantity to member-cooperatives goods which they need for their purposes; 2. Import goods, tools and equipment for production from other countries and as far as possible through the Cooperative Movement of other countries; and 3. Undertake to sell and distribute at reasonable prices essential commodities to member-cooperatives. It appears also that said activities of the cooperatives are authorized by Section 128 of Republic Act. No. 2023. Under the foregoing circumstances, and considering that the Filipino Cooperative Wholesale Society, Inc. is authorized to import goods, tools and equipment needed by its member-cooperatives for production purposes, its importation of the above-described articles is exempt from the payment of the 7% advance sales tax imposed under Section 186 in relation to Section 183(b) both of the Tax Code, pursuant to Section 5 of Presidential Decree No. 175. Section 5(a) thereof provides: "Section 5. Privileges of Cooperatives . Cooperatives shall enjoy the following privileges: "(a) Exemption from income taxes and sales taxes provided that a substantial portion of the net income of the cooperative is returned to members in the form of interests and/or patronage refunds; Provided , further , that for income tax purposes, non-agricultural cooperatives shall be exempt for a period of five (5) years and agricultural cooperatives for a period of ten (10) years reckoned from the date of registration with the Department of Local Government and Community Development; Provided , finally , that the taxable income shall mean the portion of the cooperative's income after deducting the interest paid to members and patronage refunds." It is believed that the scope of exemption from sales tax includes advance sales tax since the latter is a sales tax on imported articles for the purpose of sale. It should be noted, however, that for purposes of the said exemption, sale of the abovementioned articles by the FCWS shall be made and limited only to tax-exempt member-cooperatives who are registered and re-registered with the Department under Presidential Decree No. 175. In other words, if the said articles are subsequently sold to any non-member cooperative or non-exempt person or entity, said purchaser shall be considered the importer thereof who shall be subject to advance sales tax. (Sec. 183(b), Tax Code). EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8