BIR Ruling No. 455-14

November 11, 2014 BIR RULING NO. 455-14 RMC No. 9-2013; R.A. No. 9904; R.A. No. 8424 Avida Village Santa Cecilia Homeowners' Association, Inc. Avida Village Santa Cecilia Brgy. Salawag, Dasmarias, Cavite Attention: Engr. Benjamin D. Del Castillo Property Manager Gentlemen : This refers to your request letter dated September 2, 2013 requesting for a confirmatory ruling that AVIDA VILLAGE SANTA CECILIA HOMEOWNERS' ASSOCIATION, INC. (AVSCHOA, INC., for brevity) is entitled to the exemption from all taxes under Republic Act No. 9904 otherwise known as the "Magna Carta for Homeowners and Homeowners' Associations", as enunciated in Revenue Memorandum Circular No. 9-2013 which clarifies the taxability of association dues, membership fees, and other assessments/charges collected by Homeowners' Associations. Documents submitted disclosed that AVSCHOA, INC., is a residential homeowners association with taxpayers identification number (TIN) 406-749-852-000 and duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 14759 dated March 21, 2011; it is primarily organized to: "1. To construct, manage, maintain and operate adequate facilities and services for its members;" and that the Office of the City Mayor of Dasmarias, Cavite certified that AVSCHOA, INC.: "is providing the following basic services to the residents of Avida Village Santa Cecilia: 1. Safety and Security a. 24-hour security of the subdivision. b. Roving security inside and in the perimeter of the subdivision. c. 24-hour manning of the subdivision gates. d. Screening and data-base recording of visitors, construction workers, non-residents at the gates. e. Installation and operation of CCTV including recording of vehicle ingress and egress at the gates. CAETcH f. Preparation, review and analysis of security reports. g. Security and safety seminars among residents, household helpers and drivers. h. Installation, maintenance and monitoring of perimeter walls. i. Providing quick response for fire, crime and security concerns. j. Managing village traffic like inappropriate parking. k. Monitoring constructions especially for violations of the deed of restrictions, easements and building heights to comply with building code. 2. Cleanliness/Sanitation a. Daily cleaning of street, pathways, sidewalks, parks, playground, sports facilities, perimeter walls and common areas. b. Daily maintenance and regular trimming of trees, grass and plants in the common areas. c. Managing disposition of construction debris. d. Defogging and pest control of parks and common areas. e. Declogging of drainage, canals and sewerages. 3. Maintenance a. Maintenance and repair of streets, pathways, sidewalks, parks, playgrounds, sports facilities, perimeter walls and common areas. b. Maintenance and repair of basic utilities commonly used by residents like lights, water, communication systems. c. Maintenance, repair and storage of maintenance equipments like grass cutters, grass tractors, shredders etc. d. Maintain and repair barracks and workshops for security personnel and utility crew. e. Maintenance and repair of Administration Office, motor pool, outposts, security equipment. 4. Administration a. Maintain and manage personnel to administer and undertake all the above activities. b. Maintain and manage personnel for accounting, cashiering, servicing facilities, etc. c. Engage external auditors and legal counsels. aSAHCE The aforementioned services could not be provided by the City Government due to its limited resources. These services are provided by the AVIDA VILLAGE SANTA CECILIA HOMEOWNERS' ASSOCIATION, INC. in its effort to complement, support, and strengthen the LGU in providing vital services to their subdivision residents and members." In support of its request, AVSCHOA, INC. has completely submitted on September 3, 2013 the following documents: 1) Letter application for tax exemption; 2) Certified true copy of the Certificate of Registration with the HLURB; 3) HLURB Certified true copy of the Articles of Incorporation; 4) HLURB Certified true copy of the By-Laws; 5) Certified true copy of the Annual Information Return and Financial Statements for the tax year 2012; 6) LGU Certification; 7) BIR Certificate of Registration; 8) Other pertinent documents. AVSCHOA, INC. bases its exemption on Section 18 of R.A. No. 9904, which provides: "Section 18. Relationship with LGUs. Homeowners' associations shall complement, support and strengthen LGUs in providing vital services to their members and help implement local government policies, programs, ordinances, and rules. Associations are encouraged to actively cooperate with LGUs in furtherance of their common goals and activities for the benefit of the residents of the subdivisions/villages and their environs. Where the LGUs lack resources to provide for basic services, the associations shall endeavor to tap the means to provide for the same. In recognition of the associations' efforts to assist the LGUs in providing such basic services, association dues and income derived from rentals of their facilities shall be tax-exempt: Provided, That such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. . . ." In reply thereto, we hereby hold that AVSCHOA, INC. is exempt from income tax, value-added tax or percentage tax, whichever is applicable, on its income derived from association dues and rentals of their facilities provided that such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of Avida Village Santa Cecilia, Brgy. Salawag, Dasmarias, Cavite. However AVSCHOA, INC. shall be subject to the applicable internal revenue taxes on its other income from trade, business or other activities. Specifically: TAHIED Income Taxes AVSCHOA, INC. shall, however, be subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code of 1997 (Tax Code of 1997, as amended) on its income derived from sources other than association dues or rentals of its facilities, which income should be returned for taxation. Likewise, interest income from currency bank deposits and yield or any other monetary benefit 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 from 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 April 15 of each year a profit and loss statement and balance sheet with the annual information return under oath, stating its gross income and expenses incurred during the year 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 resources and disposition of income. Value-Added Tax or Percentage Tax Likewise, AVSCHOA, INC.'s gross receipts from operations derived not from association dues nor rentals of their facilities shall be subject to the 12% VAT imposed under Section 108 of the Tax Code of 1997, as amended, which tax payment may legitimately be passed on to buyers of such goods and services; or 3% percentage tax imposed under Section 116 in relation to Section 109 (1) (W) of the same Code if the gross sales or receipts from such sale of goods and services do not exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00). It is requested that a copy of this letter of exemption be attached to the annual information return which AVSCHOA, INC. will file on or before the 15th day of the fourth month of each year. Under Section 235 of the Tax Code of 1997, as amended, any provision of existing general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of accounts and other pertinent records of AVSCHOA, INC. to determine compliance with the conditions set forth in this letter of tax exemption and tax liabilities, if any. It should be understood that AVSCHOA, INC. shall be constituted as withholding agent of the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 57 of the Tax Code of 1997, as amended. Finally, AVSCHOA, INC. is also 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 for services rendered which do not comprise income from association dues and rentals of their facilities. This ruling is 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. TADCSE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue