Sillon Community Development Cooperative (SICODEMCO)

June 24, 2010 BIR RULING [COOP-(009) 054-10] RA 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. 006-01; [COOP-(M-159)736-09] May 26, 2010 Sillon Community Development Cooperative (SICODEMCO) Sillon, Bantayan, Cebu Attention: Ms. Vicenta Revilla Chairman Gentlemen : This refers to your letter dated April 15, 2007, which was received by this Office by way of 1st Indorsement dated May 21, 2007 of Revenue Region No. 13, Cebu City, requesting for the issuance of a Certificate of Tax Exemption under Republic Act No. 6938, otherwise known as the "Cooperative Code of the Philippines". EIAHcC The facts, as you represent, are as follows: SILLON COMMUNITY DEVELOPMENT COOPERATIVE ("SICODEMCO") is a multipurpose cooperative duly registered with the Cooperative Development Authority ("CDA") on December 23, 1996 under Registration Certificate No. CBU-1689 and registered with BIR under TIN 005-107-472-000; the objective of SICODEMCO, among others, is: 1. To encourage thrift and savings mobilization among the members for the capital formation; 2. To create funds in order to grant loans for productive and providential purposes and its members; 3. To provide goods and services and other requirements of the members; 4. To undertake agricultural and/or industrial production purposes. It is further represented that SICODEMCO has completely submitted on June 8, 2007 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 Chairman that the Cooperative is transacting business with members only; (4) Original Copy of the Certificate of Good Standing from the CDA; (5) Certification under oath by the Chairman of the Cooperative as certified by the CDA as to the amount of accumulated reserves P91,133.93 and undivided net savings P70,232.48 and that at least 25% of the net income is returned to the members in the form of interest and/or patronage fund refund; (6) Certification under oath of the list of members and the share capital contribution of each member as of April 15, 2007, and that the share capital contribution of each of its owner-members does not exceed Fifteen Thousand Pesos (Php15,000.00);(7) Financial Statement for the year 2006 duly audited by an independent CPA. 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 and fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section." Likewise, Section 3.2 of Revenue Regulations No. 20-01 provides that: "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 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." CIHTac From the foregoing, a cooperative dealing exclusively with members is entitled to exemptions provided therein on the condition that its accumulated reserves and undivided net savings have not reached the threshold P10 Million. Considering that SICODEMCO has complied with the conditions sine qua non provided under R.R. No. 20-2001, which is the Regulations implementing Article 61 of R.A. 6938, and that its accumulated reserves and undivided net savings do not exceed the threshold P10 Million, this Office hereby grants this Certificate of Tax Exemption to SICODEMCO from the payment of the following, to wit: 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. 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. However, SICODEMCO 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) Furthermore, its interest income from currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines and the interest income it derived from a depository bank under the expanded foreign currency deposit system shall be subject to the 20% and 7.5% final tax, respectively, imposed under Section 27 (D) (1) of the Tax Code of 1997, as amended. The cooperative shall also be taxed on capital gains realized on sales or exchanges of property. CacISA It has to be emphasized, however, that the above cited exemption privileges granted to the cooperative does not extend to the individual members thereof. Moreover, the cooperative 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 SICODEMCO will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in his income tax 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. ICHcaD 3. Interest income from depository bank under the expanded foreign currency deposit system shall be subject to 7.5% final withholding tax; (Section 4 of R.R. No. 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 R.R. 20-01) 5. All other taxes for which the cooperative are not otherwise expressly exempted by any law. 6. 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 RR No. 2-98, as amended. Further, although SICODEMCO 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 SICODEMCO is (1) in good standing as ascertained by the CDA on an annual basis; (2) accumulated reserves and undivided share 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; and (4) for the VAT exemption of sales of non-agricultural, non-electric, and non-credit cooperatives duly registered with the CDA under Section 109 (N) of the Tax Code of 1997, the share capital contribution of each member does not exceed Fifteen Thousand Pesos (P15,0000.00) * and regardless of the aggregate capital and net surplus ratably distributed among the members. SICODEMCO is requested to file on or before the 15th day of the fourth month following the close of the taxable 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) cEAHSC Finally, your books of accounts and other pertinent records, as well as the operations of the cooperative, shall be subject to periodic 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 disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MARISSA O. CABREROS OIC-Assistant Commissioner Legal Service