BIR Ruling [DA-005-06]

January 11, 2006 BIR RULING [DA-005-06] Secs. 32, 105; DA-362-2000 KP Tower Condominium Corporation 716 CM Recto Avenue, Divisoria, Manila Attention: Mr. Josie Agero President Gentlemen : This refers to your letter dated October 5, 2005 requesting, in effect, a ruling exempting from income tax and value-added tax the association dues collected from unit owners/members, the same being used to defray the cost of maintenance of the common areas, machineries, elevators and the administrative expenses. It is represented that KP Tower Condominium Corporation (KPTCC) is a non-stock, non-profit corporation. It is a voluntary homeowners association composed exclusively of the unit owners of KP Tower Condominium Building located at the corner of CM Recto Avenue and San Juan Street, Binondo, Manila. The funds of KPTCC come solely from the association dues collected from the unit owners/members. The said funds are used for the maintenance of the common areas of the building including the machineries, elevators and the administrative expenses. On August 2, 2005, KPTCC received a final notice from the Revenue District Office No. 29, Tondo-San Nicolas, requiring KPTCC to file the Quarterly Income Tax Return (Form No. 1702Q) covering the period March 2000, June 2000 and September 2000. Hence, this request for, exemption from income tax and value-added tax. Likewise, you are requesting an exemption from filing of the Quarterly Income Tax Return (Form No. 1702Q). In reply, please be informed of the following: 1) The receipts by KPTCC of the association dues, membership fees, power and water collections and other assessments/charges that will be collected from its members, which will be held in trust and are to be used solely for administrative expenses in implementing its purpose/s and from which the aforesaid association could not realize any gain or profit as a result of its receipt thereof are not includible in said corporation's gross income. Hence, the same is not subject to income tax and consequently to the expanded withholding tax (BIR Ruling No. DA-008-2000 citing BIR Ruling Nos. 103-94 dated May 16, 1994; DA-470-98 dated November 3, 1998). Further, considering that KPTCC's activities are not taxable, it is therefore exempt from the filing of the Quarterly Income Tax Return (Form No. 1702Q). However, in lieu of filing the Quarterly Income Tax Return (Form No. 1702Q) and the Annual Corporate Income Tax Return (Form No. 1702), KPTCC shall be required to file an Annual Information Return. SDHETI 2) Pursuant to Section 105 of the Tax Code of 1997, as amended, VAT is collected upon any person, who in the course of trade or business, sells, barters, exchanges, leases goods or properties and renders service. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests),or government entity. Considering that the KPTCC will not sell, barter, exchange, nor lease any goods or property and neither will it render service for a fee but merely implements the administration of the required services to collect the association dues from the unit owners pursuant to its corporate purpose/s as "trustee" of the fund thereof, it is not subject to VAT on such activity. (BIR Ruling No. DA-362-2000 dated October 23, 2000 citing Vat Ruling No. 026-97 dated April 1, 1997) 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