10% VAT Exemption on Reimbursement Expenses

June 8, 1988 BIR RULING NO. 253-88 24 (a), 102 000-00 253-88 Gentlemen : This refers to your letter dated April 11, 1988 requesting information as to whether that association is subject to income and business taxes on its activity of providing for a fee machineries and equipment to its members for purposes of processing their feed ingredients. In an investigation conducted by an examiner of this Office, it was ascertained that the association was established and accredited under P.D. No. 175 with more or less 201 members drawn from the Minalin Town Community at Sta. Rita, Minalin, Pampanga; that its objectives are: (a) to provide goods and services and encourage thrift among the members; (b) to promote and advance economic, social and educational conditions of the members and (c) to undertake such other activities calculated to help members solve their problems on cooperative basis; that the association operates mainly by furnishing its accredited members the machineries and equipment needed to process feed ingredients into feeds for poultry and livestock; that it acquired the machineries and equipment, through contributions of accredited members who pooled their resources to accomplish their purposes and objectives; that the machineries and equipment, are available only to its members and not to the public in general; that the members of the association using the facilities are required to reimburse the association for the actual cost of fuel, oil maintenance of machineries and equipment and salaries of operators and other incidental expenses incurred in the conversion of feed ingredients into finished products; that the association has no other activity other than said group activity which is calculated to save cost to its members and insure viability of the small industries in the community; and that the association does not cater and service poultry and livestock feeds to the public in general. In reply, please be informed that on the basis of the foregoing facts, the association cannot be considered engaged in the sale of services for a consideration. Accordingly, the reimbursement expenses which it receives from its members for the use of machineries and equipment are not subject to the 10% value-added tax imposed by Section 102 of the Tax Code, as amended by Executive Order No. 273. Neither is the association subject to income tax under Section 24(a) of the same Code. cdtech Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner