BIR Ruling No. 407-14

October 20, 2014 BIR RULING NO. 407-14 Section 30 (J), Tax Code of 1997, as amended; BIR Ruling No. 008-2013; BIR Ruling No. 301-2012 Bambosa Irrigators Association, Inc. Bikal, Libmanan, Camarines Sur Attention: Mr. Teofanes S. Melicor IA President Gentlemen : This refers to your letter dated April 29, 2013 requesting for a Certificate of Tax Exemption on behalf of BAMBOSA IRRIGATORS ASSOCIATION, INC. pursuant to Section 30 (J) of the National Internal Revenue Code (NIRC) of 1997, as amended. It is represented that BAMBOSA IRRIGATORS ASSOCIATION, INC. with BIR Taxpayer's Identification No. (TIN) 425-232-473-000 and Certificate of Registration No. OCN1RC0000592829 dated August 1, 2012, is a non-stock, non-sectarian, and non-profit corporation duly organized and existing under the laws of the Republic of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. CN201232412 dated July 11, 2012; and that among the purposes for which it was incorporated are the following: 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 the existing laws of irrigation; 3) To serve as a channel for the government and private agencies in providing technical assistance and other essential services concerning irrigated agricultural development and water management implementation at farm level; 4) To act as catalyst for payment of loans, land amortization, irrigation service fees, or outright sale of farm produce to pre-determined buyers, as well as in 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 the farmer-irrigator's 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, is advantage; 7) To promote continuous group action/cooperative work thereby enhancing the execution of farm activities to benefit the user; 8) To implement planned thrift and savings programs among its members; cADaIH 9) To promote the conduct of continuing education and training programs for members/officers as a part of the development process of cooperativism; and 10) To cooperative of federate with similar associations to spearhead the growth and development process of cooperativism. In support of its request, BAMBOSA IRRIGATORS ASSOCIATION, INC. submitted the following documents: A) Letter application for Tax Exemption; B) SEC certified true copy of its Certificate of Incorporation; C) SEC certified true copy of its Amended Articles of Incorporation which includes the following provisions: 1) That the corporation/association is non-stock, non-profit; 2) That the primary purpose for which it was incorporated is one of those enumerated under Section 30 of the Tax Code of 1997, as amended; 3) That no part of the net income shall inure to the benefit of any of its members; 4) That the trustees do not receive any compensation; and 5) That in case of dissolution, assets of the corporation/association shall be transferred to a similar institution or to the government. D) SEC certified true copy of its By-laws; E) Affidavit of Non-forum Shopping; F) BIR certified true copies of its Annual Financial Statement for the year 2012; G) Certification that there has not been any change in the manner of activities as well as sources and disposition of income; H) Tax Clearance from RDO No. 65, Naga City; and I) BIR Certificate of Registration. In reply, please be informed that this Office cannot as yet issue the requested Certificate of Tax Exemption because BAMBOSA IRRIGATORS ASSOCIATION, INC. has to prove by actual operation for at least three (3) years that it is really an organization or association exempt from income tax under Section 30 (J) of the Tax Code of 1997, as amended. (BIR Ruling No. 008-2013 dated January 3, 2013) BAMBOSA IRRIGATORS ASSOCIATION, INC. should file the necessary annual information return on or before the fifteenth (15th) day of the fourth (4th) month of the preceding accounting period following the start of your operation as an exempt organization as required under Section 24 of Revenue Regulations No. 2. 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. (BIR Ruling No. 008-2013 dated January 3, 2013 and BIR Ruling No. 301-2012 dated May 3, 2012) AcHSEa However, BAMBOSA IRRIGATORS ASSOCIATION, INC. is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code (NIRC) 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 twenty percent (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, as amended. It should be understood that BAMBOSA IRRIGATORS ASSOCIATION, INC. 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. 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]. Finally, for purposes of securing a Certificate of Exemption after the three (3)-year period, BAMBOSA IRRIGATORS ASSOCIATION, INC. is required to submit with the Revenue District Office where it is registered the following documents pursuant to Revenue Memorandum Order (RMO) No. 20-2013 dated July 22, 2013 : 1) Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the NIRC of 1997, as amended, under which the application for exemption/revalidation is being based; 2) SEC certified true copy of the Articles of Incorporation which must specifically and clearly state the following provisions verbatim: 1) That the corporation is non-stock, non-profit; 2) 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; 3) That no part of the net income shall inure to the benefit of any of its members; ICTacD 4) That the trustees do not receive any compensation. 3) SEC certified true copy of the By-Laws; 4) Original copy of the Certification under Oath by an executive officer of the corporation/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; 5) Certified true copies of the Annual Income Tax Returns or Annual Information Returns and Financial Statements of the corporation or association for the last three (3) years of operation; 6) 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 paragraph; 7) Certified true copy of the BIR Certificate of Registration; 8) Original copy of the Certification under Oath issued by the Revenue District Office (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 there be any, the Original copy of the Certification issued by the RDO on the status thereof; and 9) Original copy of the 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 receipt and contemplated expenditures of the corporation or association; 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 or application shall be subject to income tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue