Rufino Pacific Tower Condominium Corporation

August 18, 2009 BIR RULING [DA-(C-182) 468-09] R.A. 4726; DA-304-04; VAT Ruling No. 026-97 Rufino Pacific Tower Condominium Corporation 3rd Fl. Administration Office 6784 Ayala Ave. cor. V.A. Rufino St. Makati City Attention: Mr. Aldo Antonio Peaflorida Building Administrator Gentlemen : This refers to your letter dated October 17, 2007, requesting in effect for exemption from expanded withholding tax (EWT) and value-added tax (VAT) on your collection of association dues, utilities and special assessments collected from your unit owners. It appears that Rufino Pacific Tower Condominium Corporation (RPTCC) with Tax Identification No. (TIN) 003-826-564-000 is a non-stock, non-profit corporation with SEC Registration No. ANO94-000948 dated March 9, 1994. The primary purpose for which it was formed is to own or hold title to the common areas and all property rights of Rufino Pacific Tower Condominium Project, which has been constituted pursuant to the provisions of Republic Act (R.A.) No. 4726 known as the Condominium Act. R.A. 4726. RPTCC was established with the objective of promoting the best interest and well being, as well as safeguarding the welfare of the owners, lessees and occupants of the condominium, adopting 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, that because all the services provided, whether directly or indirectly entail costs and expenses, RPTCC is authorized to levy fees and charges that may be required or necessary for the maintenance of the association and its activities that regular billing of association dues, assessments and utilities are replenishments for costs and expenses incurred by the association. The amount in association dues was derived from the projected operating expenditures as reflected on RPTCC annual budget. In reply, please be informed that income earned by domestic corporations is subject to the thirty (30%) regular corporate income tax under Section 27 (A), as amended by Republic Act (R.A.) No. 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-126-00 dated February 24, 2000 and BIR Ruling DA-196-01 dated October 17, 2001). cHCIDE 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 and maintenance of the common areas for the benefit of the unit owners and from which RPTCC could not realize any gain or profit are not includible in RPTCC's gross income. Hence, the same is not subject to income tax and consequently to the 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 percent (12%) VAT. (VAT Ruling No. 026-97 dated April 1, 1997) The mere collection of purely reimbursable costs 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 RPTCC's gross income subject to the EWT and the 12% VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. HaIESC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service