Tax Liabilities of and Administrative Requirements of a Cooperative

December 2, 1991 BIR RULING NO. 257-91 24, 99, 100 102, 107, 237 000-00 257-91 Gentlemen : This refers to your letter dated October 4, 1991 stating that your client is a cooperative organized and registered with the Cooperative Development Authority under Republic Act No. 6938; and that it is composed of government employees and does not transact any business with non-members or the general public. You now posed the following queries: cdt "1. Is such a cooperative required to register its name or style in accordance with Secs. 237 and 107 of the National Internal Revenue Code? "2. Is such a cooperative required to issue receipts or sales of commercial invoices? "3. Is it exempt from payment of the value-added tax on its sales or importations, or the percentage tax on the persons exempt from value-added tax? "4. Are its purchases exempt from the payment of value-added taxes considering that the burden of the VAT would be borne by the cooperative and ultimately its members? "5. Is such a cooperative exempt from filing its income tax returns as well as income taxes? "6. Is the interest income of such cooperative arising from its short term investments (money market placements and other deposit substitutes) and from bank deposits exempt from income taxes? In reply, I have the honor to inform you as follows : 1. Since your client is a cooperative organized and registered pursuant to the provisions of RA No. 6938 and transacting business with members only, it is exempt from the 10% value-added tax imposed by Sections 100 to 102 of the Tax Code, as amended by EO No. 273. Such being the case, it is not required to register as a VAT enterprise because under Section 107 of the Tax Code, only those persons subject to the value-added tax under Sections 100 and 102 shall register with appropriate Revenue District Officer. Neither is your client required to register its name or style with the Revenue District Officer concerned under Section 237 of the Tax Code. It will be noted that under said section, only those person engaged in business are required to register their names or styles. The test for the determination of whether or not one is engaged in business is whether its business is operated for profit or not. By transacting business with its member only, your client-cooperative is definitely not for profit; hence, cannot be considered engaged in business. 2. Since your client is exempt from all internal revenue taxes, it is exempt from the issuance of sales or commercial invoices or receipts. 3. As heretofore stated and pursuant to Article 61 of the Cooperative Code, the exemption of cooperatives transacting business with members only covers all internal revenue taxes or fees imposed under the internal revenue laws and other tax laws. Such exemption naturally includes the 10% value-added tax on its sales or importations, including the various percentage taxes. 4. Your client is not exempt from the value-added tax which might be passed on or billed to it on its purchases of goods and/or services. The exemption of cooperatives from taxes covers only those which are directly payable by them. The value-added tax is an indirect tax which can be passed on to the purchaser of goods. Once it is passed to the purchaser, it is no longer a tax but an additional cost which the purchaser has to pay to obtain the goods purchased. (Philippine Acetylene vs. Comm. 20 SCRA 1056) 5. It is exempt from filing income tax returns and from paying income tax. However, it is required to file on or before April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in By-Laws, Articles of Cooperation, manner of activities, as well as, sources and disposition of income. 6. All cooperatives are subject to the 20% final withholding tax on interest from Philippine currency bank deposits, yield from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines, the said income not being derived from cooperative economic activity. They shall also be taxed on prizes, winnings and capital gains realized on sales or exchange of property. (Section 7, Revenue Memorandum Circular No. 48-91 dated June 18, 1991) cdtech Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner (Officer-in-Charge)