Capitol Employees of Bataan (CEmBa) Multi-Purpose Cooperative

June 4, 2010 BIR RULING [COOP-(002) 037-10] RA No. 6938 & RR 20-01; BIR Ruling No. 006-01; BIR Ruling No. 008-01; BIR Ruling No. DA-015-03; BIR Ruling No. ECCP-034-08; BIR Ruling No. [COOP-(M-159)736-09] Capitol Employees of Bataan (CEmBa) Multi-Purpose Cooperative Capitol Compound, Balanga City, Bataan Attention: May A. Hizon Manager Gentlemen : This refers to your undated letter requesting for a Certificate of Tax Exemption under the provisions of Republic Act (RA) No. 6938, otherwise known as the "Cooperative Code of the Philippines". cEaCAH The facts, as you represent, are as follows: CEmBa Multi-Purpose Cooperative is a multi-purpose cooperative duly registered with the Cooperative Development Authority (CDA) on May 19, 2006 under Registration Certificate No. PGA-5587 and registered with BIR under TIN # 006-468-792. Pursuant to its Articles of Cooperation, the objective of CEmBa Multi-Purpose Cooperative ,among others is to: 1) To encourage thrift and savings mobilization among the members for capital formation; and 2) To create funds in order to grant loans for productive and providential purposes to its members. It is further represented that CEmBa Multi-Purpose Cooperative has completely submitted on May 14, 2010 in support of its request and in compliance with Section 6 of Revenue Regulations No. 20-01 dated November 12, 2001 the following documents, viz. :1) Articles of Cooperation and By-Laws; 2) Certified true copy of the Certificate of Registration issued by the CDA; 3) Certification under oath by the Manager that the Cooperative is transacting business with members only; 4) Certified true copy of the Certificate of Good Standing from the CDA; 5) Certification under oath by the Manager of the Cooperative as certified by the CDA as to the amount of accumulated reserves amounting to Two Hundred Seven Thousand Two Hundred Twenty Nine 41/100 (Php207,229.41) and undivided net savings amounting to Four Hundred Thirty Nine Thousand Two Hundred Sixty Nine 68/100 (Php439,269.68) and that at least 50% of the net income is returned to the members in the form of interest and/or patronage refund; 6) Certification under oath of the list of members and the share capital contribution of each of its owners-members; 7) 2007 & 2006 financial statements duly audited by an independent CPA; and 8) Certificate showing that there has not been any change in the By-Laws, Articles of Cooperation, manner of activities as well as sources and disposition of income. In reply, please be informed that Article 61 of R.A. 6938 provides for the following: "Section 61. Tax Treatment of Cooperatives. Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any government taxes or fees imposed under the internal revenue laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section." xxx xxx xxx (3) All cooperative, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for non-members shall be subject to the applicable percentage taxes except sales made by producers, marketing or service cooperatives: Provided further, That nothing in this article shall preclude examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority. ..." ISEHTa Likewise, Section 3.1 of Revenue Regulations (RR) No. 20-01 provides that a duly registered cooperative dealing/transacting business with members only shall be exempt from paying the following taxes for which it is directly liable, viz. : 1. Income tax on income from operations; 2. Value-added tax (VAT) under Section 109(M) of the Tax Code of 1997, as amended; 3. Percentage tax under Section 116 of the Tax Code of 1997; 4. Donor's tax on donations to duly accredited charitable, research and educational institutions, and reinvestment to socio-economic projects; 5. Excise tax under Title VI of the Tax Code of 1997; 6. Documentary stamps tax imposed under Title VII of the Tax Code of 1997, provided, however, that the other party to the taxable document/transaction who is not exempt shall be the one directly liable for the tax; and 7. Annual registration fee of P500.00 under Section 236(B) of the Tax Code of 1997, as amended by RA 9337. However, you are not exempt from registration. xxx xxx xxx Notwithstanding the foregoing, all income of the cooperative not related to its main/principal business/es shall be subject to all the appropriate taxes under the Tax Code of 1997. This is applicable to all types of cooperatives, whether dealing purely with members or both members and non-members. In any event, all types of cooperatives are required to register with the Bureau of Internal Revenue." However, CEmBa Multi-Purpose Cooperative is liable to pay the 12% VAT on its purchases of goods and services because the said tax is an indirect tax which can be passed on or shifted as part of the cost of the goods sold/services rendered. (BIR Ruling No. 008-01 dated March 5, 2001) It is emphasized, however, that the exemption of the cooperative does not extend to the individual members. Members of cooperatives are liable to pay all the necessary internal revenue taxes under the National Internal Revenue Code, including the tax on earnings derived from their capital contribution. Thus, in case CEmBa Multi-Purpose Cooperative will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in his income return for tax purposes. (BIR Ruling No. [COOP-(M-159)736-09] dated November 25, 2009) SADECI The proper taxes shall be paid or withheld in the following cases: 1. In case the cooperative will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in his individual income tax return for tax purposes. 2. Its interest income from Philippine currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements, and royalties derived from sources within the Philippines shall be subject to 20% final tax imposed under Section 27 (D) (1) of the Tax Code of 1997. 3. Interest income from a depository bank under the expanded foreign currency deposit system shall be subject to 7.5% final withholding tax; (Section 4 of R.R. 20-01). 4. Sales or exchanges of real property classified as capital assets or shares of stock shall be subject to Capital Gains Tax; (Section 4 of R.R. 20-01). 5. Where the accumulated reserves and undivided net savings exceed Ten Million Pesos (P10,000,000.00),transactions of cooperative dealing with non-members shall be subject to Documentary Stamp Tax. 6. All other taxes for which the cooperative are not otherwise expressly exempted by any law. 7. The cooperative shall be constituted as withholding agent if it acts as an employer and its employees receive compensation income subject to withholding tax provided for in Section 79 of the Tax Code, or if it makes income payments to individuals or corporations subject to Expanded Withholding Tax provided for in Section 57 (B) of the Tax Code, and as implemented by R.R. No. 2-98, as amended. Further, although CEmBa Multi-Purpose Cooperative is exempt from payment of annual registration fee, it is not exempt from the requirement of registration. (BIR Ruling No. ECCP-034-08 dated February 22, 2008) EDIaSH It is, however, understood that the tax exemptions mentioned herein shall remain during the period that CEmBa Multi-Purpose Cooperative is (1) in good standing as ascertained by the CDA on an annual basis; (2) accumulated reserves and undivided have not reached the threshold of Ten Million Pesos (P10,000,000.00);(3) the By-laws and Articles of Cooperation, its manner of activities, as well as resources and disposition of income has not been changed. CEmBa Multi-Purpose Cooperative is required to file on or before the 15th day of the fourth month following the close of its accounting period a Certificate of Good Standing issued by the CDA together with its Annual Information Return and Financial Statements in accordance with Section 8 of Revenue Regulations No. 20-01 as well as a Certificate showing that there has not been any change in the By-laws and Articles of Cooperation, in its manner of activities, as well as resources and disposition of income. A copy of this Letter of Exemption must be attached to the Annual Information Return which it will file on said date. (BIR Ruling No. 006-01 dated February 22, 2001) Finally, your books of accounts and other pertinent records, as well as the operations of the cooperative, shall be subject to periodical examination by Revenue Enforcement Officers of this Bureau for purposes of ascertaining whether it complies with the conditions under which it has been granted tax exemption or tax incentives and pays its tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. (BIR Ruling No. DA-015-03 dated January 27, 2003) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service