Laak Government Employees Multi-Purpose Cooperative

April 29, 2009 BIR RULING [COOP-(M-080) 286-09] RA 6938; ECCP-009-2003 Laak Government Employees Multi-Purpose Cooperative Laak, Compostela Valley Attention: Ms. Evangeline F. Amora Chairwoman, Board of Trustees Gentlemen : This refers to your letter dated August 8, 2007, as indorsed by the Regional Director, Revenue Region No. 19, Davao City, requesting for a tax exemption under the provisions of Republic Act (RA) No. 6938, otherwise known as the "Cooperative Code of the Philippines". TaEIcS Documents submitted show that Laak Government Employees Multi-Purpose Cooperative (LAGEMCO and formerly San Vicente Government Employees Cooperative) with Tax Identification No. (TIN) 002-457-965, is a primary multi-purpose non-agricultural cooperative transacting business with members only; that it is registered with the Cooperative Development Authority (CDA) with Certificate of Registration No. CDA-RN-294 DVO dated October 25, 2002; that a Certificate of Good Standing has been issued in its favor by Rosalinda E. Villaseca, Administrator and Concurrent Officer-in-Charge, CDA Davao extension Office per CGS No. 2008-256; and that the objectives and purposes for which it was formed are the following: 1. To encourage thrift and savings mobilization among the members; 2. To procure and distribute commodities to members and non-members; 3. To acquire land for rubber plantation project; 4. To engage in rubber cuplump trading; 5. To engage in the distribution and supply of hardware and construction materials; and 6. To own, lease or manage agricultural lands for palm oil projects. in support of its request and in compliance with Section 8 of Revenue Memorandum Circular (RMC) No. 48-91 dated June 18, 1991, the following documents, viz. : (1) Certificate of Registration from the CDA; (2) Amended Articles of Cooperation and By-laws; (3) Audited Financial Statement for the Years 2005 and 2006; (4) Certificate of Good Standing; (5) Sworn Certification that the Cooperative is transacting business with members only; (6) Sworn Certification that dividends and patronage refund is returned to the members after deducting the required reserves of the Cooperative Code; and (7) Other pertinent documents. ICTHDE In reply, please be informed that Section 3.1 of Revenue Regulations (RR) No. 20-2001, provides that duly registered cooperatives dealing/transacting business with members only shall be exempt from paying the following taxes for which they are directly liable, viz. : 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. 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, as amended by RA 9337. However, you are not exempt from registration. However, the 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. In case the cooperative 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. EcHTCD Furthermore, the cooperative's 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. It is emphasized, however, that the exemption of the cooperative does not extend to the individual members thereof. Moreover, the cooperative shall be constituted as a withholding agent if it acts as an employer and its employees receive compensation income subject to withholding tax, or if it makes income payment to individuals or corporations subject to the withholding tax provided for in Sections 57 of the Tax Code of 1997, as amended. Furthermore, said members shall be taxed on prizes, winnings and capital gains realized on sales or exchanges of properties. Finally, LAGEMCO is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in the By-Laws, Articles of Cooperation, manner of activities as well as sources and disposition of income. A copy of this letter of exemption must be attached to the Annual Information Return, which it will file on or before said date. It is of course understood that the cooperative's books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining whether it complies with the conditions under which it has been granted tax exemption or tax incentives and/or pays its tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. (BIR Ruling No. ECCP-009-2003 dated December 2, 2003) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service