BIR Ruling [DA-186-02]

October 15, 2002 BIR RULING [DA-186-02] Domingo C. Laeno & Associates Law Office 35 T. Teodoro Street Paraaque City Gentlemen : This refers to your letters dated July 8, 2002 and September 18, 2002 requesting for a ruling as to whether or not the United BF Homeowners Association, Inc. (UBFHAI), for brevity) is subject to pay tax/es on revenues generated from business operations. Your state that 1. The UBFHAI is a corporation organized for purposes, among others, of initiating programs and projects for the welfare, benefit and cause of the homeowners and residents of the BF Homes Subdivision and registered on May 18, 1989, with the Home Insurance Guarantee Corporation, HIGC for short, with offices at BF Homes Clubhouse, Banzon St., BF Homes, Paraaque City. 2. The By-Laws of UBFHAI provides: "Eight: That the corporation shall be maintained by fees, dues, assessments or charge paid by its members and other income as the corporation may derive from the pursuit of its livelihood and economic activities, as well as voluntary contributions, donations, gifts, bequests, and the like. 3. As shown above, the UBFHAI is not supposed to be engaged in business but it has been actually so engaged in the business of a) selling stickers to BF Homes residents, nonresidents, car owners, truck operators, jeeps, tricycles and all kinds of vehicles coming in and out of the BF Homes Subdivision b) renting and leasing of parks, open spaces, and other club projects and facilities to the public c) collecting fees from persons and entities doing business within BF Homes Subdivision d) exacting business charges and fees from the public and d) UBFHAI has been coupons and receipts for other services. 4. The UBFHAI has no exemption certificate issued by the BIR. 5. The UBFHAI has been generating revenues from business operations as follows: Year Revenue 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 In reply, please be informed that as held by this Office in BIR Ruling No. DA-165-2002 dated September 17, 2002, UBFHAI, while supposedly a corporation organized for civic league and not for profit and hence, exempt from income tax under Section 30(G) of the 1997 Tax Code, is nonetheless subject to the corresponding internal revenue taxes on income derived from any of its properties, real or personal or any activity conducted for profit, regardless of the disposition thereof, which should be returned for taxation . Thus, UBFHAI's revenues from its business operations during the years 1996 to 2000 allegedly in the aggregate amount of 71,745,397.21 as reported by you, is subject to the regular corporate income tax at 35% for the years 1996 and 1997, 34% effective January 1, 1998, 33% effective January 1, 1999 and 32% effective January 2000 and thereafter. We likewise ruled that UBFHAI is liable to pay the VAT on gross receipts derived from the sale of goods and services made in the course of trade or business, pursuant to VAT Ruling No. 119-90. HScAEC As regards your request for payment of the corresponding reward to your clients, namely: Elizabeth Cuaresma and Antonio Abaya who filed the information/affidavit of denunciation against UBFHAI, please be informed that your claim cannot as yet be granted for being premature. It must be emphasized herein that the payment of informer's reward is conditioned upon the payment and collection of unpaid or deficiency taxes. An informer is entitled by way of reward only to a percentage of the taxes actually assessed and collected. ( Meralco Securities Corporation, Inc. vs. Savellano, et. al., L-36181 dated October 23, 1982 ) Accordingly, your clients will be rewarded only after an investigation has been conducted by the Tax Fraud Division on their complaint/denunciation and there is a finding of fraud and/or violation of the Tax Code committed by UBFHAI which resulted in the recovery of revenues, surcharges and fees. [ Sec. 282, (A), Tax Code of 1997 ] As requested, the pertinent papers of the case were, on even date, forwarded to the Chief, Tax Fraud Division, for incorporation with the other papers already sent to the said Office under cover of our letter dated March 28, 2001 and 1st Indorsement dated August 30, 2001. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service