The Goldloop Towers Condominium Association

May 10, 2007 BIR RULING [DA-292-07] Sections 32 & 105; BIR Ruling No. DA-511-2004 The Goldloop Towers Condominium Association One Goldloop Plaza, Ortigas Center Pasig City Attention: Ms. Marita S. Dalusung Accounting Officer Gentlemen : This refers to your letter dated February 2, 2007 requesting, in effect, for a ruling that The Goldloop Towers Condominium Association (the "Association") is not subject to percentage tax and withholding tax on compensation and change of code 7011 (buying, selling, renting, etc.) to 9199 (other membership activities) in its registration. As represented, the Association is a non-stock, non-profit corporation organized and operated to hold title to all the common areas, to manage the Goldloop Towers Condominium and to do such things as may be necessary, incidental and convenient to the accomplishment of said purposes. Its main collection of revenues is the association dues. The Association has no employ under its payroll because the Board has entered into contract with various service contractors to undertake the management of the condominium. Thus, it remits monthly expanded withholding tax instead of percentage taxes. In reply, please be informed that pursuant to Section 105 of the Tax Code of 1997, VAT is collected upon any person, who in the course of business, sells, barters, exchanges, leases goods or properties, renders services. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. On the other hand, Section 116 of the Tax Code of 1997 subjects to the 3% percentage tax "any person whose sales or receipts are exempt under Section 109 (z) [now Section 109 (V)] of this Code from the payment of value-added tax and who is not a VAT-registered person . . . ." The 12% VAT or the 3% percentage tax, whichever is applicable, is a tax on the business transaction or activity and is an indirect tax which the seller may pass-on or shift to the customer who ultimately bears or assumes the burden of the tax. Considering that the Association does not sell, barter, exchange, lease goods or property and neither does it render service for a fee but merely implements the administration of the required services to collect the association dues from the unit owners pursuant to its corporate purposes as "trustee" for the fund thereof, it is not subject to VAT or percentage tax on such receipts of the above "collections" (BIR Ruling No. DA-426-2004 dated August 10, 2004 and BIR Ruling No. DA-362-2000 dated October 23, 2000). However, the sale of janitorial services and other related services shall be subject to VAT or percentage tax, as the case may be (BIR Ruling No. DA-196-01 dated October 17, 2001). It should be noted that VAT and percentage tax are indirect taxes payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer (i.e., the Association) as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. The Association is not subject to withholding tax on compensation since as represented, it has no employ under its payroll. TSHEIc Finally, it may apply for amendment to the Certificate of Registration at the Revenue District Office which has jurisdiction over the Association. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service