Misamis Occidental II Electric Cooperative, Inc. (MOELCI-II)

January 27, 2009 BIR RULING [COOP-(E-001) 047-09] RMC 72-2003; DA-108-06 Misamis Occidental II Electric Cooperative, Inc. (MOELCI-II) 7202 Tudela, Misamis Occidental Attention: Jemilo L. Pelimer General Manager Gentlemen : This refers to your letter dated August 14, 2008 requesting for confirmation of your opinion that the Cooperative's income payments received from Third Millennium Oil Mills, Inc. (TMOMI) are permanently exempt from the expanded withholding tax pursuant to Section 2.57.5 (B) of Revenue Regulations (RR) No. 2-98, as amended. IACDaS It is represented that Misamis Occidental II Electric Cooperative, Inc. (MOELCI-II) is an electric cooperative registered with the National Electrification Administration (NEA) under Certificate of Registration No. 77 dated June 02, 1976; that MOELCI-II supplies electricity to TMOMI for the latter's oil milling operations; and that TMOMI is designated by the Bureau of Internal Revenue (BIR) as a withholding tax agent for being its regular suppliers of services because it is classified as top 10,000 corporation. In reply, please be informed that pursuant to paragraph (A) (3) of Revenue Memorandum Circular (RMC) No. 72-2003, to wit: "A. Electric Cooperatives (EC's) registered with the National Electrification Administration (NEA) are exempt from: 1. . . .; 2. . . .; 3. Income taxes for which they are directly liable [PD No. 269, Sec. 39(a)(1); (emphasis supplied) 4. . . .; 5. . . . ." Such being the case, the income tax exemption of Electric Cooperative's registered with NEA is permanent in nature as expressly provided in Section 39 (a) (1) of PD 269. Accordingly, income payments received by MOELCI-II is exempt from expanded withholding tax imposed under Section 2.57.5 (B) of RR No. 2-98, as amended. On the other hand, Section 39 of PD 269 provides, viz. : "SEC. 39. Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties, Fees; Assistance from the National Power Corporation. Pursuant to the national policy declared in Section 2, the Congress hereby finds and declares that the following assistance to cooperatives is necessary and appropriate: (a) Provided that it operates in conformity with the purposes and provisions of this Decree, a cooperative (1) shall be permanently exempt from paying income taxes, and (2) for a period ending on December 31; of the thirtieth full calendar year after the date of a cooperative's organization or conversion hereunder, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs, shall be exempt from payment (a) of all National Government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or administrative proceedings in which it may be a party, and (b) of all duties or imposts on foreign goods acquired for its operations, the period of such exemption for a new cooperative formed by consolidation, as provided for in Section 29, 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 this Decree; Provided, That the Board of Administrators shall, after consultation with the Bureau of Internal Revenue, promulgate rules and regulations for the proper implementation of the tax exemptions provided for in this Decree." (Emphasis supplied) From the aforequoted provision of PD 269, it is clear 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. AEcIaH However, exemptions covered by 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, value-added tax, 3% percentage tax and other taxes, except income tax. In view of the foregoing, this Office opines that the exemption of Electric Cooperative's from income tax is not among those tax exemptions being limited by No. 2 of Section 39 (a) of PD 269. 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