BIR Ruling No. 145-13

April 12, 2013 BIR RULING NO. 145-13 Sec. 27 (A) of the Tax Code of 1997 as amended; RMC 65-2012 Pryce Center Condominium Corporation 1179 Chino Roces Avenue Corner Bagtikan Street Brgy. San Antonio, Makati City Attention: Maria Andrea S. Go Building Manager Gentlemen : This refers to your letter dated 17 August 2012 requesting on behalf of PRYCE CENTER CONDOMINIUM CORPORATION for the issuance of a Certification of Tax Exemption pursuant to Section 30 (H) of the Tax Code of 1997, as amended. ATDHSC It is represented that PRYCE CENTER CONDOMINIUM CORPORATION, with Taxpayer's Identification Number (TIN) 201-679-074, is a non-stock, non-profit condominium corporation duly organized under the provision of Republic Act (RA) No. 4726, otherwise known as "The Condominium Act" and other pertinent laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. A199805285 dated November 18, 1998; and that among the purposes for which it was incorporated are the following: 1) "To exist as a beneficiary association operating for the exclusive benefit of the members of the Corporation"; 2) "To hold title to the common areas (as defined in the Master Deed with Declaration of Restrictions) of the condominium building in the PRYCE CENTER CONDOMINIUM PROJECT (the "Project") located in Pasong Tamo and Bagtikan Streets, Makati City on the property covered by Transfer Certificates of Title Nos. 127714 and 130947 of the Registry of Deeds for Makati City and brought within the operation of the Condominium Act by virtue of a Master Deed with Declaration of Restrictions, known as Doc. No. 246, Page No. 73, Book No. I, Series of 1998 of the Notarial Register of Noel Cozon Segovia (the "Deed") and executed by DMCI Project Developers, Inc. (the "Developer")"; and 3) "To levy and collect assessments from unit owners proportionate to the area of ownership and in accordance with the sharing scheme provided for in the Deed for the constitution of a working fund or capital that will be used in the operation of the condominium and which fund shall replenish thru regular billing sent to unit owners for their proportionate share of the condominium expenses." In reply thereto, please be informed that while it is stated in its Articles of Incorporation and By-laws that PRYCE CENTER CONDOMINIUM CORPORATION is a non-stock, non-profit condominium corporation created pursuant to RA 4726, however, it is not among those corporations contemplated under Section 30 of the Tax Code of 1997, as amended, since a condominium corporation is not those enumerated as exempt from the payment of income tax. Hence, the income earned by PRYCE CENTER CONDOMINIUM CORPORATION is subject to the regular corporate income tax imposed by Section 27 (A) of the same Code. Revenue Memorandum Circular (RMC) No. 65-2012 discussed the taxability of association dues, membership fees, and other assessments/charges collected by condominium corporations from its members, tenants and other entities, herein quoted as follows: AIHaCc "I. Income Tax The amounts paid in as dues or fees by members and tenants of a condominium corporation form part of the gross income of the latter subject to income tax. This is because a condominium corporation furnishes its members and tenants with benefits, advantages, and privileges in return for such payments. For tax purposes, the association dues, membership fees, and other assessments/charges collected by a condominium corporation constitute income payments or compensation for beneficial services it provides to its members and tenants. The previous interpretation that the assessment dues are funds which are merely held in trust by a condominium corporation lacks legal basis and is hereby abandoned. Moreover, since a condominium corporation is subject to income tax, income payments made to it are subject to applicable withholding taxes under existing regulations. II. Value-Added Tax (VAT) Association dues, membership fees, and other assessments/charges collected by a condominium corporation are subject to VAT since they constitute income payment or compensation for the beneficial services it provides to its members and tenants. Section 105 of the National Internal Revenue Code of 1997, as amended, provides: "SEC. 105. Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. xxx xxx xxx The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) , or government entity." (Emphasis supplied) The above provision is clear even a non-stock, non-profit organization or government entity is liable to pay VAT on the sale of goods or services. This conclusion was affirmed by the Supreme Court in Commissioner of Internal Revenue v. Court of Appeals and Commonwealth Management and Services Corporation , G.R. No. 125355, March 30, 2000. In this case, the Supreme Court held: aSTECA "(E)ven a non-stock, non-profit organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. The definition of the term "in the course of trade or business" present law applies to all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services. Sec. 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project." On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 emphasizing that a domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax. Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only , without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT. " CaHAcT Accordingly, the gross receipts of condominium corporations including association dues, membership fees, and other assessments/charges are subject to VAT, income tax and income payments made to it are subject to applicable withholding taxes under existing regulations." In view of the foregoing, your request for the issuance of a Certificate of Tax Exemption pursuant to Section 30 (H) of the Tax Code of 1997, as amended, is hereby denied. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue