Conrado R. Ayuyao & Associates

September 18, 2008 BIR RULING [DA-(C-068) 231-08] Sec. 30 (C); NSNP (S30C-004) 050-2008 Conrado R. Ayuyao & Associates Attorneys-at-Law 899 Pres. Quirino Ave., Malate Manila Attention: Ernesto O. Pua Counsel Gentlemen : This refers to your letter dated August 19, 2008, in behalf of your client, GOLDRICH MANSION CONDOMINIUM CORPORATION, requesting a confirmatory ruling on the following: 1. The association dues, membership fees, and assessments/charges for power, water and maintenance that were collected from its members held in trust and which are to be used solely for administrative expenses in implementing its purpose are not includible in the condominium corporation's gross income and therefore not subject to income tax; and 2. The condominium corporation is not subject to value added tax. It is represented that GOLDRICH MANSION CONDOMINIUM CORPORATION (GOLDRICH MANSION, for short), is a non-stock, non-profit corporation formed exclusively for the purpose of: 1) owning and/or holding title to the land and other common and limited areas in the condominium project known and identified as the GOLDRICH MANSION which has been constituted in consideration of and pursuant to the provision of the Master Deed with Declaration of Restrictions executed by the Bank of Philippine Island on August 15, 1993 pursuant to the provisions of Republic Act No. 4726, otherwise known as the Condominium Act; and 2) operating, managing, and administering the Condominium Project pursuant to the provisions of the Master Deed with Declaration of Restrictions, the Condominium Act and other pertinent laws; that the corporation is not engaged in any kind of business; that it does not render any service for a fee but merely implements the administration of the required services to collect, in trust, the association dues from the unit owners to be defrayed pursuant to its corporate purpose/s; that the receipt of association dues, membership fees, power and water and other assessments/charges from the condominium members are intended solely for administrative expenses and betterment of the condominium pursuant to its purpose/s and from which the corporation/association does not realize any gain or profit as a result of its receipt thereof; that contrary to Revenue Region No. 6 Post Reporting Notice, GOLDRICH MANSION is a non-stock and non-profit corporation and is not engaged in general merchandise; that your client's source of revenue were basically association dues, membership fees and assessments for power, water, and other utilities intended for the welfare of its members. Hence, your request. HAICcD In reply, please be informed that income earned by domestic corporation is subject to the thirty-five percent (35%) regular corporate income tax under Section 27 (A), as amended by R.A. 9337. Nevertheless, collections being paid by unit owners for the maintenance of common areas of a condominium building is not subject to income tax since no income is generated therefrom. (BIR Ruling No. DA(C-040)148-2008 dated August 14, 2008) The receipts of condominium dues from the unit owners which are merely held in trust and which are to be used solely for administrative expenses, utilities (power and water) and maintenance of common areas for the benefit of the unit owners and from which GOLDRICH MANSION could not realize any gain or profit are not includible in its gross income. Hence, the same is not subject to income tax and consequently to the Expanded Withholding Tax (EWT). (BIR Ruling No. DA-304-2004 dated June 2, 2004) Furthermore, in reimbursement-of-cost transactions, expenses which are incurred by the advancing party for the benefit and for the account of the party accommodated, can be considered reimbursable expenses not forming part of gross receipts of the advancing party subject to tax. Since the party seeking reimbursement does not sell, barter, exchange, nor lease any food or property and neither does it render any service to the party accommodated, the reimbursement transactions are not subject to the twelve (12%) VAT. (VAT Ruling No. 026-97 dated April 1, 1997) The mere collection of purely reimbursable cost billed, for instance, in the name of a client but collected through a broker or agent shall not be subject to the 12% VAT provided that such fact of reimbursement is clearly shown in the billing and/or official receipt (VAT Ruling No. 048-97 dated July 11, 1997) and being reimbursement of expenses without any mark-up or profit element (BIR Ruling No. 001-90 dated January 4, 1990) and not charges for services, should not be considered as part of gross receipt for purposes of the EWT. (BIR Ruling No. 129-92 dated April 20, 1992) In view of all the foregoing, this Office is of the considered opinion that receipts of mere reimbursement of cost with no mark-up or profit element of utility charges paid in behalf and for the account of the tenants/members and not being charges for sale of goods or services, shall not form part of GOLDRICH MANSION's gross income subject to the EWT and the 12% VAT. (BIR Ruling No. 362-08 dated June 13, 2008) ScAHTI 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service