BIR Ruling [DA-511-04]

September 30, 2004 BIR RULING [DA-511-04] Sections 32 & 105 BIR Ruling No. DA-362-2000 & DA-426-2004 Galleria Corporate Center Condominium Corporation Robinsons Galleria Complex EDSA corner Ortigas Avenue Quezon City Attention: Ms. Betty Salvador Gentlemen : This refers to your letter dated September 14, 2004 stating that Galleria Corporate Center Condominium Corporation ("Association"), is a non-stock, non-profit corporation organized and operated for, among others, the following purposes: To hold or own title to the common areas in the condominium project known as the Galleria Corporate Center and to the lot on which the Project is located; To manage, operate and control, supervise and oversee the said Project; To levy and collect association dues or assessments from all unit owners proportionate to the area owned and in accordance with the sharing scheme expressed in the Master Deed with Declaration of Restrictions; To constitute a working capital or an operational fund of the Association by the assessment of 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 of not less than three (3) months nor more than one (1) year. The same funds shall be replenished regularly by the billings based on the sum spent for a particular period; and To acquire and hold title to other properties within the Project as may be subsequently owned in the course of its operations. that to implement the administration of the above responsibilities, the Association collects from unit owners the following: 1) Association Dues to 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; 2) Membership Fee one-time charge like the move-in fee to cover pre-operating expenses; 3) Insurance Premium charged at the beginning of the year to cover reimbursement of actual insurance premium on the building; 4) Real Property Taxes charged after the first quarter of the year to cover reimbursement of actual real property taxes paid on common areas and machineries; 5) Power and Water collections which are based on actual metered charges of Meralco and Maynilad; and 6) Other Receipts miscellaneous collections from lost ID, car pass, and other items. that since the Association is a non-stock, non-profit organization, it shall have no other source of funds except the billings for the above-listed items to be sent to and paid by the unit-owners which shall be their proportionate share of the costs expended in the operations of the Project; and that the receipts of the Association will be derived exclusively and solely from assessments, dues and fees to be collected from owners of each condominium unit, as provided in the Association's By-laws and Master Deed with Declaration of Restrictions. 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. 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 of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engage 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-426-2004 dated August 10, 2004 and BIR Ruling No. DA 362-2000 dated October 23, 2000). In view of the foregoing, this Office hereby confirms your opinion that 1) 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. CIHAED 2) The Association's receipts of the above "collections" are exempt from the VAT. 3) 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service