BIR Ruling [DA-008-00]

January 5, 2000 BIR RULING [DA-008-00] Puyat Jacinto & Santos Attorneys at Law 2/F Manilabank Building 6772 Ayala Ave., Makati City 1226 Attention: Attys . Regina P . Jacinto and Cristina V . Uy Gentlemen : This refers to your letter dated November 25, 1999 requesting on behalf of your client, Bonifacio Global City Estate Association ("BGCEA"), for a ruling on the following: 1) Whether or not BGCEA is liable for income tax on the association dues or other assessments collected from the unit owners; 2) Whether or not BGCEA is liable for value added tax on such association dues. It is represented that BGCEA was incorporated, under SEC Reg. No. A1997-9272, as a non-stock, non-profit corporation whose membership is composed of the lot owners in the Bonifacio Global City; that it was organized pursuant to Section 30 of Presidential Decree No. 957 (also known as the Subdivision and Condominium Buyer's Protective Decree) for the purpose of promoting, protecting, improving, maintaining, and ensuring the general welfare and property of the unit owners and the community in the Bonifacio Global City; that BGCEA was established for the purpose of "promoting the general welfare, property and service of the Global City; promoting the best interest and well-being, as well as safeguarding the welfare of the owners, lessees and occupants of property in the Global City; adopting such measures as may be necessary for the protection and safety of the members; providing community development, among others"; that BGCEA is also mandated by its Articles of Incorporation to provide services to its members, including, but not limited to the maintenance of streets, sidewalks, parks, playgrounds, recreational areas and other similar areas for public use or for the general use of the owners of the lots in the Global City ( Section 8, Articles of Incorporation ); that it is also required to provide sweeping, cleaning and maintenance services ( Section 9 , ibid ) and solid waste management and environmental control ( Section 10, ibid ); that because all the services BGCEA provides, whether directly or indirectly, entail costs and expenses, BGCEA is also authorized to levy fees and charges that may be required or necessary for the maintenance of the Association and its activities ( Section 7, ibid ); that the regular assessments of association dues ("Association Dues") are replenishments for costs and expenses incurred by the association; that the association dues collected are based on BGCEA annual budget; and that any excess is credited to members' association dues for the following year. In reply, please be informed of the following: A. The Bonifacio Global City Estate Association's receipts of the Association Dues and other assessments/charges collected from the members, which are merely held in trust and which are to be used solely for administrative expenses in implementing its purpose/s, i.e. promote general welfare, property and service of the Global City, specifically, protect and safeguard the welfare of the owners, lessees and occupants of property in the Global City; provide utilities and amenities for public use; and the maintenance of services and solid management and environmental control, and which the Bonifacio Global City Estate 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. 103-94 dated May 16, 1994; DA-470-98 dated November 3, 1998) B. Pursuant to Section 105 of the 1997 Tax Code, value-added tax (VAT) is collected upon any person, who in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services. 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 nonstock, 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 Bonifacio Global City Estate Association does not sell, barter, exchange, nor lease any good or property and neither does 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 the value-added tax (VAT) on such activity. (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 shall 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group