Bagong Bayan Development Cooperative

March 7, 2008 BIR RULING [ECCP-040-08] R.A. 6938; RR 20-2001 Bagong Bayan Development Cooperative #56 F. Villa Juanita, M. L. Quezon, Bagumbayan, Taguig City Attention: Mr. Samuel B. de Castro Chairman Sir : This refers to your letter dated May 28, 2007 requesting tax exemption under the provisions of Republic Act (R.A.) 6938, otherwise known as the Cooperative Code of the Philippines. TAcSCH It appears that the Bagong Bayan Development Cooperative is a primary non-agricultural multi-purpose cooperative registered with the Cooperative Development Authority (CDA) under Certificate of Registration No. P-621-6212 dated April 2, 2007; that the objectives and purposes for which it was formed are those stated in the Articles of Cooperation; and that you have submitted to this Office in support of your request the following documents, viz. : (1) Certificate of Registration from the CDA; (2) Articles of Cooperation and By-Laws; (3) Certificate of Good Standing; (4) Certification under oath of the list of members and their share capital contributions; (5) Certification under oath by the General Manager that the Cooperative is transacting business with members and non-members; and (6) Certification under oath that at least 25% of the net surplus will be returned to members in the form of interest on capital and a patronage fund. In reply, please be informed that Section 3.2 of Revenue Regulations (RR) 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 revenue taxes for which they are directly liable, as enumerated under Sec. 3.1 of these Regulations." Based on the foregoing, Bagong Bayan Development Cooperative is therefore exempt from the ordinary income tax on its transactions with both members and non-members for a period of ten (10) years effective on July 22, 1999, its date of registration with the Cooperative Development Authority, pursuant to Article 62 of the Cooperative Code or until July 21, 2009. Thereafter, its income tax exemption shall be limited to business transactions/dealings with members only. Provided further, that income tax exemption is still applicable to business transactions with non-members if the accumulated reserves or undivided net savings is not more than P10,000,000.00. 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 the Cooperative shall be liable to income tax (Sec. 62 of R.A. 6938). Moreover, Bagong Bayan Development Cooperative is exempt from the value-added tax (VAT) under Section 109 (M) of the Tax Code of 1997, as amended by R.A. 9337 on its gross receipts from its lending activities, and on its sales under Section 109 (N), as amended by R.A. 9337. It is also exempt from payment of the 3% percentage tax imposed under Section 116 and the annual registration fee of P500.00 imposed under Section 236 (B) of the same Tax Code, but the Cooperative is not exempt from registration. acHETI However, the Cooperative shall be subject to 12% VAT billed to it on its purchase of goods and/or 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. In case the Cooperative 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, 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 the 20% final tax while your interest income derived under the expanded foreign currency deposit system shall be subject to a final tax of 7 1/2% as imposed under Section 27 (D) (1) of the Tax Code of 1997, as amended. The Cooperative shall be taxed on prizes, winnings and gains realized on sales or exchange of property. 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 or if it makes income payment to individuals or corporations subject to the expanded withholding tax provided for in Section 57 (B) of the Tax Code of 1997, as amended, as implemented by Rev. Regs. No. 2-98, as amended. Finally, Bagong Bayan Development Cooperative is required to file on or before April 15 of each year a Profit and Loss Statement and Balance Sheet with its annual information return under oath, stating its 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 or income. A copy of this letter of exemption must be attached to the Annual Information Return which you will file on said date. It is of course understood that the Cooperative's books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for purposes of ascertaining whether it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its tax liability, if any pursuant to Sec. 235 of the Tax Code of 1997, as amended. (BIR Ruling No. ECCP-009-2003 dated December 2, 2003) 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, and/or any of the requirements set forth in this letter are not complied with, then this ruling shall be considered null and void. aAEIHC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service