Bureau of Local Government Finance Opinion

March 15, 2016 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 2nd Indorsement Respectfully returned to the OIC-Regional Director for Local Government Finance, Regional Office V, Legazpi City, the within Indorsement dated March 8, 2016 requesting for a ruling/opinion on issue regarding property owned by a cooperative portion of which is being leased to a taxable entity. Representation is made that the Medical Mission Group Hospital Services Cooperative (MMGHSC) was classified as tax exempt under the provision of Sec. 1, Art. 60 of R.A. No. 9520, otherwise known as the "Philippine Cooperative Code of 2008," which provides: "Duly registered Cooperative under this Code which do not transact any business with non-members or the general public shall not be subject to any tax . . ." However, it is informed that a portion of the property owned by MMGHSC (MMG-Albay) was leased to Clarahil Trading , a business entity and a non-member of the Cooperative. Thus, the OIC-Regional Director of BLGF Region V is seeking clarification whether said portion of property owned by the Cooperative is subject to any tax. In this connection, it viewed that said act of transacting business by the subject Cooperative with a non-member since 2002 up to the present constituted a waiver to the rights of MMG-Albay for tax exemptions of any sort. Further, not only will the portion of real property leased be the subject of real property tax but all. By way of comment, we are not inclined to fully support the view that by leasing a portion of property owned by the Cooperative to a non-member like Clarahil Trading, the act constituted a waiver to the rights to claim tax exemptions of any sort. Provisions of law should be read together with other provisions within the same law and other related laws so as not create apparent conflict but to harmonize them with provisions. By saying so, attention is therefore invited to the provisions of R.A. No. 9520, Articles 60 and 61 of which are quoted as follows: " ART. 60. Tax Treatment of Cooperative . Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any taxes and fees imposed under the internal revenue laws and other tax laws . Cooperatives not falling under this article shall be governed by the succeeding section." (Emphasis supplied) DETACa " ART. 61. Tax and Other Exemptions . Cooperatives transacting business with both members and non-members shall not be subjected to tax on their transactions with members. In relation to this, the transactions of members with the cooperative shall not be subject to any taxes and fees, including not limited to final taxes on members' deposits and documentary tax. Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions : (emphasis ours) (1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and n ature. . . . . (2) Cooperatives with accumulated reserves and divided net savings of more than Ten million pesos (P10,000,000.00) shall fee (sic) the following taxes at the full rate: (a) Income Tax . . .; (b) Value-Added Tax . . .; (c) All other taxes unless otherwise provided herein ; and (d) Donations to charitable, research and educational institutions and reinvestment to socioeconomic projects within the area of operation of the cooperative may be tax deductible. (3) All cooperatives, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided , That all sales or services rendered for non-members shall be subject to the applicable percentage taxes sales made by producers, marketing or service cooperatives: Provided further , That nothing in this article shall preclude the examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority. xxx xxx xxx." In the case of MMG-Albay, it may be said that the mere leasing of a portion of property owned by it constitutes a waiver to its right to tax exemption. In the first place, the term "transact business" should be read in relation to the type and the nature of the business of a Cooperative. In the herein case, it is clear that MMG-Albay falls under the category of a "Health Services Cooperative," the primary purpose of which is providing medical, dental and other health services. In this sense, it may be inferred that the "transaction" of leasing a portion of property that MMG-Albay owned to a taxable entity like Clarahil Trading , may be considered as a one-time transaction and may not necessarily constitute a customary transaction of a health service cooperative. However, granting arguendo that the lease transaction constitute a waiver, it must be pointed out that the taxability of a Cooperative like MMG-Albay is qualified under Art. 61, which provides that: "Notwithstanding the provisions of any law or regulation to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions. . . . ." Clearly, even if the cooperative is dealing with non-members it still enjoys certain exemptions. In this regard, the governing provision of law is Section 234 (d) of the Local Government Code (LGC) of 1991, which provides: " Section 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax : xxx xxx xxx (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and, . . . . " As can be gleaned from the preceding provision of law, exemption from real property taxes of a duly registered cooperative under R.A. No. 6938, as amended, is inclusive and without qualification. To be precise, for as long the property is owned by a duly registered cooperative under the pertinent law, such property remains exempt from real property taxes. Provided , however, that said cooperative dealing with members and non-members does not have accumulated reserves and divided net savings of more than P10,000,000,00, in which case, said cooperative shall be subject to taxes as provided for in Article 61 (2) (c), supra. Be guided accordingly. (SGD.) JOCELYN T. PENDON OIC-Executive Director