BIR Ruling [DA-362-00]

October 23, 2000 BIR RULING [DA-362-00] 32, 105 DA-008-2000, VAT Ruling Nos. 026-97 and 334-88 Robinsons Properties Marketing & Management Corporation 27th Floor, Galleria Corporate Center EDSA corner Ortigas Avenue Quezon City Attention: Mr . Frederick D . Go Executive Vice-President & COO Gentlemen : This refers to your letter dated May 22, 2000 stating that Robinsons Properties Marketing and Management Corporation is planning to construct an office building in Metro Manila; that it will incorporate a condominium corporation which is a non-stock, non-profit association that will undertake, among others, the following: a) to hold title to the common areas in the condominium project and to the lot on which the project is located; b) to manage, operate and control, supervise and oversee the said Project; c) to levy and collect association dues or assessments from all unit owners proportionate to the area owned and in accordance with the sharing scheme to be expressed in a Master Deed with Declaration of Restrictions; d) to constitute a working capital or an operational fund by assessing the respective share of each unit owner. The operational fund to be constituted shall be determined in advance by considering the amounts that may be used or spent by the association within a period not less than three (3) months nor more than one (1) year. The same fund shall be replenished regularly by the billings based on the sum spent for a particular period; and e) to acquire and hold title to the properties within the Project as may be subsequently owned in the course of its operations. In connection therewith, you now request for a confirmation of your opinion that: 1) The proposed condominium corporation's receipts of the a) association dues which will cover reimbursable expenses on common areas such as contracted services (e.g., janitorial, security services, pest control, garbage fees), salaries and wages of administration office personnel, taxes and licenses, national or local government imposed or required fees, repairs and miscellaneous expenses; b) membership fees which is a one-time charge like the move-in fee to cover reimbursement of actual insurance premium on the building; c) power and water collections which are based on actual metered charges of Meralco and MWSS; d) other receipts, such as miscellaneous collections from lost ID, car pass and other items will not be subject to income tax or to any withholding tax since no income will be generated by the proposed association therefrom. aCASEH 2) The said association's receipts, as enumerated above, will likewise not be subject to the value-added tax (VAT) considering that the association will not sell, barter, exchange nor lease any goods or property in the course of its trade or business and neither will it render service for a fee but will merely implement the administration of the required services to collect the share of unit owners pursuant to its corporate purposes as trustee of the funds thereof for payment of common expenses. In reply, please be informed of the following: A. The receipts of the association dues, membership fees, power and water collections and other assessments/charges that will be collected from its members, which will be held in trust and which are to be used solely for administrative expenses in implementing its purpose/s and which the aforesaid association could not realized any gain or profit as a result of its receipt thereof are not includible in said corporation's gross income. Hence, the same is not subject to income tax and consequently to the expanded withholding tax. B. 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 and renders service. 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 proposed condominium corporation will not sell, barter, exchange, nor lease any good or property and neither will 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" of the fund thereof, it is not subject to VAT on such activity. 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.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group