BIR Ruling [DA-466-05]

November 18, 2005 BIR RULING [DA-466-05] S30; VAT DA-304-04; DA-158-03 DA-378-03 Isla Lipana & Company 29th Floor, Philamlife Building Paseo de Roxas, Makati City Attention: Atty. George J. Lavadia Principal Gentlemen : This refers to your letter dated August 2, 2005 requesting confirmation of your opinion that membership dues collected by your client, Club Punta Fuego, Inc . (CPFI), from its members primarily to cover and defray the costs of general operations, maintenance and improvement of club facilities and premises are not subject to income tax and Value-added tax (VAT). It is represented that CPFI was incorporated in the Philippines and registered with the Securities and Exchange Commission on December 16, 1997; that its primary purpose is to promote social, recreational and athletic activities on a nonprofit basis among its stockholders, the core of which will be the acquisition, development, construction, management and maintenance of a golf course, resort, marina and other sports and recreational facilities; that CPFI bills and collects membership dues to defray the cost of general operations, maintenance and improvement of club facilities and premises; that the collection of these dues and assessments does not arise from any sale of goods or services but are imposed to cover and defray necessary expenses related to the maintenance of, and improvements in, the Club's facilities; and that as such, no part of the Club's income inures to the benefit of any of its members. In reply, please be informed that this Office confirms your opinion that the membership dues collected by CPFI from its members are not subject to income tax and VAT for the following reasons: 1. The membership dues which are merely held in trust by CPFI and which are used solely for administrative purposes, i.e ., to defray the cost of general operations, maintenance and improvement of club facilities and premises for the benefit of its members and from which CPFI could not realize any gain or profit as a result of the receipt thereof, are not includible in its gross income. Hence, the same are not subject to income tax and consequently to the expanded withholding tax. (BIR Ruling No. DA 304-04 dated June 2, 2004 citing BIR Ruling No. 103-94 dated May 16, 1994). AacCHD 2. The membership dues are not income derived from real or personal property, or from any of CPFI's activity conducted for profit, thus, not subject to income tax (BIR Ruling DA-158-03 dated May 14, 2003). 3. The membership dues are not derived from sale of service or sale of goods made in the course of trade or business but rather in connection with CPFI's non-profit activities, thus, not subject to VAT. (VAT Ruling No. 007-04 dated April 5, 2004, BIR Ruling DA-378-03 dated October 20, 2003). 4. The membership dues are merely held in trust for use solely for administrative expenses. Thus, CPFI could not realize any gain or profit from its temporary custody of the funds, thereby rendering the same not subject to VAT. (BIR Ruling Nos. DA-499-04 dated 22 September 2004 and DA-510-04 dated 30 September 2004). 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