BIR Ruling No. 169-12

March 9, 2012 BIR RULING NO. 169-12 R.A. 9520; RMC 12-10; 000-00 Coliling Farmer's Savings and Credit Cooperative 2nd Floor De Vera-Fernandez Bldg. Ilang District, San Carlos, Pangasinan Attention: Ma. Victoria F. de Vera Chairman Gentlemen : This refers to your letter dated May 18, 2011 indorsed by Undersecretary Carlo A. Carag, Revenue Operations and Legal Affairs Group, Department of Finance, requesting for a tax exemption on the final tax imposed on the cooperative's investment on 5.875% Government Bonds in the amount of Seven Thousand Eight Hundred Seventy Four and 80/100 (P7,874.80). In reply, Sections 60 and 61 of Republic Act No. 9520 entitled AN ACT AMENDING THE COOPERATIVE CODE OF THE PHILIPPINES TO BE KNOWN AS THE "PHILIPPINE COOPERATIVE CODE OF 2008" provides: "ART. 60. Tax Treatment of Cooperative. Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any taxes and fees imposed under the internal revenue laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section. SDIACc "ART. 61. Tax and Other Exemptions. Cooperatives transacting business with both members and non-members shall not be subjected to tax on their transactions with members. In relation to this, the transactions of members with the cooperative shall not be subject to any taxes and fees, including but not limited to final taxes on members' deposits and documentary tax. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions: "(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally a certified by the department of trade and industry (DTI). All tax free importations shall not be sold nor the beneficial ownership thereof be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the imposed tax and/or duties. "(2) Cooperatives with accumulated reserves and divided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate: "(a) Income Tax On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by members: Provided, further, That cooperatives regardless of classification, are exempt from income tax from the date of registration with the Authority; HCISED "(b) Value-Added Tax On transactions with non-members: Provided, however, That cooperatives duly registered with the Authority; are exempt from the payment of value-added tax; subject to Section 109, sub-sections L, M and N of Republic Act No. 9337, the National Internal Revenue Code, as amended: Provided, That the exempt transaction under Section 109 (L) shall include sales made by cooperatives duly registered with the Authority organized and operated by its members to undertake the production and processing of raw materials or of goods produced by its members into finished or process products for sale by the cooperative to its members and non-members: Provided, further, That any processed product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product of the cooperative: Provided, finally, That at least twenty-five per centum (25%) of the net income of the cooperatives is returned to the members in the form of interest and/or patronage refunds; "(c) All other taxes unless otherwise provided herein; and "(d) Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible. xxx xxx xxx 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. aETASc 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 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." CHaDIT Based on the foregoing, though cooperatives are exempts from certain taxes, nevertheless exemption from final tax of the Coliling Farmer's Savings and Credit Cooperative's investment in government bonds is not among those exemptions granted by law as the investment is not related to the cooperative's principal business. It should be remembered that laws and statutes granting tax exemptions are strictly construed against the taxpayer. Exemptions are never presumed and the burden is upon the taxpayer to establish his right to exemption beyond reasonable doubt. 1 In the case of Mactan Cebu International Airport Authority v. Marcos, 2 the Supreme Court held: "Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting the exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception." In view of the foregoing, the request for exemption from final tax relative to its investment is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Dimaampao, Japar B., Tax Principles and Remedies, Second Edition (2005). 2. G.R. No. 120082, 11 September 1996, 261 SCRA 667.