BIR Ruling [DA-103-01]

June 1, 2001 BIR RULING [DA-103-01] 109 (r), (t) and (u) 006-2001 Mr. Jose V. Ramos Rm. 205 Doll Bldg. 6th Street, Bacolod City S i r : This refers to your letter dated March 12, 2001 requesting on behalf of La Carlota Mill District Multi-Purpose Cooperative (LCMD-COOP) for the renewal of its Certificate of Exemption previously granted by this Office under BIR Ruling No. S26-0-35-91 dated October 3, 1991. It appears that La Carlota Mill District Multi-Purpose Cooperative (LCMD-COOP) is a multi-purpose cooperative registered with the Cooperative Development Authority (CDA) with Certificate of Registration No. ILO-021 dated March 27, 1991; that the cooperative is transacting business with members only; and that its exemption from all taxes and fees supposedly expired on March 27, 2001 pursuant to BIR Ruling No. S26-0-35-91. In reply please be informed that after a restudy of the said BIR Ruling No. S26-0-35-91, this office finds the same to be erroneous in so far as the expiry period of the tax exemption of LCMD-COOP is concerned. Section 61 of RA 6938, otherwise known as the Cooperative Code of the Philippines, specifically provides that a cooperative duly registered with the Cooperative Development Authority (CDA) dealing with members only shall be exempt from income tax. As a cooperative duly registered under the provisions of RA 6938 with Certificate of Registration No. ILO-021 issued by the CDA on March 27, 1991, the exemption of LCMD-COOP from income tax imposed under the National Internal Revenue Code did not expire on March 27, 2001 as erroneously stated in BIR Ruling S26-0-35-91. In fine, until today, LCMD-COOP continues to be exempt from income tax on its income from is operation as a cooperative. Moreover, under Section 109 paragraphs (r) and (t) of the Tax Code of 1997, a multi-purpose cooperative like LCMD-COOP which is duly registered with the CDA and dealing with members only is exempt from VAT on the following: 1. Sale of agricultural products, whether in its original state or processed form, and importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used, directly and exclusively in the production and/or processing of their produce; and 2. Gross receipts from lending activities. LCMD-COOP is also exempt from the 3% gross receipts tax under Sec 116 of the same Code. Finally, LCMD-COOP is not liable to pay the annual registration fee of P500.00 imposed under Section 236(B), also of the Tax Code of 1997 but, however, it is not exempt from registration. However, LCMD-COOP is liable to pay the 10% VAT billed on its 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 it will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in its income tax return for tax purposes. Furthermore, its interest income from currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines and the interest income it derive from a depository 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. It 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 the withholding tax, or if it makes income payment to individuals or corporations subject to the withholding tax provided for in Section 57 of the Tax Code of 1997. Furthermore, said members shall also be taxed on prizes, winnings and capital gains realized on sales or exchanges of properties. Finally, LCMD-COOP is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement and Balance Sheet with Annual Information Return under oath, stating its gross income and expenses incurred during the preceding period 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 LCMD-COOP will file on or before said date. HSaCcE It is of course understood that its books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining whether LCMD-COOP has been complying with the conditions under which it has been granted tax exemption or tax incentives and its tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. (BIR Ruling No. 006-2001 dated February 22, 2001) Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group