San Jose Electric Cooperative

May 26, 2008 BIR RULING [DA-318-08] RMC 72-2003; DA-021-2004; DA-185-2005 San Jose Electric Cooperative Maharlika Highway, San Jose City Nueva Ecija Attention: Mr. Melquisedec A. Lagmay General Manager This refers to your letter dated April 17, 2008 requesting for tax exemptions as a cooperative pursuant to Republic Act (R.A.) No. 6938 and Presidential Decree (P.D.) No. 269 as implemented by Revenue Regulations (RR) No. 20-2001 and Revenue Memorandum Circular (RMC) No. 72-2003, respectively. From the documents submitted, it appears that you are an electric cooperative which was franchised under the National Electrification Administration (NEA) on March 16, 1990 and later registered with the Cooperative Development Authority (CDA) on May 14, 1996 with Certificate of Registration No. QC-1485-EC-003. The primary purpose for which San Jose Electric Cooperative (SAJELCO) was formed is to generate, transmit, distribute, promote, and encourage the fullest use of electric service within its franchise area. As certified by SAJELCO's general manager, it transacts business with its members only. In reply, please be informed that Electric Cooperatives (ECs) registered with the NEA and/or CDA are exempt from the following: 1. Franchise tax under Section 119 of the Tax Code of 1997, as amended. (BIR Ruling No. DA-250-03 dated July 31, 2003; 2. Income taxes for which they are directly liable [P.D. No. 269, Sec. 39 (a) (1)]; DIESaC 3. 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 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 4. Three Percent (3%) Percentage Tax under Sec. 116 of the Tax Code of 1997, as amended; 5. Donor's tax on donations to duly accredited charitable, research and educational institutions and reinvestment to socio-economic projects within the area of operation of the cooperatives; 6. Excise tax under Title VI of the Tax Code of 1997, as amended; 7. Documentary Stamp Tax imposed under Title VII of the Tax Code of 1997, as amended, provided, however, that the other party to the taxable document/transaction who is not exempt shall be the one directly liable for the tax; and 8. Annual Registration Fee of P500.00 under Section 236 (B) of the Tax Code of 1997, as amended. Being an electric cooperative registered with NEA and CDA, SAJELCO shall be exempt from the taxes aforementioned pursuant to Presidential Decree No. 269 and R.A. No. 6938, as implemented by RMC No. 72-2003 dated October 20, 2003 and RR No. 20-2001 dated November 12, 2001, respectively. cCaEDA However, all ECs whether it be registered with the NEA or CDA, shall be subject to the following: 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 depositary 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; 4. Documentary Stamp Taxes on transactions of ECs dealing with non-members when the accumulated reserves and undivided net savings of such cooperatives exceed Ten Million Pesos (P10,000,000.00); 5. VAT billed on purchases of goods and services not exempt; 6. Value-added tax, 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; and 7. All other taxes for which the ECs are not otherwise expressly exempted by any law. Upon the effectivity of R.A. 9337, the exemption from VAT of electric cooperatives was removed. Consequently, Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007, particularly Section 4.108-2 (13) and Section 4.108-3 (f) provide that sales of electricity by generation, transmission, and/or distribution companies are now subject to 12% VAT on their gross receipts. Provided, however, that sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels shall be subject to 0% VAT. DITEAc Therefore, electric cooperatives are now subject to VAT on their gross receipts pursuant to R.A. 9337, as implemented by RR 16-2005, as amended. It should be noted that nothing in the aforesaid RMC No. 72-2003 or RR No. 20-2001 shall preclude the examination of the books of accounts or other accounting records of SAJELCO by duly authorized internal revenue officers for internal revenue tax purposes only. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service