Medical Plaza Makati Condominium Corporation

October 19, 2009 BIR RULING [DA-(C-239) 612-09] Sections 32 & 105; BIR Ruling Nos. DA-362-2000 & DA-426-2004 Medical Plaza Makati Condominium Corporation Amorsolo cor. Dela Rosa Streets Legaspi Village, Makati City Attention: Engr. Jhun L. Brotarlo Building Manager Gentlemen : This refers to your letter dated August 27, 2009 requesting for a ruling on whether association dues, utilities, special assessments and others collected from the unit owners are subject to withholding tax, percentage tax and value-added tax. aDCIHE As represented, you are a non-stock, non-profit corporation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A1996-07010 dated October 16, 1996. Your membership is composed of unit owners of the condominium organized and operated for, among others, the following purposes: To hold in ownership the common areas in the condominium project known as the Medical Plaza Makati pursuant to the provisions of the Condominium Act (RA 4726); To manage, administer, maintain and preserve in good and habitable conditions the project and to promote the welfare and safety of all the occupants therein in accordance with the provisions of the Master Deed with Declaration of Restrictions and the pertinent laws thereto; To levy and collect association dues or assessments from all unit owners proportionate to the area owned and in accordance with the sharing scheme expressed in the Master Deed with Declaration of Restrictions; To fix, levy, collect and enforce payment by any lawful means all charges or assessments as provided for in the Master Deed with Declaration of Restrictions; to pay all expenses in connection therewith and incidental to the performance of the functions of the corporation including but not limited to the payment of licenses, taxes, government assessments, fees, special assessments chargeable to the project, the common areas or the corporation; and To contract for the services of persons or firms, to assist in the management and operation of the project, including administrative, legal, accounting, engineering and other professional and technical services, and to contract with any person, firm or association for the maintenance, utility, gardening and other services benefiting the common areas. You were 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 by adopting such measures as may be necessary to achieve the said objective, including but not limited to common areas in the condominium. Because all the services provided, whether directly or indirectly, entail costs and expenses, you are authorized to levy fees and charges that may be required or necessary for the maintenance of the Association and its activities. To implement the administration of the above responsibilities, the Association collects from unit owners the following: cSTDIC 1) Regular Assessments for Operating Expenses assessed against each unit member, in proportion to their appurtenant proprietary interest or percentage participation in the corporation i.e. , cost of insurance policies against loss by fire and other casualty risks, cost of maintenance and ordinary repairs and of utilities and other services benefiting the common areas, fees and/or salaries of managerial, legal, accounting, engineering and other professional or technical personnel or entities employed to assist in the management of the condominium; 2) Regular Assessments for Capital Expenditures on the Common Areas (annual assessment) i.e. , the cost of extraordinary repairs, reconstruction or restoration necessitated by damage, depreciation, obsolescence, expropriation or condemnation, cost of improvements; and 3) Special and Other Assessments and condominium dues as are specifically provided for in the Master Deed with Declaration of Restriction of the project. In reply, please be informed that since your receipts of association dues and other assessments/charges collected from the members are merely held in trust and used solely for administrative expenses in order to protect and safeguard the welfare of the owners, lessees and occupants of the property, provide utilities and amenities, the maintenance of services and management, and which you could not realize any gain or profit as a result of your receipt thereof, the dues, assessments and charges are not includible in your gross income. Accordingly, the aforesaid collections used solely for administrative expenses in implementing your corporate purposes are not subject to income tax or any withholding tax. Pursuant to Section 105 of the National Internal Revenue Code, VAT is collected upon any person, who in the course of business, sells, barters, exchanges, leases goods or properties, 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. Accordingly, your receipts of the aforesaid "collections" are exempt from the VAT since you do not sell, barter, exchange, lease goods or property or render service for a fee in accordance with Section 105 of the NIRC but only acts as collecting agency to pool the respective shares of the members of the Association and merely implement the administration of the required services pursuant to your corporate purposes as trustee of the funds thereof for payment of common expenses (BIR Ruling No. DA-362-2000 dated October 23, 2000 and BIR Ruling No. DA-426-2004 dated August 10, 2004). However, should you engage in business for profit, any profit realized from such activities is subject to income tax and to the 12% VAT or 3% percentage tax, as the case may be. 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. DHcEAa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service