BIR Ruling No. 358-13

September 26, 2013 BIR RULING NO. 358-13 Sections 27 (D) (1), 30 (C); 105 of the Tax Code of 1997, as amended; BIR Ruling No. 274-12; BIR Ruling No. 275-12 Kulintang Farmer's Association Barangay Kapinpilan, Ampatuan, Maguindanao Attention: Norodin Warwick B. Mohamad President Gentlemen : This refers to your letter dated November 13, 2012 requesting for tax exemption pursuant to Section 30 (C) of the Tax Code of 1997, as amended. It is represented that Kulintang Farmer's Association with Taxpayer's Identification No. 428-963-239-000, is a legitimate rural workers association in the Philippines; that it is registered with the Department of Labor and Employment (DOLE) on November 12, 2012 under Registration No. 1730-12 and that the purpose for which it was incorporated is for the enhancing and defending the interest and mutual aid and protections of its members. In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because Kulintang Farmer's Association has 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 (C) of the Tax Code of 1997, as amended. Kulintang Farmer's Association shall file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month of the preceding accounting period following the start of its operation as an exempt organization as required under Section 24 of Revenue Regulations No. 2-40 dated February 10, 1940 (Collector vs. Sinco, G.R. L-9276 dated October 23, 1956) . 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. ADCSEa However, Kulintang Farmer's Association is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code 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 depository 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 day 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 expenses 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. It should be understood that Kulintang Farmer's Association shall be constituted as withholding agent of the government if it acts as an employer and its employee receives compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations 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 Revenue Regulations No. 2-98, as amended. (BIR Ruling No. 274-12 dated April 25, 2012 and BIR Ruling No. 275-12 dated April 25, 2012) 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. (BIR Ruling No. 274-12 dated April 25, 2012 and BIR Ruling No. 275-12 dated April 25, 2012) 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 ]. Finally, for purposes of securing a permanent exemption after the three (3)-year period, Kulintang Farmer's Association shall file its application for Tax Exemption with the Revenue District Office (RDO) where it is registered and is required to submit the following documents to Revenue Memorandum Order No. 20-2013: a. Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the NIRC, as amended, under which the application for exemption/revalidation is being based; DAHEaT b. Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission; c. Original copy of Certification under Oath by an executive officer of the corporation or association as to: (i) all previous amendments/changes in the Articles of Incorporation and By-Laws, (ii) manner of activities, and (iii) the sources and disposition of income, if any, of the subject corporation or association. If there are no amendments/changes, the Certification shall state this fact; d. Certified true copy of the Certificate of Registration with the BIR; e. Original copy of the Certification under Oath by the Treasurer of the corporation or association as to the amount of income, compensation, salaries or any emoluments paid by the corporation or association to its trustees, officers and other executive officers. Provided, that, a corporation sole, which, by its nature, does not have trustees, corporate officers or executive officers need not submit the certification required under this subparagraph. f. Original copy of the Certification issued by the RDO where the corporation or association is registered that the corporation or association is not the subject of any pending investigation, on-going audit, pending tax assessment, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal; or if thereby be any, the Original copy of the Certification issued by the RDO on the status thereof; g. Certified true copies of the Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the last three (3) years; and h. Original copy of a statement under Oath by an executive officer of the corporation or association as to its modus operandi which shall include: i. A full description of the past, present, and proposed activities of the corporation or association; ii. A narrative description of anticipated receipts and contemplated expenditures; and iii. A detailed description of all revenues which it seeks to be exempted from income tax. All other revenues which are not included in the statement/application shall be subject to income tax. AIHTEa 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