BIR Ruling No. 293-12

May 3, 2012 BIR RULING NO. 293-12 PD 269; RA 9337; RMC 72-2003; BIR Ruling No. 508-11; BIR Ruling No. 509-11 Sultan Kudarat Electric Cooperative, Inc. Tacurong City, Sultan Kudarat Attention: Engr. Demetrio O. Jerez General Manager Gentlemen : This refers to your letter dated September 1, 2011 requesting for a tax exemption certification by way of ruling pursuant to Revenue Memorandum Circular (RMC) 72-2003 and Section 39 (a) (1) of Presidential Decree No. 269. It is represented that SULTAN KUDARAT ELECTRIC COOPERATIVE, INC. (SUKELCO) with Tax Identification Number 860-000-582-966-000 is registered with the National Electrification Administration (NEA) as a non-stock, non-profit member-owned electric cooperative bearing Certification No. 072, issued on March 25, 1981; that it is formed primarily for the purpose of supplying, promoting and encouraging the fullest use of electric service to its members on an "area coverage". In reply, please be informed that Section A (3) and (4) of Revenue Memorandum Circular No. 72-2003 dated October 20, 2003 provides: "A. Electric Cooperatives (ECs) registered with the National Electrification Administration (NEA) are exempt from: xxx xxx xxx 3. Income taxes for which they are directly liable [P.D. No. 269, Sec. 39(a)(1)]; ITDHcA 4. All National Government taxes and fees, including franchise, filing, recordation, license or permit fees or taxes. Provided, however, that the said exemption shall end on December 31 of the thirtieth full calendar year after the date of the cooperative's organization or conversion, or until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs. Provided further, that the period of exemption for a new cooperative formed by consolidation, as provided in Section 29 of P.D. No. 269, to begin as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under P.D. No. 269 . . . ." Accordingly, this Office opines that SUKELCO is exempt from income tax. Beginning January 1, 2012, however, SUKELCO is subject to all other national government taxes and fees, including VAT, filing, recordation, license or permit fees or taxes after the thirtieth full calendar year after the date of the cooperative's organization 1 as stated in its registration papers or until it shall become completely free of indebtedness incurred by borrowing, whichever event comes first, hence, the privileges granted under Section A (4) of Revenue Memorandum Circular No. 72-2003 ended on March 25, 2011. (BIR Ruling No. 508-11 dated December 20, 2011) Moreover, all Electric Cooperatives registered with the NEA, shall be subject to the following: 1. 20% final income tax on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines; 2. 7.5% final income tax on interest income derived from a depositary bank under the expanded foreign currency deposit system; 3. Capital Gains Tax on sales or exchanges of real property classified as capital assets or shares of stock; cDaEAS 4. 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; 5. VAT billed on purchases of goods and services; 6. Value-added tax, on sales relative to the generation and distribution of electricity as well as their importation of machineries and equipment, including spare parts, which shall be directly used in the generation and distribution of electricity; and 7. All other taxes for which the ECs are not otherwise expressly exempted by any law. Upon the effectivity of R.A. 9337, the exemption from VAT of electric cooperatives was removed. Consequently, Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007, particularly Section 4.108-2 (13) and Section 4.108-3 (f) provide that sales of electricity by generation, transmission, and/or distribution companies are now subject to 12% VAT on their gross receipts. Provided, however, that sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels shall be subject to 0% VAT. Therefore, electric cooperatives are now subject to VAT on their gross receipts pursuant to R.A. 9337, as implemented by RR 16-2005, as amended. (BIR Ruling No. 509-11 dated December 20, 2011) TEDAHI It should be noted that nothing in the aforesaid RMC No. 72-2003 or RR No. 20-2001 shall preclude the examination of the books of accounts or other accounting records of SUKELCO by duly authorized internal revenue officers for internal revenue tax purposes only. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Sultan Kudarat Electric Cooperative, Inc. was organized on March 25, 1981. Hence, the exemption granted under PD 269 already ended as it is already beyond "December 31 of the thirtieth full calendar year after the date of its organization".