BIR Ruling No. 343-11

September 13, 2011 BIR RULING NO. 343-11 May 11, 2011 Calapan Labor Service Development Cooperative Calapan Port, San Antonio Calapan City, Oriental Mindoro Sir : This has reference to the letter of Governor Alfonso V. Umali, Jr., Province of Oriental Mindoro regarding the non-processing of CALSEDECO's application for Certificate of Tax Exemption, posing to brush aside the technical intricacies of law and allow the cooperative to finally avail of tax exemption which, in actuality, is conferred upon it by laws as one of its privileges. It is represented that CALSEDECO obtained its Certification of Registration from Cooperative Development Authority on October 27, 2009. On April 14, 2010, Revenue District Office No. 63, Calapan, Oriental Mindoro received the Application for Certificate of Tax Exemption of CALSEDECO. On April 26, 2010, Revenue District Officer Salvador V.R. Lasala, assessed CALSEDECO for Income Tax liability citing that application for tax exemption was not filed within the prescribed period. On February 17, 2009, Republic Act No. 9520 entitled "AN ACT AMENDING THE COOPERATIVE CODE OF THE PHILIPPINES TO BE KNOWN AS THE PHILIPPINE COOPERATIVE CODE OF 2008" was enacted and took effect on April 6, 2009. Articles 60, 61 and 144 of R.A. 9520 are as follows: "ART. 61. Tax and Other Exemptions . Cooperatives transacting business with both members and non-members shall not be subjected to tax on their transactions with members. In relation to this, the transactions of members with the cooperative shall not be subject to any taxes and fees, including but not limited to final taxes on members' deposits and documentary tax. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions: "(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally a certified by the department of trade and industry (DTI). All tax free importations shall not be sold nor the beneficial ownership thereof be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the imposed tax and/or duties. DCASEc "(2) Cooperatives with accumulated reserves and divided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate: "(a) Income Tax On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by members: Provided, further, That cooperatives regardless of classification, are exempt from income tax from the date of registration with the Authority; "(b) Value-Added Tax On transactions with non-members: Provided, however, That cooperatives duly registered with the Authority; are exempt from the payment of value-added tax; subject to Section 109, sub-sections L, M and N of Republic Act No. 9337, the National Internal Revenue Code, as amended: Provided, That the exempt transaction under Section 109 (L) shall include sales made by cooperatives duly registered with the Authority organized and operated by its members to undertake the production and processing of raw materials or of goods produced by its members into finished or process products for sale by the cooperative to its members and non-members: Provided, further, That any processed product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product of the cooperative: Provided, finally, That at least twenty-five per centum (25%) of the net income of the cooperatives is returned to the members in the form of interest and/or patronage refunds; ACaDTH "(c) All other taxes unless otherwise provided herein; and "(d) Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible. "(3) All cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for non-members shall be subject to the applicable percentage taxes sales made by producers, marketing or service cooperatives: Provided further, That nothing in this article shall preclude the examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority. "(4) In areas where there are no available notaries public, the judge, exercising his ex officio capacity as notary public, shall render service, free of charge, to any person or group of persons requiring the administration of oath or the acknowledgment of articles of cooperation and instruments of loan from cooperatives not exceeding Five Hundred Thousand Pesos (P500,000.00). "(5) Any register of deeds shall accept for registration, free of charge, any instrument relative to a loan made under this Code which does not exceed Two Hundred Fifty Thousand Pesos (P250,000.00) or the deeds of title of any property acquired by the cooperative or any paper or document drawn in connection with any action brought by the cooperative or with any court judgment rendered in its favor or any instrument relative to a bond of any accountable officer of a cooperative for the faithful performance of his duties and obligations. "(6) Cooperatives shall be exempt from the payment of all court and sheriff's fees payable to the Philippine Government for and in connection with all actions brought under this Code, or where such actions is brought by the Authority before the court, to enforce the payment of obligations contracted in favor of the cooperative. "(7) All cooperatives shall be exempt from putting up a bond for bringing an appeal against the decision of an inferior court or for seeking to set aside any third party claim: Provided, That a certification of the Authority showing that the net assets of the cooperative are in excess of the amount of the bond required by the court in similar cases shall be accepted by the court as a sufficient bond. HCTaAS "(8) Any security issued by cooperatives shall be exempt from the provisions of the Securities Act provided such security shall not be speculative. "ART. 144. Transitory Provisions . (1) All cooperatives registered and confirmed with the Authority under Republic Act No. 6938 and Republic Act No. 6939, are hereby deemed registered under this code, and a new certificate of registration shall be issued by the authority: Provided, That such cooperative shall submit to the nearest office of the authority a copy of their certificate of registration or certificate of confirmation, the articles of cooperation, their bylaws, and their latest audited financial statement within one (1) year from the effectivity of this code, otherwise the shall be deemed cancelled motu proprio . "(2) Following the issuance of the new certificate of registration, the registered cooperatives shall secure their certificate of tax exemption from the nearest office of the Bureau of Internal Revenue (BIR): Provided, That such exemptions shall be valid for a period of five (5) years from the date of issue: Provided, further, That all unpaid assessments of previously registered cooperative shall be the subject of compromise settlement on terms favorable to such cooperative; and: Provided, finally, That the BIR and the authority shall jointly issue the necessary regulations on this exemption and compromise within ninety (90) days from the effectivity from this Code. "(3) Registration of electric cooperatives with the Authority shall not be considered as a transfer of ownership of its assets and liabilities nor shall it constitute a change in the nature, structure, and status of the cooperative. Said registration shall not result in the revocation of the condoned loans under Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act: Provided, That electric cooperatives with existing loans shall not be subject to the control and supervisions of its creditors and shall only be limited to the fulfillment of each civil obligations. Corollary thereto, on February 5, 2010, JOINT RULES AND REGULATION IMPLEMENTING ARTICLES 60, 61 AND 144 OF REPUBLIC ACT 9520, OTHERWISE KNOWN AS THE PHILIPPINE COOPERATIVE CODE OF 2008" IN RELATION TO RA NO. 8424 OR THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED was enacted and took effect on June 16, 2010: Section 13 of Joint Rules and Regulation on the procedure on the availment of tax exemption are as follows; Section 13. Documents to be Attached to the Letter. APPLICATION FOR THE ISSUANCE OF A CERTIFICATE OF TAX EXEMPTION/RULING. SEDaAH xxx xxx xxx The application for exemption by a qualified cooperative is a pre-requisite for availment of tax exemption by said cooperative. The Certificate of Tax Exemption/Ruling shall be issued only after determination by the BIR that the cooperative has complied with all the necessary documentary requirements for entitlement under RA 9520, xxx xxx xxx All duly registered cooperatives under RA 9520 shall apply for a Certificate of Tax Exemption/Ruling within sixty (60) days counted from the date of issuance of certificate of registration. Exemption from taxes herein stated shall apply to the duly-registered cooperatives on the year the certificate of tax exemption/ruling was issued. However, for the initial issuance of the Certificate of Tax Exemption/Ruling under RA 9520, the effectivity of such Certificate of Tax Exemption/Ruling issued shall commence from the year RA 9520 took effect: Provided, That the cooperative has registered with the CDA as provided for under Article 144 of RA 9520. For applications for tax exemption not filed within the prescribed period, the late applicants shall be subjected to internal revenue taxes prior to the issuance of the Certificate of Tax Exemption/Ruling; however they can apply for tax credit/refund of taxes previously paid from the date of registration with the CDA up to the issuance of the Certificate of Tax Exemption/Ruling, subject to the rules and procedures for processing tax credit/refund. The BIR shall act on the request for tax refund of taxes previously paid within one hundred twenty (120) days from submission of the complete documents in support of the application filed. Moreover, Revenue Memorandum Order No. 76-2010, Prescribing the Policies and Guidelines in the Issuance of Certificate of Tax Exemption of Cooperatives and the Monitoring Thereof, provides that in order to expedite the processing and confirmation of tax exemptions, applications shall be acted upon by the Revenue District Offices and Revenue Regions having jurisdiction over the principal place of business of the cooperatives instead of the National Office. The provision of Joint Implementing Rules and Regulations and the RMO 76-2010 merely made a restatement of the tax exemption privileges of cooperatives registered with the CDA. In Caltex Philippines, Inc. vs. Commissioner of Internal Revenue , C.T.A. Case No. 4711, July 5, 1994, the Court said: TCHcAE ". . . it has never been a rule that the issuance of an implementing regulation is an indispensable requirement before any law could take effect. On the contrary the effectivity of a law is governed by the date of effectivity provision which is an essential and standard part of a statute. It determines the time when the law shall take effect. (Martin, op cit., p. 27). On the other hand, the provision concerning the grant of authority to the concerned agency to issue rules and regulations is primarily designed to facilitate the smooth implementation of the law. It supplies the necessary details which may not be present in the law to carry out its objective or to clarify certain ambiguous provisions or provisions which are susceptible to different interpretation. It does not control the life of the statutes. Its non-issuance does not invalidate the existence of the law unless the provision of the law itself states in a clear manner that the concerned agency has to issue first an implementing regulation before it could take effect or as a prerequisite to its implementation." Accordingly, your request for the issuance of Tax Exemption may be granted provided that CALSEDECO's application complies with all the requirements stated in Joint Implementing Rules and Regulations and RMO 76-2010. However, the amount of the income tax assessed is valid prior to the issuance of Certificate of Tax Exemption, but CALSEDECO can apply for tax credit/refund of taxes previously paid from the date of registration with the CDA up to the issuance of the Certificate of Tax Exemption/Ruling, subject to the rules and procedures for processing tax credit/refund. For your information and guidance. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue