Rich Class Cooperative (RCC)

December 14, 2009 BIR RULING [COOP-(M-165) 784-09] RA 6938; 008-2001 Rich Class Cooperative (RCC) Rm. 911 City and Land Mega Plaza, ADB Avenue Cor. Garnet Road, Ortigas Center, Pasig City Attention: Mr. Ernesto A. Manundo Chairperson Gentlemen : This refers to your letter dated September 8, 2009 requesting for a Certificate of Tax Exemption under the provisions of Republic Act No. 6938, otherwise known as the "Cooperative Code of the Philippines." caADSE Documents submitted disclosed that Rich Class Cooperative (RCC) is a service cooperative with principal address at Rm. 911 City and Land Mega Plaza, ADB Avenue Cor. Garnet Road, Ortigas Center, Pasig City; that you are primary a service cooperative transacting with both members and non-members and registered with the Cooperative Development Authority under Registration No. K-524-6781 dated August 25, 2009; that the primary objective of your cooperative is to engage in the business of supplying skilled work force such as; metal fabricators, welders, pipe fitters, installers/erectors lathe operators, electrician, etc. to specialty and general contractor; carpenters, mason, painters, and other construction worker for general (horizontal and vertical) construction firms; managers, chef's, cashier, waiter and other crew for hotel and restaurant; and utility services (like janitorial works) for manufacturing companies; and that since you are in your first stage of operation, thus the Audited Financial Statement and Certificate of Good Standing/Operation are not yet available; and that you have submitted to this Office in support of your request and in compliance with Revenue Regulations No. 20-2001 dated November 12, 2001 the following documents, viz. : (1) Certificate of Registration from CDA; and (2) Articles of Cooperation and By-Laws. In reply, please be informed that Article 62 of R.A. No. 6938 provides, viz. : "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. Not withstanding the provisions of any law or regulations to the contrary, such cooperatives dealing with non-members shall enjoy the following exemption: (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." caIEAD Likewise, Sec. 3 of Revenue Regulations (RR) 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]. Considering that Rich Class Cooperative (RCC) has complied with the conditions sine qua non provided under RR No. 20-2001 dated November 12, 2001, which is the Regulations Implementing Articles 61 and 62 of R.A. No. 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 Rich Class Cooperative (RCC) from payment of the following, to wit: 1. Income tax on income from operations; 2. Value-added tax (VAT) under Section 109 (N) of the Tax Code of 1997, as amended; Provided, That the share capital contribution of each member does not exceed fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members; HSaIDc 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 within the area of operation of the cooperative; 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. 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 National Internal Revenue Code, including the tax on earnings derived from their capital contribution. 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 RR 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. 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 receive compensation income subject to withholding tax provided for in Section 79 of the Tax Code, 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, and as implemented by RR No. 2-98, as amended. ACcHIa Although, Rich Class Cooperative (RCC) is exempt from payment of annual registration fee, it is not exempt from the requirement of registration. Further, it is requested 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 it will file on said date. Finally, Rich Class Cooperative (RCC) books of accounts and other pertinent records shall be subject to periodical examination by Revenue Enforcement Officers of this Bureau for purposes of ascertaining whether it complies with the conditions under which it has been granted tax exemption or tax incentives or pays its 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service