La Consolacion College Multi-Purpose Cooperative

June 21, 2010 BIR RULING [COOP-(007) 050-10] R.A. No. 6938; BIR Ruling No. 008-01; ECCP-034-08; ECCP-063-2008 La Consolacion College Multi-Purpose Cooperative (Formerly LCA Multi-Purpose Cooperative) La Consolacion College Compound, San Francisco, Iriga City Attention: Ms. Rechilda L. Hugo Chairman Gentlemen : This refers to your letter dated August 7, 2008 received by this Office on January 23, 2009 by way of 2nd Indorsement dated January 19, 2009 from Revenue Region 10-Legazpi City, requesting tax exemption of La Consolacion College Multi-Purpose Cooperative under the provisions of R.A. No. 6938, otherwise known as the "Cooperative Code of the Philippines". ATESCc The facts, as you represent, are as follows: La Consolacion College Multi-Purpose Cooperative is a multi-purpose cooperative duly registered with the Cooperative Development Authority ("CDA") on April 25, 1991 under Registration Certificate No. OC-980 and registered with BIR under TIN# 004-193-478-000. Pursuant to its Articles of Cooperation, the objectives of La Consolacion College Multi-Purpose Cooperative ,are as follows: 1. To encourage thrift and savings mobilization among members for capital formation; 2. To create funds in order to grant loans for productive and providential purposes to its members; 3. To provide goody and services and other requirements of the members; 4. To engage in any of the following: medical, dental care, hospitalization, transportation, communication, housing, labor, electric light and power, irrigation, market management, janitorial services, etc. 5. To promote the cooperative as a way of life for improving the social and economic well-being of the people; 6. To do any related activity for the members' self-government, improved social and/or economic well-being under a truly just democratic society; 7. To work with the cooperative movement, non-government and government organizations, entities in the promotion and development of cooperatives and in carrying out government policies; 8. To undertake other activities for the effective and efficient implementation of the provisions of the Cooperative Code. It is further represented that La Consolacion College Multi-Purpose Cooperative has completely submitted its documents 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) Certificate under oath by the Chairman that the Cooperative is transacting business with members only; 4) Copy of the Certificate of Good Standing from the CDA; 5) Certification under oath by the Chairman of the Cooperative as to the accumulated reserves in the amount of Five Hundred Twenty One Thousand Eight Hundred Eighteen and 76/100 Pesos (P521,818.76) and that at least 25% 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 member as of June 30, 2008; and 7) Latest financial statements duly audited by an independent CPA. In reply, please be informed that although it is represented that the cooperative is transacting with members only, the purposes of the cooperative indicates that it is transacting with both members and non-members, hence, this Office shall apply Article 62 of R.A. No. 6938 which provides for the following: EICSDT "Art. 62. Tax and other Exemptions. Cooperatives transacting business with both members and non-members shall not be subject to tax on their transactions to members. Notwithstanding the provisions of any law or regulations to the contrary, such cooperatives dealing with non-members shall enjoy the following exemption: (1) Cooperatives with accumulated reserves and undivided net savings of not more than ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales tax or compensating tax on their importation of machinery, equipment, and spare parts, used by them and which are not available locally as certified by the Department of Trade and Industry. All tax-free importations shall not be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay the amount of the tax and/or duties thereon." 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. ..." Likewise, Sec. 3 of Revenue Regulations (RR) No. 20-2001 dated November 12, 2001 provides, viz. : "Sec. 3. Exemption from Taxes. Taxability/exemption of duly registered cooperative dealing/transacting business with both members and non-members: SDECAI 1. For cooperative with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) Exemption from all national internal revenue taxes for which they are directly liable, as enumerated under Section 3.1 of these Regulations." From the foregoing, a cooperative dealing with both members and non-members is entitled to the exemptions provided therein on condition that its accumulated reserves and undivided net savings have not reached the threshold of P10 Million. Considering that La Consolacion College Multi-Purpose Cooperative has complied with the conditions sine qua non provided under R.R. No. 20-2001, which is the Regulations implementing Article 62 of R.A. 6938, and that its accumulated reserves and undivided net savings do not exceed the threshold of P10 Million, this Office hereby grants this Certificate of Tax Exemption La Consolacion College Multi-Purpose Cooperative from payment of the following, to wit: 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. 3% 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 within the area of operation of the cooperatives; e. Excise tax under Title VI of the Tax Code of 1997; f. Documentary Stamp 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. cDICaS However La Consolacion College 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 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 La Consolacion College 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)739-09] dated November 25, 2009) 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. aDIHCT 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 La Consolacion College 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) It is, however, understood that the tax exemptions mentioned herein shall remain during the period that La Consolacion College 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);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. La Consolacion College 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) AEcIaH This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed 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