BIR Ruling No. 430-14

October 28, 2014 BIR RULING NO. 430-14 Section 30 of the Tax Code of 1997, as amended; RMO 9-2014; RMO No. 20-2013; RMC No. 76-2003; BIR Ruling No. 577-12; BIR Ruling No. 536-12 Sta. Maria-Minamaing Farmers Irrigators Association, Inc. Purok Namnama, Brgy. Sta. Maria Matalam, Cotabato Attention: Jose C. Nonesa, Sr. President Gentlemen : This refers to your letter dated 15 April 2013 received by this Office on 30 April 2013 from Revenue Region No. 18 Koronadal City requesting for the issuance of a Certificate of Tax Exemption enjoyed by non-stock, non-profit association under Section 30 of the Tax Code of 1997, as amended. It is represented that STA. MARIA-MINAMAING FARMERS IRRIGATORS ASSOCIATION, INC.,with Taxpayer Identification Number (TIN) 419-671-931-000, is a non-stock, non-profit association duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CN201128685 dated 11 February 2011; and that the purpose for which STA. MARIA-MINAMAING FARMERS IRRIGATORS ASSOCIATION, INC. is incorporated are: 1) "To initially serve as an organization/foundation in strengthening agrarian reform and cooperative development programs of the government"; 2) "To operate and maintain the irrigation facilities and appurtenant structures by regulating and distributing the water/supply equitably thru proper irrigation management in accordance with the existing laws of irrigation"; 3) "To serve as a channel for the government and private agencies in providing technical and financial assistance and other essential services concerning irrigated agricultural development and water management implementation at farm level"; 4) "To act as the catalyzer for payment of loans, land amortizations, irrigation service fees, or for outright sale of farm produce to pre-determined buyer, as well as in the distribution of farm supplies intended for farmers and to facilitate similar transactions between farmers and concerned parties"; 5) "To encourage participation of the 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-users"; 8) "To implement planned thrift and saving programs among its members"; EacHCD 9) "To promote the conduct of continuing education and training programs for its members/officers as part of the development process of cooperative"; 10) ''To cooperate or federate with similar associations to spearhead the growth and development process of cooperation". In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because STA. MARIA-MINAMAING FARMERS IRRIGATORS ASSOCIATION, INC. has to prove by actual operation for at least three (3) years that it is really an organization exempt from income tax under Section 30 of the Tax Code of 1997, as amended. STA. MARIA-MINAMAING FARMERS IRRIGATORS ASSOCIATION, INC. shall file the necessary annual information return instead of an income tax return on or before the 15th day of the fourth month following the end of its taxable year 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. Hence, STA. MARIA-MINAMAING FARMERS IRRIGATORS ASSOCIATION, INC. 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 STA. MARIA-MINAMAING FARMERS 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. (BIR Ruling No. 577-2012 dated September 9, 2012 and BIR Ruling No. 536-2012 dated August 8, 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. 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 COMMUNAL 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 tax exemption ruling after the three (3)-year period, STA. MARIA-MINAMAING FARMERS IRRIGATORS ASSOCIATION, INC. 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 pursuant to Revenue Memorandum Order (RMO) No. 20-2013: SETaHC A) Original copy of application letter for issuance of Tax Exemption Ruling. The letter shall cite the particular paragraph of Section 30 of the Tax Code of 1997, as amended, under which the application for exemption/revalidation is being based. Moreover, the letter request should be a sworn statement executed under oath by the individual taxpayer or by the authorized official/representative of the corporation, partnership or entity containing the following: 1) Factual background of the request for ruling, including: a) names, addresses, and taxpayer identification numbers of all interested parties; b) a complete statement of the business reasons for the transaction; and c) a detailed description of the transaction or circumstances involved. 2) The issues/questions raised or conclusions sought to be confirmed by the taxpayer; 3) The legal grounds and the relevant authorities supporting the position of the taxpayer; 4) List of documents submitted; and 5) Affirmations stating that: a) a similar inquiry has not been filed and is not pending in another office of the Bureau; b) there is no pending case in litigation involving the same issue/s and the same taxpayer or related taxpayer; c) the issue/s subject of the request is not pending investigation, on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceeding or judicial appeal; and d) the documents submitted are complete and that no other documents will be submitted in connection with the request (RMO 9-2014) B) Certified true copy of the latest Articles of Incorporation and By-Laws issued by the Securities and Exchange Commission. The Articles of Incorporation must clearly state that: 1) It is a non-stock, non-profit corporation or association; 2) The purpose for which it was created is one of those enumerated under Section 30 of the NIRC, as amended; 3) No part of the corporation or association's net income shall inure to the benefit of any member, organizer, officer or any specific person or private individual; 4) The trustees or organizers of the non-profit corporation or association do not receive any compensation, remuneration, salaries or honorarium; and EHACcT 5) In the event of dissolution, its assets shall be distributed to one or more entities formed for the purpose/purposes similar to its own or to the Philippine government for public purpose (Revenue Memorandum Circular No. 51-2014) C) Original copy of Certification under Oath by an executive officer of the corporation or association as to: 1) all previous amendments/changes in the Articles of Incorporation and By-Laws, 2) manner of activities, and 3) 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; 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: 1) A full description of the past, present, and proposed activities of the corporation or association; 2) A narrative description of anticipated receipts and contemplated expenditures; and 3) 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. 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. aEHAIS Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue