BIR Ruling No. 251-13

July 8, 2013 BIR RULING NO. 251-13 Sections 27 (A), 105 NIRC Golden Mile Business Park Locators Association, Inc. Golden Mile Business Park Brgy. Maduya, Carmona Cavite Attention: Mr. Agustin Reyes President Gentlemen : This refers to your letter dated 3 August 2010 indorsed to this Office by Revenue Region No. 9, San Pablo City on 11 March 2011 requesting on behalf of Golden Mile Business Park Locators Association, Inc. ("Golden Mile") certificate of tax exemption as a non-stock, non-profit association. It is represented that the Golden Mile , with Taxpayer's Identification No. (TIN) 246-738-575-000, is a non-stock, non-profit religious organization duly registered with the Securities and Exchange Commission (SEC) bearing SEC Registration No. CN200601023; and that the purposes for which the association was incorporated are the following: a. To organize into a single regulatory entity the lot owners and locators of the business park; b. To manage and maintain in good order and condition the business park its infrastructures, facilities, utilities and amenities for the benefit of the locators and occupants; c. To promote business competitiveness, welfare and safety of all locators and occupants of the business park; and d. To generate funds for self-sustenance and for the maintenance of the common elements of the business park. In reply, please be informed that the amounts paid in as dues or fees by the members-locators to Golden Mile form part of the gross income of the latter subject to income tax. This is because the association furnishes its members-locators with benefits, advantages and privileges in return for such payments. For tax purposes, the association dues, membership fees, and other assessments/charges collected by Golden Mile from its members-locators constitute income payments or compensation for beneficial services which Golden Mile provides to its members-locators. Such income payments are subject to income tax under Section 27 of the 1997 Tax Code, as amended, and consequently to the applicable withholding tax under Revenue Regulations 2-98. prLL Moreover, association dues, membership fees and other assessments/charges collected by Golden Mile from its members-locators are subject to VAT since they constitute income payment or compensation for the beneficial services it provides to its members-locators. Section 105 of the Tax Code of 1997 provides: "Section 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 the same Code. 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 non-stock, 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." The above provision is clear that even a non-stock, non-profit organization or government entity is liable to pay VAT on the sale of goods or services as confirmed by the Supreme Court in the case of CIR vs. Court of Appeals, G.R. No. 125355 dated 30 March 2000. The Court held that: "(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. AaHcIT The definition of the term "in the course of trade or business" incorporated in the 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. Section 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 of 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." In view of the foregoing, Golden Mile is subject to income tax and VAT on its collection of association dues, membership fees, and other assessments/charges from its members-locators. It is a governing principle in taxation that tax exemptions are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. The basic principle in the construction of laws granting tax exemptions has been very stable. He who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake (City of Iloilo, et al. vs. Smart Communications, Inc., G.R. No. 167260, dated February 27, 2009) . cSIACD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue