BIR Ruling [DA-585-06]

October 3, 2006 BIR RULING [DA-585-06] RMC 72-2003; DA-021-2004; DA-185-2005 Tarlac II Electric Cooperative, Inc . (TARELCO II) San Nicolas, Concepcion Tarlac Attention: Mr. Jose D. Tapnio General Manager This refers to your letter dated January 12, 2006 requesting for tax exemptions under Presidential Decree (PD) No. 269 in relation to Revenue Memorandum Circular No. 72-2003. From the documents submitted, it appears that you are an electric cooperative duly registered with the National Electrification Administration (NEA) with Certificate of Registration No. 122 dated June 6, 1981. In reply, please be informed that Electric Cooperatives (ECs) registered with the National Electrification Administration (NEA) are exempt from the following: 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)]; EScAID 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. With regard to No. 4 above, Tarlac II Electric Cooperative, Inc. (TARELCO) was organized and registered with NEA on June 6, 1981. As such, it is clear that to date, TARELCO is in operation as an electric cooperative for a period of 24 years. The tax exemption granted under P.D. 269 shall end on December 31 of the thirtieth full calendar year reckoned from the date of a cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event comes first. In view thereof, TARELCO 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 depositary 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; 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. 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 is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be ascertained that the facts are different, then this ruling shall be considered null and void. EcTaSC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service