BIR Ruling [DA-579-06]

September 22, 2006 BIR RULING [DA-579-06] Rev. Regs. No. 9-00 & 20-01 Alba Romeo & Co., CPAs 7/F, Multinational Bancorporation Centre 6805 Ayala Avenue Makati City Attention: Mr. Alba Romeo Gentlemen : This refers to your letter dated March 14, 2006 requesting on behalf of your client, DMPI Employees Agrarian Reform Beneficiaries Cooperative (DEARBC) for confirmation of your opinion that DEARBC should not be constituted as a collecting agent for purposes of the payment of the documentary stamp tax (DST) in all contracts and transactions entered into by it with another taxable entity, including the issuance of certificates of stock to its members. As represented, DEARBC was organized on December 1, 1988 pursuant to Section 8 of Republic Act (R.A.) No. 6657, otherwise known as the Cooperative Agrarian Reform Law of 1988 and Presidential Decree (PD) No. 175. The Cooperative registered with the Bureau of Agricultural Cooperatives on December 6, 1988 and was confirmed by the Cooperative Development Authority (CDA) on April 19, 1991. On July 18, 2002, DEARBC was granted by the Bureau of Internal Revenue a certificate of tax exemption pursuant to R.A. No. 6938 (An Act to Ordain a Cooperative Code of the Philippines). DEARBC entered into two (2) contracts with Del Monte Philippines, Inc. (DMPI), namely, Growers Contract (contract of lease between Del Monte and DEARBC for the use by Del Monte of the land owned by DEARBC as plantation) and several loan agreements. Furthermore, DEARBC will be issuing shares of stocks to its members. Section 174 of RA No. 9243, as implemented by Revenue Regulations (Rev. Regs.) No. 13-2004, provides that there shall be a DST of PhP1.00 for every P200 or fractional part thereof of the par value of such share of stocks on every original issue of shares of stock of a corporation or association. In reply, please be informed that pursuant to Article 61 of R.A. No. 6938, duly registered cooperatives which do not transact any business with nonmembers or the general public are not subject to any government taxes or fees imposed under the internal revenue laws and other tax laws. IaESCH Under Section 3 of Rev. Regs. No. 2-2001 duly registered cooperatives dealing/transacting business with members only shall, among others, be exempt from paying DST imposed under Title VII of the Tax Code of 1997 provided that the other party to the taxable document/transaction who is not exempt shall be the one duly liable for the tax. Corollary to this, Section 3(b) of Rev. Regs. No. 9-2000 providing that the mode of payment and remittance of the DST states that "(1) If one of the parties to the taxable transaction is exempt from the tax, the other party who is not exempt shall be the one directly liable for the tax, in which case, the tax shall be paid and remitted by the said non-exempt party, unless otherwise provided in these Regulations. (2) If the said tax-exempt party is one of the persons enumerated in Section 3(c)(4) hereof, he shall be constituted as agent of the Commissioner for the collection of the tax, in which case, he shall remit the tax so collected in the same manner and in accordance with the provisions of Section 200 of the Code: Provided, however, that if he fails to collect and remit the same as herein required, he shall be treated personally liable for the tax, in addition to the penalties prescribed under Title X of the Code for failure to pay the tax on time. xxx xxx xxx" On the other hand, Section 3(c)(4) of the above regulations provides, viz: (4) When one of the parties to the taxable document or transaction is included in any of the entities enumerated below, such entity shall be responsible for the remittance of the stamp tax prescribed under Title II of the Code: Provided, however, that if such entity is exempt from the tax herein imposed, it shall remit the tax as a collecting agent, pursuant to the preceding paragraph 3(b)(2) hereof, any provision of these Regulations to the contrary notwithstanding: (a) A bank, a quasi-bank or non-bank financial intermediary, a finance company, or an insurance, a surety, a fidelity, or annuity company; (b) The proprietor or operator of Jai-alai, Horse-racing, Lotto and other authorized Numbers Games, as provided in these Regulations; (c) The Philippine Stock Exchange (PSE), in the case of shares of stock and other securities traded in the local stock exchange; (d) A pre-need company on sale of pre-need plans as provided under Section 186 of the Code, for purposes of these Regulations, the term "Pre-need" shall include those providing pre-need health care services, educational plan, memorial plan, pension plan., and other similar services. (e) An educational institution in respect of issuance of taxable certificates (e.g., Diploma, Transcript of Records, and other documents taxable as certificates under Section 188 of the Code); (f) Warehouse operators in respect of warehouse receipts taxable under Section 189 of the Code; (g) The Corporation vis-a-vis the stamp tax on "Proxies" in the exercise of the stockholders' voting right, taxable under Section 192 of the Code (e.g., appointment of a proxy in the election of the corporation's members of the Board); (h) The transportation contractor vis-a-vis the Bills of Lading or Receipts taxable under Section 191 of the Code; (i) Franchise grantees and other taxpayers paying a fixed percentage of the prescribed taxable base in lieu of all internal revenue taxes" However, pursuant to Rev. Regs. No. 20-2001, cooperatives are subject to DST on transactions with non-members when the accumulated reserves and undivided net savings of such cooperatives exceed Ten Million Pesos (PhP10,000,000.00). Since a cooperative is not included in the above enumeration, this Office confirms your opinion and so holds that DEARBC is not a collecting agent for purposes of remitting the DST on contracts and transactions entered into by it with another taxable entity, including the issuance of certificates of stock to its members. HOWEVER, if DEARBC accumulated reserves and undivided net savings exceeding Ten Million Pesos (PhP10,000,000.00), the transactions with non-members like Del Monte Philippines, Inc., shall be subject to DST. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service