BIR Ruling [DA-165-02]

September 17, 2002 BIR RULING [DA-165-02] DA-S30-79-98 dated December 29, 1998 United BF Homeowners Association, Inc. (UBFHAI) UBFHAI Clubhouse, No. 37 Pilar Banzon Street Paraaque City Attention: Atty. Veneranda Acaylar-Cruz Gentlemen : This refers to your letter dated March 18, 2002 requesting for exemption from the payment of income tax and for the filing of the corresponding income tax return pursuant to Section 30(G) of the Tax Code of 1997. It appears that UBFHAI is a non-stock, non-profit corporation duly registered with the Home Insurance and Guaranty Corporation (HIGC) on May 18, 1989; that on October 12, 1995, a Temporary Certificate of Exemption was issued by the Bureau of Internal Revenue (BIR) with the condition that UBFHAI has to prove by actual operation for at least three (3) years that it is really an organization/association exempt from income tax under then Section 26 of the Tax Code, as amended; that on October 16, 2001, in an investigation/verification conducted by the Revenue District Office No. 52, Paraaque City headed by its Acting Group Supervisor, Nestor N. Torres revealed that (1) UBFHAI is the umbrella organization and sole representative of all homeowners in the subdivision whose primary purpose is to provide and deliver basic community services to its members which include security, sanitation, zoning, administration of parks and open spaces, maintenance of roads and perimeter walls, etc; (2) Its activities are financed mainly by the proceeds from the sale of vehicles stickers, assessments and other fees and charges; (3) The excess of the total assessments over expenses for the year is credited to members equity which will be utilized to fund its existing and future projects, meaning, it does not inure for the benefits of the officers; (4) Expenses incurred were used solely in delivering services like rehabilitation and maintenance of its projects to support the basic needs of the homeowners; and that it is the opinion of the Acting Group Supervisor that the said taxpayer is exempt from income tax. Based on the foregoing, this Office so holds that UBFHAI is a corporation organized for civic league or organization not organized for profit purposes as contemplated under Section 30(G) of the Tax Code of 1997. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. However, it is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation . Accordingly, since UBFHAI has generated revenues from its business operations during the years 1996 to 2000 in the aggregate amount of P71,745,397.21, broken down as follows: DAEaTS Year Income Generated 2000 P16,527,535.38 1999 13,428,672.83 1998 14,939,761.00 1997 15,563,044.00 1996 11,286,384.00 P71,745,397.21 the same shall be subject to the regular corporate income tax at the rate of 35% on its net taxable income for the years 1996 and 1997. However, the marginal top rate is reduced to 34% effective January 1, 1998, 33% effective 1999 and 32% effective January 2000 and thereafter. Moreover, its income derived from the sale of goods or services in the course of a business pursuit is subject to value-added tax pursuant to VAT Ruling No. 119-90 dated May 14, 1990. On the other hand, interest income from currency bank deposits and yield or any other monetary benefit from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax: provided, however, that interest income derived by it from a depository bank under the expanded foreign currency deposit system shall be subject to 7% final withholding tax pursuant to Section 27(D)(1) in relation to Section 57(A), both of the Tax Code of 1997. Moreover, it is required to file on or before the 15th day of the fourth month following the end of the accounting period a Profit and Loss Statement and Balance Sheet with the 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 its By-laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. It is requested that a copy of this letter of exemption be attached to the annual information return which your corporation will file on or before the 15th day of the fourth month of each year. Under Section 235 of the Tax Code of 1997, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organization or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which they have been granted tax exemptions or tax incentives, and their tax liabilities, if any. It should be understood that the said exempt organization shall be constituted as a withholding agent for the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79(A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended or if it makes income payments to individuals or corporations subject to the withholding tax pursuant to Section 57 of the Tax Code of 1997, also as implemented by Revenue Regulations No. 2-98, as amended. ( BIR Ruling No. DA-S-30-79-98 dated December 29, 1998 ) 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. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service