BIR Ruling [DA-337-05]

August 1, 2005 BIR RULING [DA-337-05] Tax Management Association of the Philippines, Inc. Unit 2421, Herrera Towers, VA Rufino cor. Valero Streets Salcedo Village, Makati City Attention: Atty. Benedicta Du-Baladad President Gentlemen : This refers to your letter dated July 14, 2005 stating that the Tax Management Association of the Philippines (TMAP) is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission (SEC) on October 22, 1981; that its primary purpose and objectives include the following: 1. To promote the development of tax management as a field of study, specialization and practice by establishing programs and projects geared towards a professional degree and/or accreditation with appropriate government institutions; 2. To organize and/or sponsor academic courses, seminars, conferences or conventions on taxation; 3. To issue publications and such other printed materials which will help the members in their professional growth; 4. To undertake activities which will develop rapport and cooperation among members; 5. To monitor proposed and pending tax legislation and policies for purposes of taking timely action for the benefit of all members; 6. To evaluate and review the implementation of tax laws, ordinances and issuances as well as of tax jurisprudence in order to initiate necessary legislative and administrative charges for the benefit of the members and on private business in general; 7. To assist government planners in determining the appropriate tax directions and instituting improvements in the tax system; 8. To recommend tax reforms in general so as to assist towards the development and growth of the Philippine economy; 9. To coordinate and/or affiliate with other persons, associations or institutions, whether local or international, having objectives wholly or partly similar to those of the association, with the view of advancing similar objectives; HETDAa 10. To render advice and assistance to, conduct studies and researches on, or manage activities, operations or transactions of individuals and corporations, pertaining to taxation; and 11. To do any and all things necessary for the furtherance of the foregoing objectives. that the principal source of TMAP's funds is the monthly dues that it collects from its members, from which the administrative and other expenses are regularly disbursed; that because TMAP occasionally incurs additional costs for special events or projects, TMAP also assesses and collects special assessments from its members; that TMAP also receives funds from sponsors for its technical journal and registration fees for seminars and conventions it regularly hosts or sponsors; that these funds are held "in trust" for all its members; and that such funds are used for the association's administrative expenses, and no part of such funds inure to the benefit of any specific member, officer or person. In connection therewith, you now request confirmation of your opinion that the following items, to wit: a) Membership dues and such other fees, special assessments and charges that TMAP assesses its members; b) Fees that TMAP collects from participants of seminars and conventions it sponsors or conducts; and c) Funds from sponsors of TMAP's technical journal, which are merely held in trust for TMAP's members and used solely for its administrative expenses and are disbursed for their common benefit, do not form part of TMAP's gross income, hence not subject to the (i) corporate income tax, and consequently to the 2% creditable withholding tax; and (ii) the 10% value-added tax (VAT). In reply thereto, please be informed that your opinion is hereby confirmed, since TMAP is a non-stock, non-profit corporation and is organized for the exclusive benefit of its members with no part of the dues or fees it receives inure to the benefit of any specific member, organizer, officer or person, it is exempt from income tax under Section 30(C) of the Tax Code of 1997. Accordingly, the fees or dues which it held in trust and used solely for administrative expenses of the association shall likewise be exempt from income tax and consequently from withholding tax. Thus, in BIR Ruling Nos. DA426-04 dated August 10, 2004 and DA-480-04 dated September 10, 2004 , this Office ruled that ". . . the CGB's receipts of the Association dues, and other assessments/charges collected from the members, which are merely held in trust and which are to be used solely for administrative expenses . . . , and which CGB could not realize any gain or profit as a result of its receipt thereof are not includible in said association's gross income. Hence, the same is not subject to income tax and consequently to the expanded withholding tax. Pursuant to Section 105 of the Tax Code of 1997, value-added tax (VAT) is collected upon any person, who in the course of trade or business, sells, barters, exchanges, leases goods or properties, render 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 corporation (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. AScTaD Considering that the Association does not sell, barter, exchange, nor lease any 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 purpose/s as trustee for the fund thereof, it is not subject to the value-added tax (VAT) on such activity. xxx xxx xxx" Inasmuch as the above-cited rulings are in all fours similar to the instant case, the membership dues and such other fees, special assessments and charges that TMAP assesses to its members, the fees that TMAP collects from participants of seminars and conventions it sponsors or conducts, and the funds from sponsors of TMAP's technical journal are not considered as income derived from any activity conducted for profit. Accordingly, the membership dues, fees and funds are not subject to income tax and consequently to the 2% creditable withholding tax. Moreover, since TMAP does not sell, barter, exchange, lease goods or property and neither does it render any service to any entity or individual for fee but merely acts as a collecting agent in receiving the membership dues, fees and funds, and considering that such funds are used solely for the payment of the association's common and administrative expenses, this Office holds that TMAP is not subject to the 10% VAT on these membership dues, fees and funds. 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