2FSU Multi-Purpose Cooperative, Inc.

June 19, 2008 BIR RULING [ECCP-068-08] R.A. 6938; ECCP-028-2007 2FSU Multi-Purpose Cooperative, Inc. Finance Hill, Camp Melchor F. de la Cruz Upi, Gamu, Isabela Attention: Edgar T. Anog Chairman, 2FSU Coop Gentlemen : This refers to your letter dated November 11, 2005 addressed to the Chief, Legal Division, Revenue Region No. 3, Tuguegarao City, requesting for tax exemption under the provisions of Republic Act (R.A.) No. 6938, otherwise known as the Cooperative Code of the Philippines. TSEHcA It appears that 2FSU MULTI-PURPOSE COOPERATIVE, INC. is a multi-purpose cooperative duly registered with the Cooperative Development Authority (CDA) under Certificate of Registration No. TUG-1204 dated May 08, 1996; that it transacts business with members only; that it was issued a Certificate of Good Standing by the CDA dated October 27, 2005; that the objectives and purposes for which the cooperative was formed are the following: 1. To encourage thrift and savings mobilization among members; 2. To provide quality consumer goods and services and loans to the members; 3. To promote the cooperative as a way of life for improving the social and economic well-being of the people; 4. 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; and 5. 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 (RMC) 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) List of Members; (4) Certificate of Good Standing from the CDA; and (5) Other pertinent documents. 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. DHEcCT In applying the foregoing provisions and considering that 2FSU MULTI-PURPOSE 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, 2FSU MULTI-PURPOSE 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. ISHaTA 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. 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. IDCHTE 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