BIR Ruling [DA-182-04]

April 6, 2004 BIR RULING [DA-182-04] P.D. 269; 119 DA-250-03; RMC 72-2003 Surigao Del Norte Electric Cooperative, Incorporated Narciso corner Espina Streets Surigao City Attention: Messrs. Danny Z. Escalante and Alan Angelo L. Mozar Gentlemen : This refers to your letter dated April 28, 2003 indorsed by the Regional Director of Revenue Region No. 17, Butuan City, requesting for a ruling to the effect that Surigao Del Norte Electric Cooperative, Incorporated (SURNECO for brevity) registered with the National Electrification Administration ("NEA") is exempt from taxes. In reply thereto, please be informed as follows: Under Revenue Memorandum Circular No. 72-2003 dated October 20, 2003, Electric Cooperatives registered with NEA are exempt from: 1. Franchise tax under Section 119 of the Tax Code of 1997 ( BIR Ruling No. DA-250-03 dated July 31, 2003 ); 2. Value-Added Tax (VAT), on sales relative to the generation and distribution of electricity as well as their importation of machineries and equipment, including spare parts, which shall be directly used in the generation and distribution of electricity [Sec. 109(s) of the Tax Code of 1997]; 3. Income taxes for which they are directly liable [P.D. No. 269, Sec. 39(a)(1)]; 4. All National Government taxes and fees, including franchise, filing, recordation, license or permit fees or taxes. Provided, however, that the said exemption shall end on December 31 of the thirtieth full calendar year after the date of a cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs. Provided further, that the period of exemption for a new cooperative formed by consolidation, as provided in Section 29 of P.D. No. 269, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under P.D. No. 269 [P.D. No. 269, Sec. 39(a)(2)]; and 5. Three Percent (3%) Percentage Tax under Sec. 116 of the Tax Code of 1997. However, all Electric Cooperatives registered with NEA shall be subject to: 1. 20% final income tax on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines; 2. 7.5% final income tax on interest income derived from a depository bank under the expanded foreign currency deposit system; 3. Capital Gains Tax on sales or exchanges of real property classified as capital assets or shares of stock, and income tax/withholding tax on sales or exchanges of realty classified as ordinary assets, provided, however, that the above transactions are not, in any way, related to the generation and distribution of electricity; aIcDCT 4. Documentary Stamp Taxes on transactions not related to the generation and distribution of electricity; 5. VAT billed on purchases of goods and services not exempt; 6. All other taxes for which the Electric Cooperatives are not otherwise expressly exempted by any law. Moreover, Electric Cooperatives registered with NEA shall not be entitled to the other privileges granted to electric cooperatives registered with the Cooperative Development Authority (CDA) under RA No. 6938. Furthermore, all Electric Cooperatives are considered as withholding agents and are required to file withholding tax returns and remit withholding taxes on all income payments that are subject to withholding. 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group