BIR Ruling [DA-115-04]

March 12, 2004 BIR RULING [DA-115-04] P.D. 269; DA-250-03 Cagayan Electric Cooperative, Inc. Maddarulug, Solana Cagayan Attention: Mr. Edilberto I. Bassig General Manager Gentlemen : This refers to your letter dated January 21, 2004 requesting for an opinion that Cagayan 1 Electric Cooperative, Inc., an electric cooperative duly registered with the National Electrification Administration (NEA) is exempt from franchise tax imposed under Section 119 of the Tax Code of 1997. In reply thereto, please be informed that this Office had already ruled on the matter when it said in BIR Ruling No. 250-03 dated July 31, 2003 that ". . . electric cooperatives are exempt from the franchise tax imposed under Section 119 of the National Internal Revenue Code of 1997 pursuant to BIR Ruling No. 069-98 dated May 21, 1998." In the aforecited ruling addressed to the Association of Philippine Electric Cooperatives (APEC-List), it is clear that as an electric cooperative, it is not subject to the said 2% franchise tax by reason of the fact that it is not a legislative franchisee but is created by virtue of R.A. No. 6938, otherwise known as the Cooperative Code of the Philippines. This notwithstanding members of APEC who are not registered with the Cooperative Development Authority (CDA) does not remove them from the coverage of said exemption from franchise tax. Thus, in DOJ Opinion No. 41 dated April 23, 1996, the Department of Justice opined that electric cooperatives registered with NEA have the same status as those registered with the CDA, to wit "Based on these premises, it is believed that registration with the CDA under R.A. No. 6938 is optional insofar as ECs are concerned. Hence, some ECs may opt not to register with the CDA, or if they do choose to register with the CDA, may fail to qualify registration under R.A. No. 6938. In either case, the ECs shall not lose their status as registered ECs under PD No. 269, as amended, and shall continue to be governed by said PD No. 269. However, it shall not be entitled to the other privileges granted to CDA registered electric cooperative under R.A. No. 6938." SUCH BEING THE CASE, since Cagayan 1 Electric Cooperative, Inc., a member of APEC is not a holder of legislative franchise, it is the opinion of this Office that Cagayan 1 Electric Cooperative, Inc. is not subject to the franchise tax imposed under Section 119 of the Tax Code of 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. SDTIaE Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group