Oro Integrated Cooperative, Inc.

May 19, 2008 BIR RULING [ECCP-061-08] R.A. 6938; ECCP-028-2007 Oro Integrated Cooperative, Inc. Tiano-Yacapin Streets, Cagayan de Oro City Attention: Raul M. Pregon Chief, Executive Officer Gentlemen : This refers to your letter dated February 19, 2008 requesting for a tax exemption under the provisions of Republic Act (R.A.) No. 6938, otherwise known as the Cooperative Code of the Philippines. IHcSCA It appears that Oro Integrated Cooperative, Inc. is a multi-purpose cooperative duly registered with the Cooperative Development Authority (CDA) under Certificate of Registration No. FF-121-RR dated June 10, 1975 with Confirmation of Registration No. 280 dated February 05, 1991; that it transacts business with members only; that it was issued a Certificate of Good Standing by the CDA dated September 13, 2007; that the objectives and purposes for which it was formed are the following, viz. : 1. To increase the income and purchasing power of the members; 2. To pool the resources of the members by encouraging savings and promoting thrift to stimulate capital formation for development activities; 3. To extend loans to members for provident and productive purposes; 4. To advance the cooperative movement as a technique for improving the economic and social status of the people; 5. To cooperate with the government of the Philippines, its instrumentalities, in the execution of government policies which will redound to the benefit of the general public; 6. To undertake continuous cooperative education for its members, directors, committee men, officers and employees as well as the general public in the principle and technique of cooperation both economic and democratic; 7. To cooperate with other Cooperatives in establishing provincial, regional or national Federations for any of the purpose or purposes for which the Cooperative is formed and to become a member of such Federations as may hereafter organized; 8. To conduct publicly and/or research work for the promotion of the cooperative movement for this purpose to issue from time to time suitable publication or literature on cooperatives; 9. To undertake any lawful, related activity for the members self government, social growth and economic independence under a truly just and democratic society; 10. To establish and operate one or more branches and subsidiaries within its area of operation; and 11. To purchase, acquire, own, lease, sell and convey real properties such as Lands, Buildings, Factories and Warehouses and Machineries, Equipment and other Personal Properties as may be necessary or incidental to the conduct of its business. and that it has submitted to this Office in support of its request and in compliance with Section 8 of Revenue Memorandum Circular (RMC) No. 48-91 dated June 18, 1991, the following documents, viz. : (1) Certificate of Confirmation from the CDA; (2) Articles of Cooperation and By-laws; (3) List of Members; (4) Certificate of Good Standing from the CDA; and (5) Other pertinent documents. cCTaSH In reply, please be informed that Section 3.1 of Revenue Regulations No. 20-2001 dated November 12, 2001 provides: "SEC 3. EXEMPTION FROM TAXES xxx xxx xxx 3.1 Duly registered cooperatives dealing/transacting business with members only 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; d. Donor's tax on donations to duly accredited charitable, research and educational institutions and reinvestment to socio-economic project within the area of operation of the cooperatives; e. Excise Tax under Title VI of the Tax Code of 1997; f. Documentary Stamp 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 g. Annual Registration Fee of P500.00 under Section 236(B) of the Tax Code of 1997 but, however, the said cooperative is not exempt from registration with the BIR. In applying the foregoing provisions and considering that Oro Integrated Cooperative, Inc. accumulated reserves and undivided net savings are not more than Ten Million Pesos (P10,000,000.00) and it is dealing/transacting with members only, it shall be exempt from all national internal revenue taxes for which it is directly liable as provided in Section 3.1 of RR No. 20-2001. Said tax exemption shall be effective during the existence of the said cooperative. However, Oro Integrated Cooperative, Inc. 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 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, 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. IHCSET 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, as amended. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service