BIR Ruling No. 301-12

May 3, 2012 BIR RULING NO. 301-12 Section 30 (J), Section 27 (D) (1) in relation to Section 57 (A); Section 79 (A), Section 105 of the Tax Code of 1997, as amended; BIR Ruling No. 117-10 Timbang Antipolo Baliuag Nuevo Irrigators Association, Inc. Timbang, Minabalac Camarines Sur Attention: Roberto C. Azada President Gentlemen : This refers to your letter dated October 20, 2011 for the issuance of a Tax Exemption Certificate enjoyed by non-stock, non-profit corporations pursuant to Section 30 (J) of the National Internal Revenue Code of 1997 (NIRC). ACDTcE It is represented that Timbang Antipolo Baliuag Nuevo Irrigators Association, Inc. is a non-stock, non-profit corporation with Taxpayer Identification No. 405-836-520-000 duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission under SEC Registration CN201129006; and that among the purposes for which the Association is organized are: 1. To initially serve as a foundation in strengthening Agrarian Reform and Cooperative Development Programs of the Government; 2. To help and cooperate in operating and maintaining the irrigation facilities and appurtenant structures by regulating and distributing the water management in accordance with existing laws of irrigations; 3. To serve as channel for the government and private agencies in providing technical assistance and other essential; services concerning irrigated agriculture development and water management implementation at farm level; 4. To act as catalyst for payments of loans and amortization, irrigation service fees or for outright sale of farm produce to pre-determined buyer, as well as the distribution of farm supplies intended for farmers and to facilitate similar farm transaction between the farmers and concerned parties; 5. To encourage participation of farmer-irrigators in promoting a wholesome community life; 6. To serve as a vehicle for the proper integration of resources, skills and talent of irrigation water users for maximum productivity and economic advantage; 7. To promote continuous group action/cooperative work thereby enhancing the execution of farm activities to benefit the water user; 8. To implement planned thrift and saving programs among its members; 9. To promote the conduct of continuing and training programs for members/officers as part of the development of cooperativism; and 10. To cooperate of federate with similar association to spearhead the growth and development process of cooperativism. In reply, pleased be informed that this Office cannot as yet issue the requested certificate of tax exemption because Timbang Antipolo Baliuag Nuevo Irrigators Association, Inc. have to prove by actual operation for at least three (3) years that it is really an organization/association exempt from income tax under Section 30 of the Tax Code of 1997, as amended. Timbang Antipolo Baliuag Nuevo Irrigators Association, Inc. should file the necessary annual information return on or before the 15th day of the fourth month of the preceding accounting period following the start of your operation as an exempt organization as required under Section 24 of Revenue Regulations (Rev. Regs.) No. 2-40. Based on such information return, we shall conduct the necessary investigation on the activities undertaken during the period. The letter of exemption shall thereafter be issued depending upon the result of our investigation. ETHIDa However, Timbang Antipolo Baliuag Nuevo Irrigators Association, Inc. is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997, as amended, on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation. Likewise, interest income from currency bank deposits and yield or any other monetary benefits from deposit substitute instruments and from trust funds and similar arrangements, and royalties derived from sources within the Philippines are subject to the 20% final withholding tax: provided, however, that interest income derived by it from a depositary bank under the expanded foreign currency deposit system shall be subject to 7-1/2% final withholding tax pursuant to Section 27 (D) (1), in relation to Section 57 (A), both of the Tax Code of 1997. Moreover, it is required to file on or before the 15th month of the fourth month following the end of the accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expense incurred during the preceding period and a certificate showing that there has not been any change in its By-laws, Articles of Incorporation, manner of operation and activities as well as sources and disposition of income. (BIR Ruling No. 117-10 dated December November 4, 2010) It should be understood that Timbang Antipolo Baliuag Nuevo Irrigators Association, Inc. shall be constituted as withholding agent of the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax provided for in Section 57 (B) of the Tax Code of 1997, also as implemented by Rev. Regs. No. 2-98, as amended. Under Section 235 of the Tax Code of 1997, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives shall be subject to examination by the BIR for purposes of ascertaining compliance with the conditions under which it has been granted tax exemptions or tax incentives, and its tax liabilities, if any. It is subject to the payment of the annual registration fee of PhP500.00 as prescribed in Section 236 (B) of the Tax Code of 1997, as amended. It is also required under Section 6 (C) in relation to Section 237 of the same Code to issue duly registered receipts or sales or commercial invoices for each sale or transfer of merchandise or for services rendered which are not directly related to the activities for which the Association is registered [Revenue Memorandum Circular (RMC) No. 76-2003]. For purposes of securing a permanent exemption after the three (3)-year period, Timbang Antipolo Baliuag Nuevo Irrigators Association, Inc. is required to submit the following documents pursuant to Revenue Memorandum Circular No. 14-2001: 1) Certified true copy of the Certificate of Registration with the SEC; 2) Certified true copy of the Articles of Incorporation which includes the following provisions: aSIHcT a. That the corporation is non-stock, non-profit; b. That the primary purpose for which it was created is one of those enumerated under Sec. 30 of the Tax Code of 1997, as amended; c. That no part of the net income shall inure to the benefit of any of its members; d. That the trustees do not receive any compensation; and e. In case of dissolution, assets of the corporation shall be transferred to similar institution or to the government. 3) Certified true copy of the By-Laws; 4) Certification under oath that there has not been any change in the Articles of Incorporation and/or By-laws; 5) Certified true copy of the Annual Information Returns and Financial Statements for the last three (3) years of operation; and 6) BIR Certificate of Registration. 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