BIR Ruling [DA-304-06]

May 10, 2006 BIR RULING [DA-304-06] Sections 32 & 105 BIR Ruling No. DA-008-00 & DA-196-01 Bancom Life Homeowners Association, Inc. Gulod Malaya, San Mateo Rizal Attention: Mr. Cesar M. Ganados President Gentlemen : This refers to your letter dated September 20, 2005 requesting for a ruling exempting the Bancom Life Homeowners Association, Inc.'s ("Association") activities, which include collection of members' monthly dues and their respective shares in the association's expenses related to water tank operation, from taxes. As represented, the Association's business address is at Bancom Plaza, Baranggay Gulod Malaya, San Mateo, Rizal. It is registered as a non-stock, non-profit homeowners association under TIN No. 237-177-706-000. In reply, please be informed that the Association's receipts of the association 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, from which the Association could not realize any gain or profit as a result of its receipt thereof, are not includible in said association's gross income. Accordingly, the Association's collections used solely for administrative expenses in implementing its corporate purposes is not subject to income tax or any withholding tax. AICTcE 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 and 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. 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" of the funds thereof, it is not subject to the VAT on such activity (BIR Ruling No. DA-008-00 dated January 5, 2000 and DA-196-01 dated October 17, 2001) In view of the foregoing, this Office hereby holds that 1) The Association is not subject to income tax and consequently to withholding tax on its collection of association/monthly dues and water tank operation. 2) The Association's receipts of the above "collections" are not subject to the 10% VAT. 3) The Association only acts as the collecting agency to pool the respective shares of the unit owners and merely implements the administration of the required services pursuant to its corporate purposes as trustee of the funds 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 as null and void. aTHCSE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service