BA Lepanto Condominium Corporation

December 21, 2009 BIR RULING [NSNP-(S30C-033) 802-09] 30 (C);S-30-060-2007 dtd. 10/04/2007 BA Lepanto Condominium Corporation 8747 Paseo de Roxas, Makati City Attention: Engr. Jophert A. Bragado Property Manager Gentlemen : This refers to your letter dated December 18, 2009 requesting for exemption from the payment of income tax, filing of the corresponding income tax return under Section 30 of the Tax Code of 1997, as amended, and value-added tax (VAT). Documentary evidence submitted to this Office disclosed that BA Lepanto Condominium Corporation is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission under SEC Registration No. 58577 dated September 21, 1982 with Tax Identification Number (TIN) 000-223-755; that BA Lepanto Condominium Corporation was organized pursuant to the mandate of Section 30 of Presidential Decree No. 957 which states that: "The owner or developer of a subdivision project or condominium project shall initiate the organization of a homeowners' association among the buyers and residents of the projects for the purpose of promoting and protecting their mutual interest and assist in their community development." BA Lepanto Condominium Corporation was organized to promote the best interests, as well as to safeguard the welfare of the unit owners and occupants of the condominium buildings known as BA Lepanto Condominium Project located at Makati City, by maintaining the building and its facilities, and adopting measures, consistent with laws, to enhance and regulate the use and enjoyment by its occupants of said building facilities. CSTDIE BA Lepanto Condominium Corporation collects monthly association dues from its unit owners/tenants to cover for administrative expenses and utilities and maintenance and repairs of the common areas for the benefit of the unit owners. It does not gain or profit from the dues collected. It also bills and collects reimbursement from all unit owners/tenants for utility (electricity) expenses paid by the said corporation in behalf of the unit owners/tenants for which a mother meter indicates the total utility consumption to be paid by the corporation for a certain period and that using the individual meters maintained at each units as basis, the utility charges paid are allocated to each unit based on actual consumption and later on reimbursed at cost. In effect, BA Lepanto Condominium Corporation advances the payments in behalf of the unit owners/tenants and reimburse them at cost, without any profit. In reply, please be informed as follows: Income Tax Based on the foregoing, this Office is of the opinion and so holds that BA Lepanto Condominium Corporation is a corporation organized for mutual aid association as contemplated under Section 30 (C) of the Tax Code of 1997, as amended. 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. However, it is subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 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 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 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, as amended. 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. aITECA It is requested that a copy of this letter of exemption be attached to the Annual Information Return which your corporation 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 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 they have been granted tax exemptions or tax incentives, and their tax liabilities, if any. It should be understood that BA Lepanto Condominium Corporation shall be constituted as a withholding agent for the government if it acts as an employer and any of its employee receives compensation income subject to withholding tax under Sec. 79 (A), Chapter XIII, Title II of the Tax of 1997, as amended, as implemented by Revenue Regulations No. 2-98, or if it makes income payments to individuals or corporations subject to the withholding tax provided for in Section 57 of the Tax Code of 1997, as amended, also as implemented by Revenue Regulations No. 2-98, as amended. The receipts of the association dues, membership fees, power and water collections and other assessments/charges that will be collected from its members, which will be held in trust and which are to be used solely for administrative expenses in implementing its purpose/s and from which the aforesaid association could not realize any gain or profit as a result of its receipt thereof, are not includible in said corporation's gross income. Hence, the same are not subject to income tax and consequently to the expanded withholding tax. VAT Moreover, under Section 105 of the Tax Code of 1997, as amended, VAT is collected upon any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties and renders service. 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, your rental income from the common areas being rented out shall be subject to VAT since the corporation is engaged in an economic or commercial activity. However, your monthly association dues remain exempt from income tax and consequently to the expanded withholding tax. Finally, considering that BA Lepanto Condominium Corporation will not sell, barter, exchange, lease any goods or property and will not render service for a fee but merely implements the administration of the required services to collect the association dues from the unit owners pursuant to its corporate purpose/s as "trustee" of the fund thereof, it is not subject to VAT on such activity. HaTAEc 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