Peninsula Electric Cooperative, Inc.

July 11, 2007 BIR RULING [DA-371-07] R.A. 9337; RMC 72-2003; DA-185-2005 Peninsula Electric Cooperative, Inc . Roman Super Highway, Tuyo Balanga, Bataan Attention: Engr. Loreto A. Marcelino General Manager This refers to your letter dated July 10, 2006 requesting for renewal/modification of your tax exemption under BIR Ruling No. DA-283-2005 issued on June 23, 2005 in the light of Republic Act No. 9337, amending the Tax Code of 1997. In reply, please be informed that prior to the effectivity of Republic Act (RA) No. 9337, amending, among others, Section 109 (s) of the National Internal Revenue Code of 1997, the exemptions of Electric Cooperatives (ECs) registered with the National Electrification Administration (NEA) are as follows: 1. Franchise tax under Section 119 of the Tax Code of 1997 (BIR Ruling No. DA-250-03 dated July 31, 2003); 2. 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 [Sec. 109 (s) of the Tax Code of 1997]; 3. Income taxes for which they are directly liable [P.D. No. 269, Sec. 39 (a) (1)]; HICcSA 4. 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 5. Three Percent (3%) Percentage Tax under Sec. 116 of the Tax Code of 1997. In such case, Peninsula Electric Cooperative, Inc. being a cooperative registered under NEA, shall be exempt from the taxes aforementioned pursuant to Revenue Memorandum Circular (RMC) No. 72-2003 dated October 20, 2003. However, all ECs whether 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 depository 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; SCaIcA 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; and 6. All other taxes for which the ECs are not otherwise expressly exempted by any law. Furthermore, upon the effectivity of RA 9337, the exemption from VAT of electric cooperatives was removed. Consequently, Revenue Regulations (RR) No. 16-2005, 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 10% (now 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. Therefore, electric cooperatives are now subject to VAT on their gross receipts pursuant to RA 9337, as implemented by RR 16-2005. It should be noted that nothing in the aforesaid RMC No. 72-2003 shall preclude the examination of the books of accounts or other accounting records of the EC by duly authorized internal revenue officers for internal revenue tax purposes only. This ruling effectively modifies BIR Ruling No. DA-283-2005. EACTSH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service