BIR Ruling [DA-013-06]

January 20, 2006 BIR RULING [DA-013-06] Section 30; BIR Ruling No. DA-158-03 & DA-249-03 SyCip Gorres Velayo & Co . 6760 Ayala Avenue Makati City Attention: Mr. Romulo S. Danao, Jr. Partner, Tax Services Gentlemen : This refers to your letter dated November 11, 2005 requesting on behalf of your client, Manila Polo Club, Inc . ("MPCI") for confirmation of the exemption from the payment of income tax of membership dues and transfer and processing fees received by MPCI by virtue of its status as a tax-exempt organization under Section 30(E) of the National Internal Revenue Code (Tax Code) of 1997. As represented, MPCI is a non-stock, nonprofit corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 15427. The primary purpose for which it was formed is to establish and maintain a club to promote social intercourse, and to provide a place for members to meet, to engage in sports activities and have social gatherings, recreation and entertainment. MPCI has been granted tax-exempt status under Section 30(E) of the Tax Code of 1997 pursuant to BIR Ruling No. S-30-039-2005 dated October 17, 2005. MPCI collects membership dues from its members primarily to cover expenses related to the maintenance of the Club's facilities. The collection of said monthly dues does not arise from any sale of goods and services, but they are imposed to cover and defray necessary expenses related to the maintenance of, and improvements in the Club's facilities. In addition, it collects transfer fees upon a transfer or assignment of MPCI shares or change of company-designated representatives; and processing fees of membership applications. As such, no part of MPCI's income inures to the benefit of its members. aIcHSC In support of your request, you attached photocopies of the following documents: 1) BIR Ruling No. S-30-039-2005 dated October 17, 2005; 2) MPCI's Certificate of Filing of MPCI's Amended Articles of Incorporation with the SEC; 3) MPCI's Amended Articles of Incorporation; 4) Certificate of Amendments to MPCI's Articles of Incorporation and By-laws; 5) Certificate of Filing of MPCI's Amended By-laws; and 6) MPCI's Amended Articles of Incorporation. In reply, please be informed as follows: Membership Dues . In BIR Ruling No. DA-158-03 dated May 14, 2003, which is similar to MPCI's case, membership dues are collected by the Club from its members primarily to cover expenses related to the maintenance of the Club's facilities and premises. Any excess of membership dues over any maintenance expenses (special assessments) is utilized for improvements in the Club's facilities. The collection of these dues and assessments does not arise from any sale of goods or services, but they are imposed to cover and defray necessary expenses related to the maintenance of, and improvements in, the Club's facilities. This Office ruled that ". . . since membership dues are not income derived from real or personal property, or from any activity conducted for profit, said membership dues are not subject to income tax and consequently to the withholding tax (BIR Ruling No. S-30-26-01 dated March 28, 2001 and undated BIR Ruling No. 103-79)." Transfer and Processing Fees . In BIR Ruling No. DA-249-03 dated July 30, 2003, the Club collected transfer fees upon a transfer or assignment of shares or change of company-designated representative, and processing fees from processing of membership applications. This Office had occasion to rule in the said case, viz: "Section 30 of Revenue Regulations No. 2 provides, viz: 'Section 30. Religious, charitable, scientific, athletic, cultural, and education corporations . xxx xxx xxx The income of such corporation which is considered as income from their properties, real or personal, generally consists of income from corporate dividends, rentals received from their properties, interests received from capital loaned to other persons, income from agricultural lands owned by such corporations, profits from the sale of property, real or personal, and other similar income. IaEScC Income not derived from their properties, real or personal, are exempt. For example, in the case of a religious corporation, income from the conduct of strictly religious activities, such as fees received for administering baptismals, solemnizing marriages, attending burials, holding masses, and other like income, is exempt. However, if such exempt income is invested by the corporation, the income from such investment, as interests from the capital where the capital has been loaned or dividends on stock where the capital has been invested in shares of stock, will constitute taxable income . . .' In view of the foregoing, transfer and processing fees are exempt from income tax. However, if the said fees are invested by the corporation, the income from such investment is taxable." In view of all the foregoing, this Office holds that membership dues received by MPCI from its primarily to cover expenses related to the maintenance of the Club's facilities are not subject to income tax. Moreover, transfer fees upon a transfer or assignment of MPCI shares or change of company-designated representatives, and processing fees of membership applications are exempt from income tax. 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