Batangas II Electric Cooperative, Inc.

November 11, 2009 BIR RULING [COOP-(156) 703-09] RMC 72-2003; BIR RULING No. DA-021-04, DA-185-05 & DA-318-08 Batangas II Electric Cooperative, Inc. Antipolo Del Norte, Lipa City Attention: Ms. Marilyn LM Caguimbal General Manager Gentlemen : This refers to your letter dated May 25, 2009, indorsed to this Office by Withholding Tax Division Chief Marivic A. Galban, requesting for tax exemptions as a cooperative pursuant to Republic Act (R.A.) No. 6938 and Presidential Decree (P.D.) No. 269 as implemented by Revenue Regulations (RR) No. 20-2001 and Revenue Memorandum Circular (RMC) No. 72-2003, respectively. cSTCDA From the documents submitted, it appears that you are an electric cooperative (EC) registered with the National Electrification Administration (NEA) and was issued a Certificate of Registration dated August 12, 1977; that subsequently, you were issued by the National Electrification Commission with Certificate of Franchise No. 060 dated May 28, 1980 and Certificate of Franchise No. 196 dated November 29, 2002. You were formed primarily for the purpose of supplying, promoting and encouraging the fullest use of electric service to its members on an area coverage basis, pursuant to the provisions of Presidential Decree No. 269. In reply, please be informed that Electric Cooperatives (ECs) registered with the NEA and/or CDA are exempt from the following: 1. Franchise tax under Section 119 of the Tax Code of 1997, as amended (BIR Ruling No. DA-250-03 dated July 31, 2003); 2. Income taxes for which they are directly liable [P.D. No. 269, Sec. 39 (a) (1)]; 3. All National Government taxes and fees, including franchise, filing, recordation, license or permit fees or taxes. Provided, however, that the said exemption shall end on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs. Provided further, that the period of exemption for a new cooperative formed by consolidation, as provided in Section 29 of P.D. No. 269, to begin as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under P.D. No. 269 [P.D. No. 269, Sec. 39 (a) (2)]; and ACcDEa 4. Three Percent (3%) Percentage Tax under Sec. 116 of the Tax Code of 1997, as amended; 5. 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; 6. Excise tax under Title VI of the Tax Code of 1997, as amended; 7. Documentary Stamp Tax imposed under Title VII of the Tax Code of 1997, as amended, 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 8. Annual Registration Fee of P500.00 under Section 236 (B) of the Tax Code of 1997, as amended. Being an electric cooperative registered with NEA, you shall be exempt from the taxes aforementioned pursuant to Presidential Decree No. 269 and R.A. No. 6938, as implemented by RMC No. 72-2003 dated October 20, 2003 and Revenue Regulations (RR) No. 20-2001 dated November 12, 2001, respectively. However, all ECs whether it registered with the NEA or CDA, shall be subject to the following: 1. 20% final income tax on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines; SDAaTC 2. 7.5% final income tax on interest income derived from a depositary bank under the expanded foreign currency deposit system; 3. Capital Gains Tax on sales or exchanges of real property classified as capital assets or shares of stock; 4. Documentary Stamp Taxes on transactions of ECs dealing with non-members when the accumulated reserves and undivided net savings of such cooperatives exceed Ten Million Pesos (P10,000,000.00); 5. VAT billed on purchases of goods and services not exempt; 6. Value-added tax, on sales relative to the generation, transmission and/or distribution of electricity as well as their importation of machineries and equipment, including spare parts, which shall be directly used in the generation and distribution of electricity; and 7. All other taxes for which the ECs are not otherwise expressly exempted by any law. Upon the effectivity of R.A. 9337, the exemption from VAT of electric cooperatives was removed. Consequently, RR No. 16-2005, as amended by RR No. 4-2007, particularly Section 4.108-2 (13) and Section 4.108-3 (f) provide that sales of electricity by generation, transmission, and/or distribution companies are now subject to 12% VAT on their gross receipts. Provided, however, that sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels shall be subject to 0% VAT. Therefore, electric cooperatives are now subject to VAT on their gross receipts pursuant to R.A. 9337, as implemented by RR 16-2005, as amended. Moreover, paragraph A (4) of RMC No. 72-2003 clarifying Section 39 of PD 269 provides "A. Electric Cooperatives (ECs) registered with the National Electrification Administration (NEA) are exempt from: 1. . . .; 2. . . .; 3. . . .; 4. All National Government taxes and fees, including franchise, filing, recordation, license or permit fees or taxes. Provided, however, that the said exemption shall end on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs. Provided further, that the period of exemption for a new cooperative formed by consolidation, as provided in Section 29 of P.D. No. 269, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under P.D. No. 269 [P.D. No. 269, Sec. 39(a)(2)];" STDEcA It is clear from the foregoing that the exemption accorded to electric cooperatives registered with NEA is limited only until December 31 of the thirtieth full calendar year reckoned from the date of a cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs. It should be noted, however, that exemptions during the 30-year period or until completely free of indebtedness refer only to No. 2 of Section 39 (a) of PD 269, i.e. , franchise tax, 3% percentage tax and other taxes, except income tax. The exemption of electric cooperatives from income tax, on the other hand, is permanent in nature as expressly provided in No. 1 of Section 39 (a) of PD 269. Finally, nothing in the aforesaid RMC No. 72-2003 or RR No. 20-2001 shall preclude the examination of your books of accounts or other accounting records by duly authorized internal revenue officers for internal revenue tax purposes only. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service