Granex Employees Multi-Purpose Cooperative

May 29, 2008 BIR RULING [ECCP-062-08] R.A. 6938; ECCP-02-2002 Granex Employees Multi-Purpose Cooperative Granex Compound, Kiwalan Iligan City Attention: Mr. Roger C. Omongos Chairman 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. aCHDAE It appears that GRANEX EMPLOYEES MULTI-PURPOSE COOPERATIVE is a multipurpose cooperative with Certificate of Registration No. CGY-402 dated September 12, 1991 from the Cooperative Development Authority (CDA); that the objectives and purposes for which it is formed are as follows: 1) To encourage thrift and savings mobilization among the members for capital formation; 2) To create funds in order to grant loans for productive and providential purposes to its members; 3) To provide goods and services and other requirements of the members; 4) To engage in transportation, housing and market management; 5) To promote cooperative as a way of life for improving the social and economic well-being of the people; 6) To do any related activity for the members self-government, improve social and/or economic well-being under a truly just democratic society; 7) To work with the cooperative movement, non-government and government organization/entities in the promotion and development of cooperatives and in carrying out government policies; 8) To undertake other activities for the effective and efficient implementation of the provisions of the Cooperative Code; and that it has submitted to this Office in support of its 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; (2) Articles of Cooperation and By-laws; (3) Certification under oath of the list of members and the share capital contribution of each member; (4) Certificate of Good Standing from the CDA; and (4) Latest Audited Financial Statements. In reply thereto, please be informed that Section 3.2 (I) (a) of Revenue Regulations 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. : HTDCAS a. Income Tax on income from operations; b. Value-Added Tax (VAT) under Section 109 (M) of R.A. No. 9337; c. 3% Percentage Tax under Section 116 of the Tax Code of 1997, as amended; 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. No. 9337; f. Documentary stamp tax imposed under Title VII of the Tax Code of 1997, as amended by R.A. No. 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. No. 9337. However, you are not exempt from registration. DCcSHE However, you are liable to pay the 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. Furthermore, GRANEX EMPLOYEES MULTI-PURPOSE COOPERATIVE interest income from currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines and interest income it will derive from a depositary 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. It 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 also be taxed on prizes, winnings and capital gains realized on sales or exchanges of properties. SADECI Finally, GRANEX EMPLOYEES MULTI-PURPOSE COOPERATIVE 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 its books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the 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 Section 235 of the Tax Code of 1997. (BIR Ruling No. UN-ECCP-064-95 dated August 29, 1995 cited in BIR Ruling No. UN-ECCP-009-96 dated February 28, 1996) 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service