BIR Ruling [DA-299-05]

July 1, 2005 BIR RULING [DA-299-05] Sections 32 & 105; DA-510-2004 San Fernando Tower Condominium Association, Inc . 514 Plaza Del Conde cor. Muelle de Binondo Sts., Binondo, Manila Attention: Engr. Santos Yap Building Administrator Gentlemen : This refers to your letter dated June 3, 2005 requesting for a confirmation that the regular assessments billed to the unit owners of the condominium building which are solely devoted to administrative, utilities and maintenance expenses for the common areas do not form part of the taxable revenues and therefore exempt from the value-added tax, income tax and consequently from withholding tax on income, pursuant to the provisions of the Condominium Act. It is represented that the San Fernando Tower Condominium Association, Inc. (SFTCAI) is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission per Registration No. A-1998-12944; that it has been organized pursuant to the Master Deed of the San Fernando Tower Condominium Project, the Corporation Code and the Condominium Act, for the primary purpose of owning and holding title to all common areas therein and to manage the said condominium project; that SFTCAI regularly assess the unit owners of the condominium building and amount, in proportion to the areas they own, as their contribution to the fund from which the administrative expenses, utilities and maintenance of the common areas are drawn; that the regular assessments are solely supplied to the aforesaid expenses and no part thereof is distributed to the members; and that SFTCAI does not realize any profit or gain from the regular assessments. In reply, please be informed that the SFTCAI's receipts of the SFTCAI dues and other assessments/charges collected from the members, are merely held in trust and used solely for administrative expenses in order to protect and safeguard the welfare of the owners; lessees and occupants of the property, provide utilities and amenities, the maintenance of services and management, and which SFTCAI could not realize any gain or profit as a result of its receipt thereof are not includible in said SFTCAI's gross income. Accordingly, SFTCAI's collections used solely for administrative expenses in implementing its corporate purposes are not subject to income tax, or any withholding tax. TEcADS Pursuant to Section 105 of the Tax Code of 1997, VAT is collected upon any person who in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services. The phrase "in the ordinary 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. Considering that SFTCAI 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 SFTCAI dues from the unit owners pursuant to its corporate purposes as "trustee" for the fund thereof, it is not subject to VAT on such activity (BIR Ruling No. DA-426-2004 dated August 10, 2004, and BIR Ruling No. DA-362-2000 dated October 23, 2000). In view of the foregoing, this Office hereby confirms your opinion that 1) The SFTCAI is not subject to income tax and consequently to the withholding tax on its regular assessments of SFTCAI dues, membership fee, insurance premium, real property taxes, power and water, and other receipts/miscellaneous fees since it does not form part of its taxable revenues. 2) The SFTCAI's receipts of the above "collections" from these regular assessments are exempt from the VAT. 3) The SFTCAI only acts as the collecting agency to pool the respective shares of the unit owners and merely implement the administration of the required services through the issuance of regular assessments pursuant to its corporate purposes as trustee of the funds regularly assessed thereof for payment of common expenses, hence not subject to VAT, 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. DCIAST Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service