First E-Bank Tower Condominium Corporation

July 31, 2009 BIR RULING [DA-(C-162) 427-09] Sections 105 and 116; DA-292-07, DA (C-040) 148-2008, DA-304-2004 and DA-(VAT-013) 275-08 First E-Bank Tower Condominium Corporation BDO Plaza 8737 Paseo de Roxas, Makati City 1209 Attention: Engr. Oliver B. Puntil Building Manager Gentlemen : This refers to your letter dated October 8, 2007 requesting of a ruling on the following issues: 1. Whether or not the withholding tax on the association dues, utilities and special assessments collected from the unit owners shall be applied; 2. Whether or not First e-Bank Tower Condominium Corporation (FeBTCC) is accountable for percentage tax on the association dues, utilities and special assessment collected from unit owners; and 3. Whether or not FeBTCC is liable for value-added tax on such association dues. It is represented from the documents submitted that FeBTCC (formerly PDCP Bank Building Condominium Corporation) is a non-stock, non-profit corporation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A1997-4086, whose membership is composed of unit owners of the condominium. The corporation was constituted pursuant to the provisions of Republic Act (RA) No. 4726, otherwise known as "The Condominium Act". FeBTCC was established the principal purpose of which is to own or hold title to the common areas in the condominium project known and identified as PRODUCERS BANK CENTRE CONDOMINIUM PROJECT. Among its incidental purposes are to promote the best interest and well-being, as well as safeguarding the welfare of the owners, lessees and occupants of the condominium, to adopt such measures as may be necessary to achieve the objective, including but not limited to the maintenance, repair, sanitation and cleanliness of the common and/or limited common areas in the condominium. Because all the services provided, whether directly or indirectly, entail costs and expenses, FeBTCC is authorized to levy fees and charges that may be required or necessary for the maintenance of the Association and its activities. Regular billing of association dues, assessments and utilities are replenishments for costs and expenses incurred by the association. In reply, please be informed that income earned by a 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 are 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 FeBTCC 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, pursuant to Section 105 of the Tax Code of 1997, VAT is collected upon any person, who in the course of business, sells, barters, exchanges, leases goods or properties or renders services. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. On the other hand, Section 116 of the Tax Code of 1997 subjects to the 3% percentage tax "any person whose sales or receipts are exempt under Section 109 (z) [now Section 109 (V)] of this Code from the payment of value-added tax and who is not a VAT-registered person. . . ." The 12% VAT or the 3% percentage tax, whichever is applicable, is a tax on the business transaction or activity and is an indirect tax which the seller may pass-on or shift to the customer who ultimately bears or assumes the burden of the tax. Considering that the Association does not sell, barter, exchange, lease goods or property and neither does it render service for a fee but merely implements the administration of the required services to collect the association dues from the unit owners pursuant to its corporate purposes as "trustee" for the fund thereof, it is not subject to VAT or percentage tax on such receipts of the above "collections" (BIR Ruling DA-292-07 dated May 10, 2007 citing BIR Ruling No. DA-426-2004 dated August 10, 2004 and BIR Ruling No. DA-362-2000 dated October 23, 2000). The Association only acts as the collecting agency to pool the respective shares of the unit owners and merely implements the administration of the required services pursuant to its corporate purposes as trustee of the funds thereof for payment of common expenses, hence, not subject to VAT (BIR Ruling DA-(VAT-013) 275-08 dated October 5, 2008). 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