Central Multi-Purpose Cooperative

April 16, 2008 BIR RULING [ECCP-048-08] R.A. 6938; ECCP-02-2002 Central Multi-Purpose Cooperative BSCI Compound, Balayan, Batangas Attention: Ms. Leila G. Depusoy Chairman Gentlemen : This refers to your letter dated April 4, 2008, requesting for a tax exemption under the provisions of R.A. No. 6938, otherwise known as the Cooperative Code of the Philippines. SAcCIH It appears that CENTRAL MULTI-PURPOSE COOPERATIVE (CEMCO) is a multipurpose cooperative with Certificate of Registration No. LGA-2315 dated January 16, 1996 from the Cooperative Development Authority (CDA); that the objectives and purposes for which you are formed are those stated in the Articles of Cooperation; and that you have submitted to this Office in support of your 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 and BIR; (2) Articles of Cooperation and By-laws; and (3) Certificate of Good Standing from the CDA. Based on the foregoing, CENTRAL MULTI-PURPOSE COOPERATIVE (CEMCO) is exempt from income tax on income from operation, pursuant to Article 61 of R.A. No. 6938. Moreover, under Section 109 paragraph (M) of the Tax Code of 1997, as amended by R.A. 9337, a multi-purpose cooperative duly registered with the CDA is exempt from VAT on gross receipts from lending activities. It is also exempt from the 3% gross receipts tax under Section 116 of the same Code. Finally, it is not liable to pay the annual registration fee of P500.00 imposed under Section 236 (B), also of the Tax Code of 1997, but it is not exempt from registration. However, the cooperative is liable to pay the 12% VAT billed to it on its purchases of goods and services because the 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 it 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 currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines and the interest income it derives from a depository 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. The cooperative shall also be taxed on capital gains realized on sales or exchanges 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 withholding tax provided for in Sections 57 of the Tax Code of 1997. Furthermore, said members shall be taxed on prizes, winnings and capital gains realized on sales or exchanges of properties. TSacID Finally, it is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement and Balance Sheet with the 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 of income. A copy of this letter of exemption must be attached to the Annual Information Return, which it will file on or before 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 the purpose 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 Section 235 of the Tax Code of 1997. (BIR Ruling No. ECCP-17-2001 dated July 30, 2001) Finally, since CENTRAL MULTI-PURPOSE COOPERATIVE (CEMCO) is a cooperative dealing with member's only, the exemption from income tax shall continue even after the 10 year period reckoned from January 26, 1996, the date of registration with the CDA, as erroneously interpreted in the first ruling issued by Revenue Region No. 9, San Pablo City. Such interpretation and application of the 10 year period shall apply only if the cooperative deals with both members and non-members. 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. ScCEIA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service