Publishing the Provisions of Articles 61 and 62 of Republic Act No. 6938, Otherwise Known as the "Cooperative Code of the Philippines", Prescribing the Extent of the Tax Exemption of Cooperatives and Providing the Guidelines for the Availment Thereof

June 18, 1991 REVENUE MEMORANDUM CIRCULAR NO. 48-91 SUBJECT : Publishing the Provisions of Articles 61 and 62 of Republic Act No. 6938, Otherwise Known as the "Cooperative Code of the Philippines", Prescribing the Extent of the Tax Exemption of Cooperatives and Providing the Guidelines for the Availment Thereof TO : All Internal Revenue Officers and Others Concerned SECTION 1 . For the information and guidance of all concerned, there are quoted hereunder Articles 61 and 62 of Republic Act No. 6938, otherwise known as the "Cooperative Code of the Philippines". "Art. 61. Tax Treatment of Cooperatives Duly registered cooperatives under this Code which do not transact any business with nonmembers or the general public shall not be subject to any government taxes or fees imposed under the internal revenue laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section. "Art. 62. Tax and Other Exemptions Cooperatives transacting business with both members and nonmembers shall not be subject to tax on their transactions to members. Notwithstanding the provisions of any law or regulations to the contrary, such cooperatives dealing with nonmembers shall enjoy the following tax exemptions: "(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 nature. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machinery, equipment and spare parts, used by them and which are not available locally as certified by the Department of Trade and Industry. All tax-free importations shall not be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or duties thereon. cd "(2) Cooperatives with accumulated reserves and undivided net savings of more than ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate: (a) Income Tax On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually received by members; (b) Sales Tax On sales to nonmembers: Provided, however , That all cooperatives, regardless of classification, are exempt from the payment of income and sales taxes for a period of ten (10) years. "For cooperatives whose exemptions were removed by Executive Order No. 93, the ten-year period shall be reckoned from the effectivity date of said executive order. Cooperatives created after the approval of this Code shall be reckoned from the date of registration with the Authority: Provided, That at least twenty-five centum (25%) of the net income of the cooperatives is returned to the members in the form of interest and/or patronage refunds; (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 nonmembers shall be subject to the applicable percentage taxes except 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." SECTION 2 . Definition of Cooperative : A cooperative is a voluntary organization of people who have agreed to pool their resources together in order to undertake an economic enterprise for the purpose of meeting their common needs, and which they themselves democratically manage and control, and share in the economic benefits on the basis of participation and patronage. (page 2, Primer on CCP by Senator Agapito "Butz" Aquino) c asia A cooperative is a duly registered association of persons with a common bond of interest, who have voluntarily joined together to achieve a lawful common social and economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. R.A. 6938, Section 3. SECTION 3 . Types of Cooperatives that may avail of the Tax Exemption Privileges. (a) Credit Cooperative one which promotes thrift among its members and creates funds in order to grant loans for productive and provident purposes; (b) Consumers Cooperative one the primary purpose of which is to procure and distribute commodities to members and nonmembers; (c) Producers Cooperative one that undertakes joint production whether agricultural or industrial; (d) Marketing Cooperative one which engages in the supply of production inputs to members and markets their products; (e) Service Cooperative one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication and other services; and (f) Multipurpose Cooperative one which combines two (2) or more of the business activities of these different types of cooperative. SECTION 4 . Tax Exemption , extent allowable. 4.1 Cooperatives dealing/ transacting business with members only shall be exempt from all taxes or fees imposed under the National Internal Revenue Code and other tax laws. However, when this particular Cooperative distributes interest on capital, such interest shall be taxable to the recipient member and shall be declared in his/its income tax return for tax purposes. 4.2 COOPERATIVES DEALING/TRANSACTING BUSINESS WITH MEMBERS AND NON-MEMBERS WITH ACCUMULATED RESERVES AND UNDIVIDED NET EARNING OR NOT MORE THAN TEN MILLION PESOS 4.2.1 Shall be exempt from all taxes of whatever name and nature on their transactions with members. 4.2.2 Shall be exempt from value added tax, ad valorem and excise taxes on their importations of machinery, equipment and spare parts used by them and which are not available locally as certified by the Department of Trade and Industry, as defined in DOF-CDA Joint Circular No. 1-90, to wit: a. machinery any mechanical or electrical device actually, exclusively and directly needed by the cooperative in the operation of its primary business activity. b. equipment a contrivance or tool actually, exclusively and directly needed by the cooperative in the operation of its business activity. c. Spare Parts a duplicate of any parts of machinery or equipment kept as a replacement in case of damage or loss. 4.3 COOPERATIVES DEALING/TRANSACTING BUSINESS WITH BOTH MEMBERS AND NON-MEMBERS WITH ACCUMULATED RESERVES AND UNDIVIDED NET EARNINGS OF MORE THAN TEN MILLION PESOS (P10M) shall pay the following taxes at full rates: 4.3.1 Income tax on the amount allocated for interest on capital; PROVIDED that the same tax shall not be imposed on interest individually received by members. 4.3.2 Sales tax on sales to non-members. 4.3.3 All other taxes unless otherwise provided herein. 4.3.4 Taxes on importation of machinery, equipment and spare parts to be used by them and which are not locally available as Certified by the DTI. SECTION 5 . Deductibility of Donations and Reinvestments Donations made by the cooperatives to charitable, research and non-stock, non-profit or government educational institutions and reinvestments in socio-economic projects within the area of operation of the cooperative may be deductible for tax purposes subject to the limitations provided for in Section 29(h) of the Tax Code. SECTION 6 . Period of Tax Exemption 6.1 Registered and qualified cooperatives regardless of their classification, shall be exempt from income and sales taxes for a period of ten (10) years, reckoned from the date of registration with The Cooperative Development Authority. 6.2 Previously registered cooperatives under P.D. 175, P.D. 775 or E.O. 898, whose tax exemptions therein provided were withdrawn by E.O. 93, shall be granted the same tax exemption under RA 6938 upon registration and qualification and the ten (10) year period of exemption shall be reckoned from March 10, 1987, the date of effectivity of E.O. 93. SECTION 7 . Passive Investment Income All cooperatives are subject to the 20% final withholding tax on interest from Philippine currency deposits, yield from deposit substitutes, trust funds and similar arrangements, and royalties, derived from sources within the Philippines, the said income not being derived from cooperative economic activity. They shall also be taxed on prizes, winnings and capital gains realized on sales or exchange of property. SECTION 8 . Documentation Requirements 8.1 For the issuance of Tax Exemption Certificate: A Letter-Application signed by the President/General manager, or his duly authorized representative of the Cooperative, should be submitted to BIR, attaching thereto the following documents: a. Articles of Cooperation and By-Laws b. Certificate of Registration with the CDA c. Certification under oath by the President/General Manager that the Cooperative is not transacting business with non-members. d. Certificate of Confirmation of Registration from the CDA (in the case of Cooperatives already existing and previously registered under P.D. 175, P.D. 775, and E.O. 898, before the creation of the CDA), and e. Certification under oath by the Chairman/President/General Manager of the Cooperative (if previously registered as above stated), as to the amount of accumulated reserves and undivided net savings, and that at least 25% of the net income is returned to the members in the form of interest and or patronage refund. f. Latest Financial Statement duly audited by an independent CPA. 8.2 For the release of importations: a. Certification of Registration and/or Confirmation issued by the CDA, b. Bill of Lading/Airway Bill, Parcel Post notice and other shipping documents, c. Commercial invoice and packing list, d. Sworn Statement of the Chairman/ President/General Manager that the imported articles (machinery, equipment and spare parts) are actually, exclusively and directly needed by the Cooperative in the operation of its primary business/cooperative activity and that they are not for sale, barter or hire, e. Certification from the Department of Trade and Industry that the machinery, equipment and spare parts are not locally available, f. Certificate of undertaking that upon release and physical possession of the machinery and equipment the words "Entered duty-tax free" under R.A. 6938 shall be printed on a conspicuous space on the machinery and equipment. (See Sec. 3, DOF-CDA Joint Circular No. 1-90 dated Nov. 7, 1990) Otherwise, the tax exemption shall be withdrawn and the corresponding taxes shall be collected on the importation. SECTION 9 . Non-Transferability of Tax Free Importations 9.1 All Tax Free importation of cooperatives shall not be transferred to any person for a period of five (5) years from date of importation, otherwise, the Cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or duties thereon. SECTION 10 . Newly organized cooperatives transacting both with members and non-members shall be issued certificate of tax exemption on the basis of the CDA certification of status (whether or not their accumulated reserves and undivided net savings are more than P10M), which shall be submitted to the BIR, together with the Articles of Cooperation and By-Laws. SECTION 11 . All internal revenue officers and others concerned are requested to give this Circular as wide publicity as possible. (SGD.) JOSE U. ONG Commissioner of Internal Revenue