R.P. Mora Accounting and Law Office

September 24, 2009 BIR RULING [COOP-(M-142) 611-09] RA 6938; 008-2001 R.P. Mora Accounting and Law Office No. 2 Don J. Llorente Street Capitol Site, Cebu City Attention: Atty. Rheneir P. Mora Manager Gentlemen : This refers to your letter dated February 9, 2008 requesting on behalf of your client, FAIRCHILD CEBU COMMUNITY CREDIT COOPERATIVE, for a Certificate of Tax Exemption under the provisions of R.A. No. 6938, otherwise known as the "Cooperative Code of the Philippines". Documents submitted disclosed that the FAIRCHILD CEBU COMMUNITY CREDIT COOPERATIVE (FCCCC) is a cooperative transacting with members only; that it is registered with the Cooperative Development Authority (CDA) with CDA Registration No. CBU-08-0123 dated October 7, 2004; that a Certificate of Good Standing has been issued in its favor by Col. Benjamin Teves Yu, Cooperative Development Authority, Cebu Extension Office; that the objectives and purposes for which it was formed are the following: 1. To pool the resources of the members by encouraging thrift and savings to stimulate capital formation; 2. To generate funds and grant loans for production and other purposes; 3. To provide related services to enable its members to maximize the benefits from such loans; 4. To advance the cooperative movement as a technique for improving the economic and social status of the people; EaHIDC 5. To undertake any related activity for the members' self-government to improve social growth and/or economic independence under a truly just and democratic society; 6. To undertake continuous cooperative education for its members, directors, committeemen, officers and employees as well as the general public in the principle and technique of cooperation; and that it has submitted to this Office in support of its request and in compliance with Section 8 of Revenue Memorandum Circular No. 48-91 dated June 18, 1991 the following documents, viz. : (1) Certificate of Registration from the Cooperative Development Authority; (2) Articles of Cooperation and By-laws; (3) BIR Certificate of Registration; 4) Comparative Financial Statement for the Years 2006 and June 2007; (5) Certificate of Good Standing. In reply, please be informed that Section 3.1 of Revenue Regulations 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. IEHTaA However, FCCCC are 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 FCCCC will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in the latter's income tax return for tax purposes. Furthermore, FCCCC'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 of FCCCC 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. FCCCC 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, FCCCC is required to file on or before the 15th day of the fourth month following the close of your accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating FCCCC's 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 FCCCC will file on or before said date. It is of course understood that FCCCC'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 FCCCC have been complying with the conditions under which FCCCC have been granted tax exemption or tax incentives and/or FCCCC 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 disclosed that the facts are different, then this ruling shall be considered null and void. aCcADT Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service