UCPB Bldg. Condominium Corporation

July 10, 2009 BIR RULING [DA-(C-123) 362-09] RR 8-2005; DA-390-2006 UCPB Bldg. Condominium Corporation UCPB Building, Makati Avenue Makati City Attention: Joel L. Nambatac Accountant Gentlemen : This refers to your letter dated May 6, 2009 stating that UCPB Condominium Corporation (UCC) is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission (SEC); that the primary purpose for which it was organized is to own or hold title to the common areas of the UCPB Building Project; and that you now request for an exemption from the withholding of taxes in connection with the refund of the excess utility payments of UCC from MERALCO pursuant to Revenue Regulations (RR) No. 8-2005. In reply, please be informed that in BIR Ruling No. DA-097-2006 dated March 8, 2006, this Office ruled as follows: "Furthermore, the refund that pertains to the excess utility payments made during the period when SPC was on an ITH is not subject to the 5% gross income tax. SPC will not have any tax benefit from the refund of the excess utility payments. . . . This situation is analogous to the situation in BIR Ruling No. 076-89 dated April 17, 1989, where the BIR said that "the waiver of interest by the banks on non-trade and trade related indebtedness of GMPI is not subject to income tax considering that the deduction of said interest as expense in prior years did not offset nor reduce the taxable income of GMPI since it was in a financial loss position even without the deduction. ( Barnhart-Marrow Consolidated vs. Commissioner of Internal Revenue , 47 BTA 590) (Emphasis supplied). When a creditor cancels a debt as part of a business transaction, the debtor is enriched or its net assets has been increased and, therefore, he realized taxable income ( Philippine Fiber Processing Co. vs. CIR, CTA Case No. 1407, December 29, 1966). However, a transaction whereby nothing of exchangeable value comes to or is received by a taxpayer does not give rise to or create taxable income. ( Dallas Transfer and Terminal Warehouse Co. vs. Commissioner of Internal Revenue 5 Cir. 70 F 2d 95, 13 AFTR 930). Accordingly, the condonation of GMPI's indebtedness by GM-US is not subject to income tax since before and after the condonation GMPI remains insolvent, i.e., in a capital deficiency position. . . ." Thus, SPC is exempt also from the 5% gross income tax under R.A. No. 7916 since the refund of excess utility payments in its favor will not give rise to or create a taxable income." (Emphasis supplied) DTSaIc Later, in BIR Ruling No. DA516-2006 dated August 25, 2006, this Office in reiterating the above-cited ruling, likewise ruled that "Applying the foregoing in the instant case, and considering that BITCAI is an organization exempt from income tax and it has not been engaged in any profitable activities that would result in the imposition of taxes, thereby it has not claimed the above utility payments as deductions for income tax purposes, the refund of the excess utility payments in its favor, therefore, will not give rise to or create a taxable income. Consequently, said refund is not subject to the withholding tax prescribed under Revenue Regulations No. 8-2005. . . ." At this juncture, observation has to be made of the fact that since UCC is exempt from income tax, it did not benefit from the utilities expense which it incurred. The receipt of the refund from MERALCO will not give rise to a taxable transaction, as UCC did not receive anything of exchangeable value from it. SUCH BEING THE CASE, this Office hereby confirms your opinion that the refund which UCPB Condominium Corporation will receive from MERALCO is not a taxable event and therefore NOT subject, to income tax, and consequently, to withholding tax. 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