Central Services Integrated Cooperative's Request for Amendment of BIR Ruling No. COOP(M-030) 11C-2009

August 25, 2010 BIR RULING NO. 032-10 Sec. 62 of RA 6938; VAT Ruling No. 027-00; VAT Ruling No. 061-02; BIR Ruling No. ECCP-02-2002; BIR Ruling No. COOP(M-030) 11C-2009 Central Services Integrated Cooperative Ground Floor, First Capitol Place Brgy. Kapitolyo, Pasig City Attention: Atty. Jose T. Alberto Legal Counsel Gentlemen : This refers to your letter dated February 26, 2009, requesting for an amendment of the previously issued ruling by this Office and remove all the restrictions and limitations contained in said ruling. HcISTE It appears that CENTRAL SERVICES INTEGRATED COOPERATIVE was issued BIR Ruling No. COOP(M-030) 11C-2009 dated February 18, 2009; that it submits that the tax exemption covers only the items of taxes specified on the third page of the letter, first paragraph; that it appears therefore in accordance with the issued ruling, that the cooperative is not exempt from other types of taxes; and that it invokes Section 62 of R.A. No. 6938, the tax exemption granted to cooperatives is not limited to those enumerated in the said ruling. In reply, we regret to inform you that your aforesaid request can not be granted for lack of legal basis. While Section 62 of Republic Act No. 6938 expressly exempts CENTRAL SERVICES INTEGRATED COOPERATIVE from taxes, this covers only direct taxes and not indirect taxes. In the absence of a tax exemption provision, no exemption can be granted by this Office. Exemptions from taxation are highly disfavored in law; and he who claims an exemption must be able to justify his claim by the clearest grant of organic or statute law. An exemption from taxation can not be permitted to exist upon vague implications. ( Davao Light and Power Co., Inc. vs. Comm. of Customs ,L-28731, 28902, March 29, 1972) In addition, the Joint Rules and Regulations implementing Republic Act No. 9520, particularly Sections 9, 10, and 11 as circularized by Revenue Memorandum Circular No. 12-10 dated February 5, 2010, provides: "SECTION 9. Taxability of Unrelated Income of Cooperative. Notwithstanding the foregoing, all income of cooperatives not related to the main/principal business/es under its Articles of Cooperation shall be subject to all the appropriate taxes under the NIRC, as amended. This is applicable to all types of cooperatives whether dealing purely with members or both members and non-members. SECTION 10. Taxability of Cooperatives to Other Internal Revenue Taxes. All cooperatives, regardless of classification shall be subject to: a) Capital Gains Tax from sale of shares of stock or sale, exchange or other disposition of real property classified as capital assets; b) Documentary stamp taxes on transactions of cooperatives dealing with non-members, except transactions with banks and insurance companies, Provided that whenever one party to the taxable document enjoys the exemption from DST, the other party who is not exempt shall be the one directly liable for the tax; c) VAT billed on purchases of goods and services, except the VAT on the importation by agricultural cooperatives 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, pursuant to Section 109(L) of the NIRC, as amended. All tax free importations shall not be transferred to any person until five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or the duties thereon; d) Withholding tax on compensation/wages, except in the case where an employee is a minimum wage earner; and creditable and final withholding taxes, if applicable. All cooperatives, regardless of classification, are considered as withholding agents on all income payments that are subject to withholding pursuant to the provisions of Revenue Regulations No. 2-98, as amended; and IDSETA e) All other taxes for which cooperatives are directly liable and not otherwise expressly exempted by any law. SECTION 11. Taxability of Members/Share Holders of Cooperatives. All members of cooperatives shall be liable to pay all the necessary internal revenue taxes under the NIRC, as amended, except for the following: a) Any tax and fee, including but not limited to final, tax on member's deposits or fixed deposits (otherwise known as share capital) with cooperatives, and documentary tax on transactions of members with the cooperative; and b) Patronage Refund which includes all refunds, returns or rebates of the net savings generated from the operation of the cooperative." Moreover, even if CENTRAL SERVICES INTEGRATED COOPERATIVE enjoys exemption from direct taxes, e.g. , income tax, still it cannot claim exemption from the 12% VAT on its purchases of goods/services. This is so, because VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services. (Section 105, Tax Code of 1997) Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue