Bayanihan Credit Cooperative

May 15, 2008 BIR RULING [ECCP-057-08] R.A. No. 6938; RR 20-2001; ECCP-002-2003 Bayanihan Credit Cooperative T. Asprer Street, San Nicolas Central, Agoo, La Union Attention: Mr. Romel Lopez Manager Gentlemen : This refers to your letter requesting for Tax Exemption under the provisions of R.A. No. 6938, otherwise known as the Cooperative Code of the Philippines. TAaHIE It appears that you are a credit cooperative with Certificate of Registration No. DAG-5093 dated December 18, 2007 from the Cooperative Development Authority (CDA); that the objectives and purposes for which you are formed are (1) to encourage thrift and savings mobilization among the members; (2) to create funds and grant loans to members for productive and providential purpose; and (3) to provide related services to enable its members to maximum benefits from such loans; that the amount of accumulated reserves and the undivided net savings of your Cooperative do not exceed P10,000,000.00; and that you have submitted to this Office in support of your request and in compliance with Revenue Regulations No. 20-2001 dated November 12, 2001 the following documents, viz. : (1) Certificate of Registration from CDA; (2) Articles of Cooperation and By-Laws; (3) Certificate under oath of the list of members and the share capital contribution of each member; (4) Certification under oath that the cooperative is transacting business with both members and non-members; and (5) Projected Financial Statements in 2008. In reply, please be informed that Section 3.2 (I) (a) of Revenue Regulations (RR) No. 20-2001, provides that duly registered cooperatives dealing/transacting business with both members and non-members and with accumulated reserves and undivided net savings of not more than Ten Million Pesos (P10,000,000.00) shall be exempt from paying the following taxes for which they are directly liable, viz. : a. Income Tax on income from operations; b. Value-Added Tax (VAT) under Section 109 par. (M) of Republic Act (R.A.) No. 9337; c. 3% Percentage Tax under Section 116 of the Tax Code of 1997, as amended by R.A. 9337; d. 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 cooperatives; e. Excise Tax under Title VI of the Tax Code of 1997, as amended by R.A. 9337; f. Documentary Stamp Tax imposed under Title VII of the Tax Code of 1997, as amended by R.A. 9337, 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 g. Annual Registration Fee of P500.00 under Section 236 (B) of the Tax Code of 1997, as amended by R.A. 9337. However, you are not exempt from registration. However, you are liable to pay the 10% (now 12%) VAT billed to you on your 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, you will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in his income return for tax purposes. aSAHCE 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 the interest income you derive 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. You 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 Section 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. 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 purpose 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. ECCP-002-2003 dated March 18, 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, 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