Guidelines for Renewal of Certificate of Tax Exemption by Multi-Purpose Cooperative

February 22, 2001 BIR RULING NO. 006-01 Nabunturan Integrated Cooperative Nabunturan, Compostela Valley Province Attention: Ms . Lydia C . Benedicto General Manager Gentlemen: This refers to your request for the renewal of your Certificate of Tax Exemption previously granted by this Office under BIR Ruling No. ECCP-No. 072-95 dated October 11, 1995. It appears that you are a multi-purpose cooperative registered with the Cooperative Development Authority (CDA) with Certificate of Registration No. 237 dated January 31, 1991; that the cooperative is transacting business with members only; that you were issued by this Bureau BIR Ruling No. ECCP-072-95 dated October 11, 1995 exempting you from all taxes and fees imposed under the internal revenue laws and other tax laws pursuant to Article 61 of the Cooperative Code, for a period of ten (10) years reckoned from March 10, 1987, the date of effectivity of E.O. No. 93; and that your aforesaid tax exemption expired on March 10, 1997. In reply, please be informed that after a restudy of the said BIR Ruling No. ECCP-072-95, this Office finds the same to be erroneous in so far as the expiry period of your tax exemption is concerned. Section 61 of RA 6938 (Cooperative Code) specifically provides that a cooperative registered with the Cooperative Development Authority dealing with members only shall be exempt from income tax. As a cooperative duly registered under the provisions of R.A. No. 6938 with Certificate of Registration No. 237 issued by the CDA on January 31, 1991, your exemption from income tax imposed under the National Internal Revenue Code did not expire on March 10, 1997 as erroneously stated in BIR Ruling No. ECCP-072-95. In fine, until today, your cooperative continues to be exempt from income tax on its income from as a cooperative. Moreover, under Section 109 paragraphs (r) (t) and (u) of the Tax Code of 1997, a multi-purpose cooperative like you which is duly registered with the CDA and dealing with members only is exempt from VAT on the following: 1. Sale of agricultural products, whether in its original state or processed form, and importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce; 2. Gross receipts from lending activities; and 3. Sales of items other than your agricultural products, Provided, That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15,000.00) and regardless of the aggregate capital and net surplus ratably distributed among the members. You are also exempt from the 3% gross receipts tax under Sec. 116 of the same Code. Finally, you are not liable to pay the annual registration fee of P500.00 imposed under Section 236 (B), also of the Tax Code of 1997 but, however, you are not exempt from registration. However, you are liable to pay the 10% VAT billed to you on your purchases of goods and services because 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 tax return for tax purposes. 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 also 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 15 th 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. UN-ECCP-064-95 dated August 29, 1995, cited in BIR Ruling No. UN-ECCP-009-96 dated February 28, 1996) IcDESA This ruling is issued on the basis of the foregoing representations. 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.) RENE G. BAEZ Commissioner of Internal Revenue