Hagdang-Bato Homeowners' Association, Inc.

March 25, 2009 BIR RULING [NSNP-(S30C-009) 234-09] S30; S30-047-01 Hagdang-Bato Homeowners' Association, Inc. 435 F. Ortigas St.,Hagdang-Bato Townhomes Mandaluyong City Attention: Mr. Jaime del Rosario President Gentlemen : This refers to your letter dated January 23, 2009 requesting exemption from the payment of internal revenue taxes. It is represented that Hagdang-Bato Homeowners' Association, Inc. is a non-stock, non-profit association duly registered with the then Ministry of Human Settlements Home Financing Corporation, [now Housing and Land Use Regulatory Board] (HLURB),with HLURB Certificate of Registration No. 04-607 dated February 12, 1985; and that the purposes for which the association was formed are as follows: 1. To establish, manage, maintain and operate adequate community facilities and services for its members in accordance with home-owners' association principles as recognized under Executive Order No. 535, dated May 3, 1979; 2. To serve as a focal point in actualizing the totality of all human settlements endeavor; 3. To support and enhance local integration and inter-agency cooperation in carrying out development projects in the community; 4. To harness people's participation in every activity towards the development of the community; 5. To provide the members with an opportunity to acquire experiences in formal organization and self-government; 6. To operate and maintain the services and facilities initiated by and/or turned over to the Association and facilitate the collection of fees from the residents for the said facilities and services; 7. To undertake any activity that will benefit not only the community, but other communities and the whole country as well; 8. To acquire, purchase, own, hold, develop, lease mortgage, pledge, exchange, sell, transfer, or otherwise invest, trade or deal in, in any manner permitted by law, real and personal property of every kind and description or any interest therein, as may be necessary for the accomplishment of the purposes of this Association; 9. To borrow money and otherwise contract indebtedness and to secure payment thereof by mortgage, pledge or deed of trust of, or any encumbrance upon, any or all of its then-owned or after-acquired real or personal properties and assets; 10. To enter into, make, perform and carry-out, or cancel and rescind contracts of every kind and for any lawful purpose with any person, firm, association, corporation, syndicate, domestic or foreign, or others; 11. Any profits derived from the hereinabove mentioned activities shall not inure to any of the members or officers but shall be exclusively owned by the Association. The inhibitions against distribution of profits shall not be construed to preclude reasonable compensation of officers, staff members, and consultants for actual substantive services rendered in the furtherance of the purposes of this Association, if such compensation is expressly allowed by the By-Laws; 12. To adopt, amend and repeal its By-Laws subject to the approval of the Home Financing Corporation/Securities and Exchange Commission; and 13. To do and perform any other acts and things and to have and exercise any other powers which may be necessary, convenient and appropriate to accomplish the purposes for which this Association is organized. In reply, pleased be informed as follows: Income Tax Based on the foregoing, this Office is of the opinion and so holds that Hagdang-Bato Homeowners' Association, Inc. is a corporation not organized for profit but operated exclusively for the benefit of the members as contemplated under Section 30 (C) of the Tax Code of 1997. Accordingly, it is exempt from the payment of income tax on income received by it as such organization, and therefore, need not file an income tax return concerning such income. HDAaIS However, it 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 is requested that a copy of this letter of exemption be attached to the annual information return which Hagdang-Bato Homeowners' Association, 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, any provision of existing general and special law to the contrary notwithstanding, the books of accounts and other pertinent records of tax-exempt organization 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 should be understood that the said exempt non-government organization 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 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations (Rev. Regs.) 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 Rev. Regs. No. 2-98, as amended (BIR Ruling No. S30-047-01 dated June 5, 2001). AHcDEI HOWEVER, this ruling is subject to the condition that Hagdang-Bato Homeowners' Association, Inc. shall submit photocopies of its By-laws, Annual Information Returns and Financial Statements (balance sheet) for the past three (3) years in compliance with Revenue Memorandum Circular No. 14-2001. Otherwise, it shall be given a temporary exemption instead. VAT Section 105 of the Tax Code of 1997 provides that 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 * (VAT) imposed in Sections 106 to 108 of the same Code. 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. Accordingly, if Hagdang-Bato Homeowners' Association, Inc . is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 & DA-043-2004 dated February 4, 2004). Moreover, the tax exemption granted to it as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. CSDcTH Revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. However, the above exemption from the 12% VAT does not extend to its purchase of goods or properties or services and importation of goods. Hence, notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code (VAT Ruling No. 119-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004). 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service