BIR Ruling No. 442-14

October 30, 2014 BIR RULING NO. 442-14 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 Bued San Luis Communal Farmers Irrigators' Association, Inc. Brgy. San Luis, Rosales, Pangasinan 2441 Attention: Reynaldo Obillo Acting President Gentlemen : This refers to your letter dated 25 January 2013 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 BUED SAN LUIS COMMUNAL FARMERS IRRIGATORS' ASSOCIATION, INC.,with Taxpayer Identification Number (TIN) 429-448-765-000, 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. CN201225302 dated 21 March 2012; and that the purpose for which BUED SAN LUIS COMMUNAL FARMERS IRRIGATORS' ASSOCIATION, INC. is incorporated are: 1) "To serve as a basic foundation in strengthening agrarian reform, cooperative development and other programs of the government"; 2) "To cooperate and endeavor to develop capability for the eventual assumption of the operation and maintenance responsibilities of irrigation systems"; 3) "To serve as a channel for the government, private and international agencies in providing technical and financial assistance and other essential services"; 4) "To sue and be sued on matters related to the operation of the Association"; 5) "To enter into contracts, negotiate and secure loans from government, non-government, private and international institutions to support the operation of the Association, its programs, projects and activities"; 6) "To act as the catalyzer for payment of loans, land amortizations, irrigation service fees, marketing of farm produce, procurement and distribution of agricultural inputs, and to facilitate similar transactions with concerned parties for the benefit and welfare of its farmer-members"; DcSACE 7) "To lease, hold, sell, purchase and own real properties, introduce necessary improvements thereon as maybe necessary in its operations or implementation of its programs, projects and activities"; 8) "To encourage participation of the farmer-irrigators in promoting a wholesome community life"; 9) "To promote continuous group action/cooperative work thereby enhancing the mobilization of local resources in the implementation of the activities of the Association"; 10) "To implement planned thrift and saving programs among its members, and initiate fund-raising activities for IA capital build-up provided authorized by existing laws"; 11) "No part of its income shall inure to the benefit of any of its members"; 12) "To conduct continuing education and training programs for IA members/officers and other members of the irrigation community"; 13) "To cooperate or federate with similar associations";and 14) "To exercise all powers of a non-stock and non-profit organization under the Corporation Code of the Philippines and other existing laws". In reply, please be informed that this Office cannot as yet issue the requested ruling/certificate of tax exemption because BUED SAN LUIS COMMUNAL 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. BUED SAN LUIS COMMUNAL 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, BUED SAN LUIS COMMUNAL 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. ASDTEa It should be understood that BUED SAN LUIS COMMUNAL 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 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 tax exemption ruling after the three (3)-year period, BUED SAN LUIS COMMUNAL 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: 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; cAHIST 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 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. EDCcaS 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue