JOBPRO Multi-Purpose Cooperative

February 15, 2008 BIR RULING [ECCP-028-08] COOP; RR 20-2001 JOBPRO Multi-Purpose Cooperative Rizal Extension, Brgy. Cut-Cut Angeles City Attention: Mr. Napoleon C. Villacorta General Manager Gentlemen : This refers to your letter dated February 9, 2008 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". EHSADa It is represented that the JOBPRO Multi-Purpose Cooperative is registered with the Cooperative Development Authority (CDA) under Certificate of Registration No. PGA-4957 on February 13, 2004; that the objectives and purposes for which it was formed are those stated in its Articles of Cooperation and By-Laws; that it has submitted to this Office in support of its request, copies of the following documents, viz. : 1) Certificate of Registration; 2) Certification as to the Net Surplus and the accumulated General Reserve Fund; 3) List of Members and their share capital contribution; 4) Financial Statement duly audited by an independent Certified Public Accountant; 5) Certificate of Operation; 6) and Other pertinent documents. In reply, please be informed of Article 62 of R.A. 6938, quoted hereunder, to wit: "Art. 62. Tax and other Exemptions. Cooperatives transacting business with both members and non-members shall not be subject to tax on their transaction to members. Notwithstanding the provisions of any law or regulations to the contrary, such cooperatives dealing with non-members shall enjoy the following exemption: (1) Cooperatives with accumulated reserves and undivided net savings of not more than ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales tax or compensating tax on their importation of machinery, equipment, and spare parts, used by them and which are not available locally as certified by the Department of Trade and Industry. All tax-free importations shall not be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay the amount of the tax and/or duties thereon." Likewise, Sec. 3 of Revenue Regulations No. 20-2001 dated November 12, 2001 provides viz. : "Sec. 3. Exemption from Taxes. Taxability/exemption of duly registered cooperative dealing/transacting business with both members and non-members: 1. For cooperative 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 Section 3.1 of these Regulations." From the foregoing, a cooperative dealing with both members and non-members is entitled to the exemptions provided therein on conditions that its accumulated reserves and undivided net savings have not reached the threshold of P10 Million. If the accumulated reserves and undivided net savings exceed the threshold of P10 Million, the cooperative shall be exempt from income tax for a period of ten (10) years only counted from the dated of registration with the CDA. Provided, further, that at least twenty-five percent (25%) of the net income of the cooperative is returned to the members in the form of interest and/or patronage refund. [Par. 3.2 (II) (a), Section 3 of RR No. 20-2001]. TcSaHC Considering that your cooperative has complied with the conditions sine qua non provided under Revenue Regulations No. 20-2001 dated November 12, 2001, which is the Regulations Implementing Articles 61 and 62 of R.A. 6938, and that its accumulated reserves and undivided net savings do not exceed the threshold of P10 Million, this Office hereby grants this Certificate of Tax Exemption to JOBPRO Multi-Purpose Cooperative from payment of the following, to wit: 1. Income Tax on income from operations; 2. Value-added Tax (VAT) under Section 109 par. (M) of the Tax Code of 1997, as amended; 3. Percentage Tax 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; 5. Excise Tax under Title VI of the Tax Code of 1997, as amended; 6. Documentary Stamps Tax imposed under Title VII of the Tax Code of 1997, as amended, provided, however, that the other party to the taxable document/transaction who is not exempt shall be the one directly liable for the tax; 7. Annual Registration Fee of P500.00 under Section 236 (B) of the Tax Code of 1997, as amended. 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 Tax Code of 1997, including the tax on earnings derived from their capital contribution. The proper taxes shall be paid or withheld in the following cases: 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 imposed under Section 27 (D) (1) of the Tax Code of 1997, as amended. 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, as amended, or if it makes income payments to individuals or corporations subject to Expanded Withholding Tax provided for in Section 57 (B) of the Tax Code, as amended, and as implemented by Revenue Regulations No. 2-98, as amended. 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 Articles 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, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. 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 and null and void. SHDAEC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service