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

March 5, 2001 BIR RULING NO. 008-01 R.A. 6938 UN-ECCP-064-95; UN-ECCP-009-96 Los Angeles, Damoog & Manggabao Multi-Purpose Cooperative, Inc . (LADAMA MPCI) Los Angeles, Butuan City Attention: Mr . Manuelito C . Suan Acting General Manager Gentlemen : This refers to your request for a Certificate of Tax Exemption under the provisions of R.A. No. 6938, otherwise known as the "Cooperative Code of the Philippines." It appears that you are an agricultural multi-purpose cooperative with Certificate of Registration No. CGY-319 dated August 13, 1991; that the objectives and purposes for which you are formed are those stated in your Articles of Cooperation; and that you have submitted to this Office in support of your 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 Cooperative Development Authority; (2) Articles of Cooperation and By-laws; (3) Certification under oath that at least 25% of the net savings of the cooperative is returned to the members in the form of interest and patronage refund; and (4) Certification under oath that the cooperative is transacting business both with members and non-members. Based on the foregoing, you are exempt from the ordinary income tax on your transactions with both members and non-members for a period of ten (10) years effective August 13, 1991, your date of registration with the Cooperative Development Authority, pursuant to Article 62 of the Cooperative Code. Thereafter, your income tax exemption shall be limited to business transactions/dealings with members only. Provided further that income tax exemption is still applicable to business transactions with non-members if the accumulated reserves or undivided net savings is not more than Ten Million Pesos. On the other hand, if the accumulated reserves or undivided net savings after the lapse of the above ten-year period is more than P10 Million, you shall be liable to income tax. (Sec. 62 of RA 6938). Moreover, you are exempt from the value-added tax (VAT) under Section 109(r) of the Tax Code of 1997 on your sales to your members, as well as on the sale of your produce, whether in its original state or processed form, to non-members and on your 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 your produce. You are also exempt from the payment of the 3% percentage tax and the annual registration fee of P500 respectively imposed under Sections 116 and 236 (B) of the same Tax Code but, however, you are not exempt from registration. However, you are also 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 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. UN-ECCP-064-95 dated August 29, 1995, cited in BIR Ruling No. UN-ECCP-009-96 dated February 28, 1996) ISDCaT 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