BIR Ruling [DA-746-06]

December 29, 2006 BIR RULING [DA-746-06] RR 8-2005; DA-602-2006 Pacific Plaza Condominium Corporation The Pacific Plaza, Apartment Ridge Row, Ayala Avenue Makati City Attention: Mr. Mike V. Pimentel Gentlemen : This refers to your letter dated December 27, 2006 requesting on behalf of the members of the Pacific Plaza Condominium Corporation (PPCC) , for exemption from the withholding taxes in connection with the refund of its excess utility payments from MERALCO. It is represented that PPCC is a non-stock, non-profit association created for the purpose of implementing the provisions of R.A. 4726, otherwise known as the Condominium Act, more particularly with the end in view of holding title to the common areas in the condominium project known and identified as Pacific Plaza Condominium Project and to the lot on which then project is located; to manage, operate and control, supervise and oversee the said project; and to levy and collect association dues or assessments from all unit owners proportionate to the area owned and in accordance with the sharing scheme to be expressed in a Master Deed with Declaration of Restrictions. It is further represented that since PPCC is a non-stock, non-profit organization created only for the above stated purposes, it has not been engaged in any profitable activities that would result in the imposition of income taxes; that the receipts of the association dues, membership fees, power and water collections and other assessments/charges that will be collected from its members, which are held in trust and which are to be used solely for administrative expenses in implementing its purpose/s and which the association could not realized any gain or profit as a result of its receipt thereof are not includible in said corporation's gross income; that on December 09, 2005, PPCC received a notice from the MERALCO that it is qualified for the refund under Phase IVB; that under Revenue Regulations No. 8-2005, a 25% creditable withholding tax shall be imposed on the amount of gross refund; that PPCC is of the opinion that the 25% withholding tax is not applicable to them being a condominium corporation as enunciated by numerous rulings issued by the BIR; that the refund does not belong to PPCC but it merely acts as agent for and in behalf of its members/unit owners; and that the amount of refund will have to be distributed in accordance with each unit owner's consumption during the refund period. cSEaTH In reply, please be informed that Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98 as amended by Revenue Regulations Nos. 3-2004 and 8-2005, is explicit in its provisions that the expanded withholding tax does not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special. PPCC is an exempt corporation organized for mutual aid association as contemplated under Section 30 (C) of the Tax Code of 1997, as amended. As such, it is exempt from payment of income tax on income received by it as such organization and consequently from the expanded withholding tax. Further, since the excess utility payments pertain to expense related to PPCC registered activity, then the refund which will be received by it is not subject to the 32% regular corporate income tax because it is an exempt corporation under Section 30 (C) of the Tax Code of 1997, as amended. In sum, the MERALCO refund to PPCC arising from the Supreme Court case G.R. No. 141314 dated April 9, 2003 of the excess utility payments which were incurred and paid by it as an exempt organization under Section 30 (C) of the Tax Code of 1997, as amended, is exempt from the 32% regular corporate income tax, and consequently, from the 25% or 32% withholding tax imposed under Revenue Regulations No. 8-2005. (BIR Ruling No. DA-602-2006 dated October 10, 2006) 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