Iligan Light Employees Multi-Purpose Cooperative

June 15, 2010 BIR RULING [COOP-(005) 041-10] R.A. 6938; RR No. 20-01; BIR Ruling No. 006-01; BIR Ruling No. DA-075-05; BIR Ruling No. ECCP-034-08; BIR Ruling No. DA-015-03 Iligan Light Employees Multi-Purpose Cooperative (Formerly: Iligan Light Employees Consumers Cooperative [ILECCO]) Bro. Jeffrey Road, Palao, Iligan City Attention: Engr. Antonio T. Asperin Manager Gentlemen : This refers to your letters dated August 6, 2007 and June 26, 2008, received by this Office by way of Indorsement from Revenue District No. 101-Iligan City dated July 15, 2008, requesting tax exemption under the provisions of Republic Act (R.A.) 6938, otherwise known as the Cooperative Code of the Philippines. SATDHE The facts, as you represent, are as follows: Iligan Light Employees Multi-Purpose Cooperative (ILEMPCO) is a multi-purpose cooperative duly registered with the Cooperative Development Authority ("CDA") on September 30, 1991 under Registration Certificate No. CGY-213-CR and registered with BIR under TIN# 005-003-304-000. Pursuant to its Articles of Cooperation, the objectives of ILEMPCO, among others, are: "1. To actively support the government and other concerned organizations, both local and foreign, in promoting cooperatives as a practical means toward sustainable socio-economic development under a truly just and democratic society; 2. To develop the knowledge of the members on the principles and practices of cooperatives to enable them to actively and competently participate in managing the affairs of the Cooperative; 3. To institutionalize a dynamic savings mobilization and capital build-up schemes to sustain its development activities and long-term investments, thereby ensuring optimum economic benefits to the members, their families and the general public; 4. To implement policy guidelines that will ensure transparency, equitable access to its resources and services, and promote the interest of their members; and 5. To adopt such other plans as may help the welfare of the members, their families and the community." It is further represented that that on November 17, 1999 the Articles of Cooperation was amended to effect the change of name from ILECCO to ILEMPCO and that ILEMPCO has completely submitted on July 14, 2008 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) BIR Certificate of Registration; (2) Affidavit of Non-forum Shopping; (3) Amended Articles of Cooperation & By-laws; (4) Certificate of Registration from the Cooperative Development Authority; (5) Certificate of Good Standing; (6) Certification under oath of the list of members and their share capital contributions; (7) Certification under oath by the Chairman that the Cooperative is transacting business with members only; (8) CDA Certificate of No Pending Case; (8) Audited Financial Statements for 2004-2006 and Income Tax Returns; and (9) Certification under oath by the General Manager of the Cooperative as to the amount of accumulated reserves in the amount of Six Hundred Ninety-One Thousand Seven Hundred Twenty-Four Pesos (P691,724.00) as of December 31, 2007 and undivided net savings of Seven Hundred Fifty-Seven Thousand Seven Hundred Fifty-Seven Pesos (P757,757.00) and that at least 25% of the net income is returned to the members in the form of interest and/or patronage refund. CEDHTa In reply, please be informed that Articles 61 of the R.A. 6938 provides for the following: "ARTICLE 61. Tax Treatment of Cooperatives. Duly registered cooperatives under this Code which do not transact any business with nonmembers 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." Section 3.1 of Revenue Regulations (RR) No. 20-2001, provides that duly registered cooperatives dealing/transacting business with members only shall be exempt from paying the following taxes for which they are directly liable. Considering that ILEMPCO has complied with the conditions sine qua non provided under R.R. 20-2001, which is the Regulations implementing Articles 61 and 62 of R.A. 6938, and its accumulated reserves and undivided net savings do not exceed the threshold of P10 Million, this Office hereby grants this Certificate of Tax Exemption to ILEMPCO from the following taxes: a. Income tax on income from operations; b. Value-added tax (VAT) under Section 109 (M) of the Tax Code of 1997, as amended; c. Percentage tax under Section 116 of the Tax Code of 1997; d. Donor's tax on donations to duly accredited charitable, research and educational institutions, and reinvestment to socio-economic projects; e. Excise tax under Title VI of the Tax Code of 1997; f. 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 g. 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. DCATHS However, ILEMPCO is liable to pay the 12% VAT billed to it 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. 006-01 dated February 22, 2001) It has to be emphasized, however, that the above-cited tax exemption privileges granted to a cooperative does not extend to its 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 ILEMPCO 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. DA-075-05) 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. ECcDAH 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 ILEMPCO 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) It is, however, understood that the tax exemptions mentioned herein shall remain during the period that ILEMPCO 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);and (3) the By-laws and Articles of Cooperation, its manner of activities, as well as resources and disposition of income has not been changed. ILEMPCO 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 null and void. IEHScT Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service