Philippine Army FC Producers Integrated Cooperative

January 11, 2007 BIR RULING [DA-012-07] R.R. 20-2001; ECCP-008-2004 Philippine Army FC Producers Integrated Cooperative PAFCPIC Bldg., Bayani Road Fort Bonifacio, Taguig, Metro Manila Attention: Col. Efren R. Zaide (Ret.) President Gentlemen : This refers to your letter dated August 23, 2006 requesting for exemption from the payment of documentary stamp tax as well as income tax from operations pursuant to Revenue Regulations No. 20-2001. It is represented that Philippine Army FC Producers Integrated Cooperative (PAFCPIC) is a multi-purpose cooperative dealing with members only; that it was duly registered with the Cooperative Development Authority on March 27, 1991 under Certificate of Registration No. MLA-C-356; that the BIR granted its tax exemption on October 12, 2001 under BIR Ruling No. ECCP-020-2001; that the said BIR Ruling provides that PAFCPIC is exempt from the payment of documentary stamp tax specifically those arising from its transactions with the Land Bank of the Philippines (LBP); and that presently, LBP advised PAFCPIC that the former will charge documentary stamp tax on the loan being secured by the latter. In reply, please be informed that Section 3.1 of Revenue Regulations (RR) No. 20-2001 dated November 12, 2001 provides: "SEC. 3. Exemption From Taxes . xxx xxx xxx 3.2 Duly registered cooperatives dealing/transacting business with members only shall be exempt from paying the following taxes for which they are directly liable, viz.: a. Income Tax on income from operations: b. Value-Added tax (VAT) under Section 109 pars. (r), (s), (t) and (u) of the Tax Code of 1997, as amended. c. 3% Percentage Tax under Section 116 of the Tax Code of 1997, as amended; d. 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 cooperatives; e. Excise Tax under Title VI of the Tax Code of 1997, as amended; f. Documentary Stamp Tax imposed under Title VII of the Tax Code of 1997, as amended, 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 g. Annual Registration Fee of P500.00 under Section 236(B) of the Tax Code of 1997, as amended. In view of the aforequoted provisions of RR 20-2001, and since you are a cooperative duly registered with the CDA and dealing with members only, this Office hereby holds that you are exempt from the payment of documentary stamp tax on your dealings and business transactions with the LBP, provided that the other party to the taxable document/transaction who is not exempt shall be the one directly liable to pay the tax. However, you are liable to pay the 12% VAT billed to you on your purchases of goods and services because 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 you 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. Furthermore, your interest income from currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines and interest income you derive from a depositary 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. You 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 provided for in Section 57 of the Tax Code of 1997, as amended. Furthermore, said members shall also be taxed on prizes, winnings and capital gains realized on sales or exchanges of properties. Finally, you are 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 your 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 you will file on or before said date. DaTEIc It is of course understood that your books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for purposes of ascertaining whether you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your 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 ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service