Baguio Country Club Corporation

October 26, 2007 BIR RULING [DA-569-07] Sec. 30; VAT DA-466-2005 Baguio Country Club Corporation Country Club Road, South Drive Baguio City Attention: Anthony De Leon General Manager Gentlemen : This refers to your letter dated September 17, 2007 requesting confirmation of your opinion that Baguio Country Club Corporation is exempt from income and value-added taxes (VAT) in connection with the Club's revenues or assessments derived from member related activities. DTAaCE It is represented that Baguio Country Club (the "Club") is a domestic corporation duly registered with the Securities and Exchange Commission as a non-profit, non-stock organization under SEC Registration No. PW-671. It is primarily organized for the purpose of establishing and maintaining an exclusive club in Baguio City for the promotion and encouragement of healthy interest in out-of-door activities and sports and to provide opportunities for the same. It is formed to foster, promote and to conduct recreational, athletic, sports, cultural and educational non-profit activities among members and their families. Pursuant to this, it maintains a clubhouse or club rooms and sports facilities and generally it performs such acts as are ordinarily done, performed and exercised by athletic and recreational clubs and associations. As a non-profit organization, no part of Club's net earnings inure to the benefit of any of it members. Membership in the Club is through subscription and full payment of at least one (1) membership share, for which a membership certificate is issued by the Club. However, the holders of certificates are not entitled to any dividends. These certificates are not traded in an exchange (or over the counter), and the rights and privileges of the members are governed by the rules and the by-laws of the Club. The members are required to pay an initial membership fee, monthly dues and patronage assessments during their terms of membership. These assessments are not derived from the Club's activity or operations conducted for profit but are contributions or funds held in trust solely to defray the cost of maintenance and sports improvements, upgrading of sports facilities and premises for the use and benefit of its members. In order to service the requirements of the members and pursuant to its purposes as a club organized and operated for athletic activities and recreation, the Club provides sports facilities to its members and other recreational facilities, including lodging and accommodation. As a means of reimbursements for the cost and expenses incurred in providing these facilities and services in general to its members, the Club charges certain fees. The charging of these fees however is not for profit but only as a reimbursement or replenishment of its funds for upkeep, maintenance and improvements of its facilities, and to be able to continue providing such services to its members and sustain the viability of the Club. DaHcAS The operation of lodging and dining facilities are incidental to the Club's principal purpose, yet essential because Ninety Percent (90%) of the total members are based out-of-town and cannot enjoy the privileges of the sports, cultural educational and recreational facilities without these extended facilities. Thus, the above-mentioned activities of the Club are substantially related to the furtherance of the main purpose of the organization. In providing the aforementioned facilities to its members, the Club cannot be considered as engaged in business due to the absence of profit nor livelihood motive and such are not economic activity contemplated in Section 105 of the Tax Code of 1997, as amended. As a matter of fact, any excess of revenue over expenses generated from any Club activities are plowed back to the Club through developmental and capital expenditures. ITaESD In reply, please be informed that this Office confirms your opinion that the membership dues collected by the Club from its members are not subject to income tax because membership dues are merely held in trust by the Club 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 from which the Club could not realize any gain or profit as a result of the receipt thereof, and which are not includible in its gross income. Hence, the same are not subject to income tax and consequently to the expanded withholding tax. Accordingly, the membership dues are not income derived from real or personal property or from any of the Club's activity conducted for profit. Likewise, they are not derived from sale of service or sale of goods made in the course of trade or business but rather in connection with the Club's non-profit activities, thereby rendering the same not subject to income and value-added taxes (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 considered null and void. cADaIH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service