BIR Ruling No. 438-14

October 28, 2014 BIR RULING NO. 438-14 Section 27 (A) of the Tax Code of 1997, as amended. RMC No. 65-12; BIR Ruling No. 269-13; BIR Ruling No. 145-13 Phinma Plaza Condominium Corporation 39 Plaza Drive, Phinma Plaza, Rockwell Center, Makati City 1210 Attention: Mr. Demetrio P. Lucila Controller Gentlemen : This refers to your letter dated January 14, 2013, applying in behalf of PHINMA PLAZA CONDOMINIUM CORPORATION for a tax exemption certificate enjoyed by non-stock, non-profit corporation or association organized and operated pursuant Section 30 of the Tax Code of 1997, as amended. It is represented that PHINMA PLAZA CONDOMINIUM CORPORATION with Taxpayer's Identification No. (TIN) 244-510-981-000, is a non-stock, non-profit condominium corporation duly constituted and formed under the provisions of Republic Act No. 4726, otherwise known as "The Condominium Act"; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CN200515974 dated September 20, 2005; and that the purposes for which it was incorporated are the following, to wit: To own or hold title to the land and the common areas in the condominium project known and identified as Phinma Plaza Condominium (the "Project") which has been constituted pursuant to the provisions of Republic Act No. 4726, on the properties described in and brought under the operations of said Act by the Master Deed with Declarations executed by and among Philippine Investment-Management (PHINMA), Inc., Bacnotan Consolidated Industries, Inc., Trans-Asia Oil and Energy Development Corporation, Union Cement Corporation, United Pulp and Paper Company, Inc., First Philippine Holdings Corporation, Metropolitan Bank and Trust Company, and Rizal Commercial Banking Corporation, notarized on November 14, 2001 as Doc. Nos. 58-60, Page No. 13, Book No. VI, Series of 2001 of Notary Public Angel P. Gahol (the "Master Deed") as well as to manage, administer, maintain, and operate the said Project pursuant to and in accordance with the provisions of Republic Act No. 4726 and the said Master Deed, with the end view of promoting the safety, interest, welfare, health and happiness of all the occupants in the Project. SDaHEc In furtherance of the foregoing, the corporation shall have the following incidental powers and purposes: a. To adopt and carry out such measures as may be necessary to promote the best interest of and to protect and safeguard the unit owners and their properties in the project; in this regard, the Corporation shall have the power to contract for security services for the entire Project and, in accordance with the Master Deed, to obtain and maintain insurance policies insuring unit owners against loss by fire, casualty liability, workmen's compensation and other insurable risks; b. To adopt and enforce needful rules and regulations, including the Building Rules contemplated in the Master Deed, concerning the proper use, and enjoyment and occupancy of all the units and the common areas in the Project and to fix penalties, by way of liquidated damages; c. To provide and contract services for public utilities and for the maintenance, repair, sanitation and cleanliness of the common areas in the Project, as well as for the beautification and improvement thereof, and for the reconstruction or restoration of the common areas when necessitated by damage, destruction, obsolescence, depreciation, expropriation or condemnation of the whole or any part thereof; d. To maintain, clean, repair, reconstruct or rebuild any unit in the Project if and when the owner refuses to do so and such is necessary to protect, safeguard, or conserve the value and attractiveness of the common areas or any portion of the Project or of the Project itself; e. To contract for the services of persons or firms to assist in the management and operation of the Project, including accounting, engineering and other professional and technical services; DIESHT f. To discharge any lien or encumbrance levied against the entire Project, the common areas, or the units in instances where the corporation is authorized or empowered to do so; g. To enforce the limitations, restrictions, covenants and conditions contained in the Master Deed, the Building Rules and in such other rules and regulations that the Corporation may promulgate from time to time and to impose the corresponding penalty for any violation or breach thereof; h. To levy against the unit owners in the Project and collect from them such assessments, liquidated damages, charges, or amounts as are provided for in the Master Deed and in special assessment notices; i. To acquire, hold, enjoy, operate and maintain and to convey, sell, transfer, lease, mortgage, encumber, or otherwise dispose of real or personal property in connection with the purposes and activities of the Corporation; and j. To exercise such other powers as are necessary, incidental or convenient to the accomplishment of the purpose for which the Corporation is established. In reply thereto, please be informed that PHINMA PLAZA CONDOMINIUM CORPORATION is not among those corporations contemplated under Section 30 of the Tax Code of 1997, as amended. Hence, the income earned by PHINMA PLAZA CONDOMINIUM CORPORATION is subject to the regular corporate income tax imposed by Section 27 (A) of the same Code. Revenue Memorandum Circular (RMC) No. 65-2012 discussed the taxability of association dues, membership fees, and other assessments/charges collected by condominium corporations from its members, tenants and other entities, herein quoted as follows: TCcSDE "I. Income Tax The amounts paid in as dues or fees by members and tenants of a condominium corporation form part of the gross income of the latter subject to income tax. This is because a condominium corporation furnishes its members and tenants with benefits, advantages, and privileges in return for such payments. For tax purposes, the association dues, membership fees, and other assessments/charges collected by a condominium corporation constitute income payments or compensation for beneficial services it provides to its members and tenants. The previous interpretation that the assessment dues are funds which are merely held in trust by a condominium corporation lacks legal basis and is hereby abandoned. Moreover, since a condominium corporation is subject to income tax, income payments made to it are subject to applicable withholding taxes under existing regulations. II. Value-Added Tax (VAT) Association dues, membership fees, and other assessments/charges collected by a condominium corporation are subject to VAT since they constitute income payment or compensation for the beneficial services it provides to its members and tenants." Section 105 of the National Internal Revenue Code of 1997, as amended, provides: "SEC. 105. Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. CHcESa xxx xxx xxx The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests) , or government entity." (Emphasis supplied) The above provision is clear even a non-stock, non-profit organization or government entity is liable to pay VAT on the sale of goods or services. This conclusion was affirmed by the Supreme Court in Commissioner of Internal Revenue v. Court of Appeals and Commonwealth Management and Services Corporation, G.R. No. 125355, March 30, 2000. In this case, the Supreme Court held: "(E)ven a non-stock, non-profit organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. The definition of the term "in the course of trade or business" present law applies to all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a non-stock, non-profit organization or government entity is liable to pay VAT for the sale of goods and services. cEHSIC Sec. 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project." On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 emphasizing that a domestic corporation that provided technical, research management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax. Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT." Accordingly, the gross receipts of condominium corporations including association dues, membership fees, and other assessments/charges are subject to VAT, income tax and income payments made to it are subject to applicable withholding taxes under existing regulations. (BIR Ruling Nos. 269-13 dated July 15, 2013 and 145-13 dated April 12, 2013) In view of the foregoing, your request for the issuance of a Certificate of Tax Exemption pursuant to Section 30 of the Tax Code of 1997, as amended, is hereby denied. SCHIac Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue