Namnama ARBs Multi-Purpose Cooperative

March 12, 2009 BIR RULING [COOP-(M-056) 205-09] COOP; RR 20-2001 Namnama ARBs Multi-Purpose Cooperative Estancia, Piddig, Ilocos Norte Attention: Mr. Irineo Jesus P. Corpuz Manager Gentlemen : This refers to your request for the issuance of a Certificate of Tax Exemption in favor of the Namnama ARBs Multi-Purpose Cooperative ("NARBs-MPC") under the provisions of R.A. No. 6938, otherwise known as the "Cooperative Code of the Philippines". It is represented that the NARBs-MPC is registered with the Cooperative Development Authority (CDA) under Certificate of Registration No. DAG-630 on July 22, 1991; that its purposes, among others, are to undertake agricultural and/or industrial production, mining and other related activities, and to engage in the supply of production inputs and marketing of its products; that it extends loan or credit to its members; that at present, it transacts business both with members and non-members; that it has submitted to this Office in support of its request, copies of the following documents, viz. : 1) Certificate of Registration; 2) List of Members and their share capital contribution; 3) Statement of Financial Condition; 5) n Certificate of Operation; 5) Certificate of Good Standing dated June 10, 2008; 6) and other pertinent documents. In reply, please be informed of Article 62 of R.A. 6938, quoted hereunder, to wit: "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: DaEATc (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." Likewise, Sec. 3 of Revenue Regulations 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: 1. For cooperative with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) a. 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 conditions that its accumulated reserves and undivided net savings have not reached the threshold of P10 Million. If the accumulated reserves and undivided net savings exceed the threshold of P10 Million, the cooperative shall be exempt from income tax for a period of ten (10) years only counted from the date of registration with the CDA. Provided, further, that at least twenty-five percent (25%) of the net income of the cooperative is returned to the members in the form of interest and/or patronage refund. [Par. 3.2 (II) (a), Section 3 of RR No. 20-2001]. aSCHIT Considering that NARBs-MPC has complied with the conditions sine qua non provided under Revenue Regulations No. 20-2001 dated November 12, 2001, which is the Regulations Implementing Articles 61 and 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 to NARBs-MPC from payment of the following, to wit: 1. Income Tax on income from operations; 2. Value-added Tax (VAT) on its sales under paragraph (L) of Section 109 of the Tax Code of 1997, as amended, 1 and on its lending activities under paragraph (M) of said Section; 3. Percentage Tax under Section 116 of the Tax Code of 1997, as amended; 4. 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 cooperative; 5. Excise Tax under Title VI of the Tax Code of 1997, as amended; 6. Documentary Stamps 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 7. Annual Registration Fee of P500.00 under Section 236 (B) of the Tax Code of 1997, as amended. It has to be emphasized, however, that the above-cited tax exemption privileges granted to a cooperative do not extend to its individual members. Thus, members of cooperatives are liable to pay all the necessary internal revenue taxes under the Tax Code of 1997, including the tax on earnings derived from their capital contribution. aATCDI 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 (Sec. 4 (B) (u) of Revenue Regulations No. 6-97); 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, as amended. It shall also be taxed on prizes, winnings and net gains realized on sales or exchange of property. 3. The cooperative shall be constituted as withholding agent if it acts as an employer and its employees received compensation income subject to withholding tax provided for in Section 79 of the Tax Code, as amended, 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, as amended, and as implemented by Revenue Regulations No. 2-98, as amended. Further, NARBs-MPC is required to file on or before April 15 of each year, a Profit and Loss Statement and Balance Sheet with Annual Information Return under oath, stating the cooperative's gross income and expenses incurred during the year, and 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 you will file on said date. Finally, NARBs-MPC's Books of Accounts and other pertinent records shall be subject to periodical examination by Revenue Enforcement Officers of this Bureau for the purposes of ascertaining whether it complies with the conditions, under which it has been granted tax exemption or tax incentives and it pays tax liability, if, any, pursuant to Section 235 of the Tax Code of 1997, as amended. 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. CDScaT Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. If the cooperative is not the producer ( e.g., trader), then only those sales to its members shall be exempted from VAT. [Sec. 4.109.1 (B) (1) of RR No. 16-2005, as amended by RR No. 4-2007].