VAT Ruling No. 013-06

November 24, 2006 VAT RULING NO. 013-06 Sec. 109 (1) (L) DA 333-00 Sorosoro Ibaba Development Cooperative Sorosoro Ibaba, Batangas City Attention: Dr. Ben B. Bagui Chairman of the Board Gentlemen : This refers to your letter dated September 13, 2006 requesting for a ruling on the exemption from VAT on your importation of feed machineries and equipment, including spare parts thereof, to be used exclusively in the production and/or processing of your produce as an agricultural cooperative. Documents submitted reveal that Sorosoro Ibaba Development Cooperative ( hereinafter referred to as Sorosoro ) is an agricultural multipurpose cooperative duly registered with the Cooperative Development Authority (CDA) under R.A. 6938 as evidenced by the following: (1) Original Certificate of Registration issued by the CDA; (2) Articles of Cooperation and By-Laws; (3) Certificate under oath by the Chairman of the Board that it is transacting business with members only; (4) Original copy of the Certificate of Good Standing from the CDA; (5) Certificate under oath by the Chairman as certified by the CDA as to the amount of the accumulated reserves and undivided net savings, and that at least 25% ( 83.29% in this particular case ) of the net income is returned to the members in the form of interest and/or patronage refund; (6) Certification under oath of the list of members and share capital contribution of each member; and (7) Latest Financial Statements duly audited by an independent CPA. EaISDC It is further represented that Sorosoro is dealing with members only and is actively engaged in livestock projects with more than 5,000 regular members, mostly hog raisers from Batangas and nearby provinces; that the increasing demand for feeds by your patrons has prompted you to expand your feed-milling project leading to your decision to modernize and at the same time economize your systems of production to give the members highly competitive products and services; that the machineries, equipments and spare parts that fit your requirements are not locally available; and that you would like us to confirm your opinion that your importation of feed machineries and equipment, including spare parts thereof to be used directly and exclusively in the production and/or processing of your produce will be exempt from the value-added tax imposed on importation. In reply, please be informed that Section 109(1)(L) of the Tax Code of 1997, as amended by RA 9337, provides as follows: "Sec. 109. Exempt Transactions . (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: "xxx xxx xxx "(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their IMPORTATION of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce ;" In relation to that, Article 61 of R.A. 6938, otherwise known as the " Cooperative Code of the Philippines ", provides as follows: ACTIcS "Article 61. Tax Treatment of Cooperatives . 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 government taxes or fees imposed under the internal revenue laws and other tax laws." On the basis of the foregoing facts and pursuant to Section 109(1)(L) of the Tax Code, as last amended by RA 9337, in relation to Article 61 of RA 6938, Sorosoro being an agricultural cooperative in good standing transacting business with members only and duly registered with the CDA, is exempt from VAT on its importation of feed machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce. 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, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner