CADP Consumers Cooperative

February 1, 2008 BIR RULING [ECCP-021-08] COOP; RR 20-2001 CADP Consumers Cooperative Lumbangan, Nasugbu, Batangas Attention: Mr. Rene Hinolan Chairman Gentlemen : This refers to your letter requesting, in effect, for a Certificate of Tax Exemption under the provisions of R.A. No. 6938, otherwise known as the "Cooperative Code of the Philippines". Documents submitted disclosed that CADP Consumer's Cooperative is registered with the Cooperative Development Authority (CDA) under Certificate of Registration No. MLA-C-488 on April 1, 1991; that the objectives and purposes for which it was formed are those stated in its Articles of Cooperation and By-Laws; that to support its request for exemption, copies of the following documents are submitted to this Office, viz. : 1) Certificate of Registration; 2) Copy of the Cooperative's By-Laws; 3) Certificate of Confirmation of Registration with the CDA; 5) * List of Members and their share capital contribution; 6) Financial Statement duly audited by an independent Certified Public Accountant; 7) Certification that the cooperative is transacting business with members only; 8) Certificate of Good Standing; and 9) Other pertinent documents. In reply, please be informed that under Article 61 of Republic Act No. 6938, "duly registered cooperatives which do not transact any business with non-members or the general public shall not be subject to any government taxes or fees imposed under the internal revenue laws and other tax laws." In conjunction with the foregoing, under Revenue Regulations No. 20-01 dated November 12, 2001, the Revenue Regulations implementing Articles 61 and 62 of Republic Act 6998, particularly Section 3 paragraph 3.1 thereof, duly registered cooperatives dealing/transacting with members only shall be exempt from paying the following taxes for which they are directly liable, viz. : 1. Income Tax on income from operations; 2. Value-added Tax (VAT) under Section 109 par. (N) of the Tax Code of 1997, as amended by R.A. 9337, as implemented by RR 16-2005, as amended, provided that the share capital contribution of each member does not exceed P15,000.00 and regardless of the aggregate capital and net surplus ratably distributed among the members; 3. Three Percentage Tax (3%) under Section 116 of the Tax Code of 1997, as amended; 4. Donor's Tax on Donations to duly accredited charitable, research and educational institutions, and reinvestment to socio-economic projects within the area of operation of the cooperative; cEaCAH 5. Excise Tax under Title VI of the Tax Code of 1997; 6. Documentary Stamps Tax imposed under Title VII of the Tax Code of 1997, provided, however, that the other party to the taxable document/transaction who is not exempt shall be the one directly liable for the tax; and 7. Annual Registration Fee of P500.00 under Section 236 (B) of the Tax Code of 1997. As a duly registered cooperative dealing or transacting business with members only, you are, therefore, entitled to the tax exemption privileges as provided for under the aforecited Section of Revenue Regulations No. 20-01. IT HAS TO BE EMPHASIZED, however, that the above-cited tax exemption privileges granted to a cooperative do not extend to its individual members. Thus, members of cooperatives are liable to pay all the necessary internal revenue taxes under the National Internal Revenue Code, including the tax on earnings derived from their capital contributions. Provided, however, that interests received by members of a cooperative with accumulated reserves and undivided net savings greater than Ten Million Pesos (P10,000,000.00), after the lapse of the ten-year exemptions under Sec. 3.2 (11) of Revenue Regulations No. 20-01 shall no longer be taxable in the hands of such members. In the following cases, however, the proper taxes shall be paid or withheld: 1. In case your cooperative will distribute interest on capital, such interest shall be taxable to the recipient member, and shall be declared in his individual income tax return for tax purposes (Sec. 4 (B) (u) of Revenue Regulations No. 6-97); 2. Its interest income from Philippine currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements, and royalties derived from sources within the Philippines shall be subject to 20% Final Tax and 7 1/2% tax on interest income under the expanded foreign currency deposit system imposed under Section 27 (D) (1) of the NIRC of 1997. It shall also be taxed on prizes, winnings and net gains realized on sales or exchange of property; 3. The cooperative shall be constituted as withholding agent if it acts as an employer and its employees received compensation income subject to withholding tax provided for in Section 79 of the Tax Code, or if it makes income payment to individuals or corporations subject to Expanded Withholding Tax provided for in Section 57 (B) of the Tax Code, and as implemented by Revenue Regulations No. 2-98, as amended; and ScCDET 4. 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 goods sold/services rendered. Further, you are requested to file on or before April 15 of each year a Profit and Loss Statement and Balance Sheet with Annual Information Return under oath, stating the cooperative's gross income and expenses incurred during the year, and a Certificate showing that there has not been any change in the By-Laws and Article of Cooperation, in its manner of activities, as well as resources and disposition of income. A copy of this Letter of Exemption must be attached to the Annual Information Return which you will file on said date. Finally, your Books of Accounts and other pertinent records shall be subject to periodical 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/ies, if any, pursuant to Section 235 of the Tax Code of 1997. In view of the foregoing, your request for tax exemption is hereby granted on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different from that as represented and/or any of the requirements imposed in this letter are not complied with, 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