BIR Ruling [DA-328-06]

May 18, 2006 BIR RULING [DA-328-06] Sections 32 & 105; BIR Ruling No. DA-008-2000 & DA-196-2001 Brookside Residents Association, Inc . Brookside Hills Subdivision Cainta, Rizal Attention: Mr . Manuel G . Maglaque Gentlemen : This refers to your letter dated February 7, 2006 requesting for a Certificate of Exemption for your association. As represented, Brookside Residents Association, Inc. ("BRAI" or the "Association") is a non-stock, non-profit association duly registered with the Housing and Land Use Regulatory Board (HLURB). The purposes for which your organization was formed are as follows: "1. To construct, manage, maintain and operate adequate facilities and services for its members, particularly, but not limited to the management and operation of a water supply system for its members and the community; 2. To initiate and organize socio-cultural projects and activities to awaken community consciousness and belonging; 3. To promote, enhance and foster the development and improvement of the quality of life of the members through livelihood projects and other economic activities; 4. To acquire, accept donations, purchase, own, hold, develop, lease, mortgage, pledge, exchange, sell, transfer or otherwise invest, deal in or trade, in any manner permitted by law and the rules and regulations of government regulatory or licensing agencies, real and personal property of every kind and description, or any interest therein, as may be necessary for the accomplishment of the purposes of the association; cCaEDA 5. To borrow and otherwise contract indebtedness and issue notes, bonds and other evidence of indebtedness and to secure payment therefore by mortgage, pledge or deed of trust, or through encumbrances on any and all of its then-owned or after-acquired real or personal properties and assets as may be permitted by law; 6. To enter into, make, perform and carry out, or cancel and rescind contracts of every kind and for any lawful purpose with any person, firm, association, corporation, syndicate, domestic or foreign, or others; 7. To do and perform any other acts and things and to have and exercise any other powers, which may be necessary, convenient and appropriate to accomplish the purpose for which the association is organized." 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, and 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. DIHETS 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 or 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" for the fund 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, the Association is not subject to income tax and consequently to withholding tax on its collection of association dues, membership fee, insurance premium, real property taxes, power and water and other receipts/miscellaneous fees. The Association's receipts of the "collections" are exempt from the VAT. Finally, the Association only acts as the collecting agency to pool the respective shares of the unit owners and merely implement 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service