Zervelen Multi-Purpose Cooperative

January 18, 2008 BIR RULING [ECCP-009-08] R.A. 6938; ECCP-10-2000; ECCP-004-2005 Zervelen Multi-Purpose Cooperative Dayatar Industrial Park, Bldg. 5, Barangay Pulong Sta. Cruz, City of Sta. Rosa, Laguna Attention: Messrs. Elenita A. Mallano Chairman Zenaida P. Ortega Vice Chairman Gentlemen : This refers to your letter dated August 1, 2007, requesting for a tax exemption under the provisions of R.A. No. 6938, otherwise known as the Cooperative Code of the Philippines. aCSTDc It is represented that the Zervelen Multi-Purpose Cooperative is a multi-purpose cooperative with Certificate of Registration No. LGA-6719 dated September 1, 2006 from the Cooperative Development Authority (CDA); that the objectives and purposes for which it was formed are those stated in the Articles of Cooperation; and that it has submitted to this Office in support of its request and in compliance with Section 8 of Revenue Memorandum Circular No. 48-91 dated June 18, 1991 the following documents, viz. : (1) Certificate of Registration from the CDA; (2) Articles of Cooperation and By-laws; (3) Articles of Cooperation; and (4) Certificate of Good Standing. In reply, please be informed that Section 3.2 of Revenue Regulations No. 20-2001 dated November 12, 2001 provides: "SEC. 3. Exemption from Taxes. xxx xxx xxx 3.2 Taxability/Exemption of duly registered cooperatives dealing/ transacting business with both members and non-members: I. For cooperatives with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) a. Exemption from all national internal revenue taxes for which they are directly liable, as enumerated under Sec. 3.1 of these Regulations." Based on the foregoing, you are exempt from the ordinary income tax on your transactions with both members and non-members for a period of ten (10) years effective September 1, 2006, your date of registration with the Cooperative Development Authority, pursuant to Article 62 of the Cooperative Code or until September 1, 2016. Thereafter, your income tax exemption shall be limited to business transactions/dealings with members only. Provided further, that income tax exemption is still applicable to business transaction with non-members if the accumulated reserves or undivided net savings is not more than Ten Million Pesos. On the other hand, if the accumulated reserves or undivided net savings after the lapse of the above ten-year period is more than P10 Million you shall be liable to income tax. (Section 62 of R.A. 6938) Moreover, you are exempt from the value-added-tax (VAT) under Section 109 (M) of the Tax Code of 1997 on your gross receipts from your lending activities. You are also exempt from the payment of the 3% percentage tax and the annual registration fee of P500, respectively imposed under Sections 116 and 236 (B) of the same Tax Code, but you are not exempt from registration. However, you are also liable to pay the 12% VAT billed to you on your purchases of goods and services because said tax is an indirect tax which can be passed on or shifted as part of the cost of the goods sold/services rendered. In case you will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in his income tax return for tax purposes. Furthermore, your interest income from currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines and interest income you derive from a depositary bank under the expanded foreign currency deposit system shall be subject to the 20% and 7.5% final tax, respectively, imposed under Section 27 (D) (1) of the Tax Code of 1997. You shall also be taxed on capital gains realized on sales or exchanges of property. IDESTH It is emphasized, however, that the exemption of the cooperative does not extend to the individual members thereof. Moreover, the cooperative shall be constituted as a withholding agent if it acts as an employer and its employees receive compensation income subject to withholding tax provided for in Section 57 of the Tax Code of 1997. Furthermore, said members shall also be taxed on prizes, winnings and capital gains realized on sales or exchanges of properties. Finally, you are required to file on or before the 15th day of the fourth month following the close of your accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating your gross income and expenses incurred during the year and a certificate showing that there has not been any change in the By-Laws, Articles of Cooperation, manner of activities as well as sources and disposition of income. A copy of this letter of exemption must be attached to the Annual Information Return which you will file on or before said date. It is of course understood that your books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purposes of ascertaining whether you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. (BIR Ruling No. UN-ECCP-064-95 dated August 29, 1995 cited in BIR Ruling No. UN-ECCP-009-96 dated February 28, 1996) 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 void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service