BIR Ruling No. 353-11

September 28, 2011 BIR RULING NO. 353-11 RA No. 9520; SEC. 105 of the Tax Code, as amended; BIR Ruling No. 032-10 National Teachers and Employees Cooperative Bank Corner M.J. Cuenco & Juan Luna Avenues Mabolo, Cebu City Attention: Isaac P. Augusto Gentlemen : This refers to your letter dated February 15, 2011, requesting for a clarification on the VAT on services billed by PLDT and other telecommunication service providers. It is represented that on January 4, 2011, Revenue Region 13- Cebu City issued a Certificate of Tax Exemption pursuant to R.A. 9520 as a cooperative transacting with members only to National Teachers and Employee Cooperative Bank with Tax Identification Number 209-692-607-000 and is registered with the Cooperative Development Authority under Registration Certificate No. 9520- 07002153 dated November 11, 2009. In reply, please be informed that pursuant to Article 60 of RA No. 9520, pertinent portions of which state that: ART. 60. Tax Treatment of Cooperative. Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any taxes and fees imposed under the internal revenue laws and other tax laws. . . . In addition, the Joint Rules and Regulations Implementing Republic Act No. 9520, particularly Sections 7, 9 and 10 as circularized by Revenue Memorandum Circular No. 12-10 dated February 5, 2010, provides: Section 7. Tax Exemptions of Duly Registered Cooperatives which Transact Business with Members Only. Duly registered cooperatives dealing/transacting business with members only shall be exempt from paying any taxes and fees, including but not limited to: xxx xxx xxx b) Value-Added Tax (VAT) imposed under Title IV of the NIRC, as amended; xxx xxx xxx "SECTION 9. Taxability of Unrelated Income of Cooperative. Notwithstanding the foregoing, all income of cooperatives not related to the main/principal business/es under its Articles of Cooperation shall be subject to all the appropriate taxes under the NIRC, as amended. This is applicable to all types of cooperatives whether dealing purely with members or both members and non-members. SECTION 10. Taxability of Cooperatives to Other Internal Revenue Taxes. All cooperatives, regardless of classification shall be subject to: xxx xxx xxx c) VAT billed on purchases of goods and services, except the VAT on the importation by agricultural cooperatives of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce, pursuant to Section 109(L) of the NIRC, as amended. All tax free importations shall not be transferred to any person until five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or the duties thereon; xxx xxx xxx Accordingly, even if National Teachers & Employees Cooperative Bank enjoys exemption from direct taxes, e.g. , income tax, still it cannot claim exemption from the 12% VAT on its purchases of goods/services. This is so, because VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services. (Section 105, Tax Code of 1997) (BIR Ruling No. 032-10 dated August 25, 2010) Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue