QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 72-2003)
For NEA-registered ECs, the RMC states exemption from: (1) franchise tax under Sec. 119 of the 1997 Tax Code (citing BIR Ruling No. DA-250-03 dated July 31, 2003); (2) VAT on sales related to the generation/distribution of electricity and on importation of machinery/equipment/spare parts directly used in generation/distribution (Sec. 109(s)); (3) income taxes directly liable (P.D. No. 269, Sec. 39(a)(1)); (4) all National Government taxes and fees including franchise and other related fees/taxes, but with an end date and conditions (P.D. No. 269, Sec. 39(a)(2)); and (5) 3% percentage tax under Sec. 116.
The exemption ends on December 31 of the thirtieth full calendar year after the date of the cooperative’s organization or conversion, or until it becomes completely free of indebtedness incurred by borrowing—whichever event first occurs.
For a new cooperative formed by consolidation (Sec. 29 of P.D. No. 269), the exemption period begins as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under P.D. No. 269.
If the CDA-registered EC does not transact with nonmembers/general public, it is exempt from franchise tax (Sec. 119; same ruling cited), income tax on income from operations, VAT on relevant electricity-related sales and qualifying importations (Sec. 109(s)), 3% percentage tax (Sec. 116), Donor’s Tax on certain donations and reinvestment to socio-economic projects (as stated), excise taxes, documentary stamp taxes (with a rule on who is liable), and the annual registration fee of P500 (Sec. 236(B)).
If the EC transacts with members, it is subject to all national internal revenue taxes for which it is directly liable as enumerated under B(1). If it transacts with nonmembers and has accumulated reserves/undivided net savings of not more than P10,000,000, it is also subject to all those taxes.
Such ECs are exempt from customs duties and advance sales/compensating taxes on importation of machinery/equipment/spare parts used by them that are not available locally (DTI certification required). Tax-free imports cannot be transferred for five (5) years; otherwise the EC and transferee/assignee are solidarily liable to pay twice the amount of tax and/or duties.
It is exempt from: (1) income tax for 10 years from CDA registration, provided at least 25% of net income is returned to members as interest and/or patronage refund; (2) VAT on relevant electricity-related sales and qualifying importations (Sec. 109(s)); (3) annual registration fee of P500 (Sec. 236(B)); and (4) donor’s tax—donations to charitable/research/educational institutions and investment to socio-economic projects may be tax deductible.
After expiration, income tax applies on the amount allocated for interest on capital, but it is stated that the same tax is not imposed on interest individually received by members. Also, sales tax applies on sales to nonmembers. All other taxes apply unless otherwise provided in the RMC.
All ECs (whether NEA-registered or CDA-registered, and regardless of reserves) are exempt from payment of taxes on transactions with banks and insurance companies. However, sales/services rendered for nonmembers are subject to applicable percentage taxes (except sales/services by producers/marketing/service cooperatives).
No. The RMC states that nothing precludes examination of the EC’s books/accounts by duly authorized internal revenue officers for internal revenue tax purposes only, but requires previous authorization by the CDA.
All ECs are subject to: (a) 20% final income tax on interest from currency bank deposits, deposit substitutes/trust fund arrangements, and royalties from sources within the Philippines; (b) 7.5% final income tax on interest from a depository bank under the expanded foreign currency deposit system; (c) capital gains tax on sale/exchange of real property classified as capital assets or shares of stock; (d) documentary stamp taxes on transactions when EC dealing with nonmembers and reserves/undivided net savings exceed P10,000,000; (e) VAT billed on purchases of goods/services not exempt; and (f) all other taxes for which ECs are not expressly exempted.
Yes. The RMC states that all ECs are considered withholding agents and must file withholding tax returns and remit withholding taxes on all income payments that are subject to withholding.
The RMC provides that documentary stamp tax is exempt for the EC, but where documentary stamp tax applies to a taxable document/transaction, the other party to the transaction who is not exempt is the one directly liable for the tax.
It determines different tax treatment and exemptions: if reserves/undivided net savings are not more than P10,000,000, the EC generally is subject to the enumerated national internal revenue taxes, though customs/duty-related exemptions may apply for qualifying imports; if reserves/undivided net savings exceed P10,000,000, the EC may enjoy additional exemptions such as a 10-year income tax exemption (with the 25% return requirement) and other specified reliefs.
The VAT exemption applies to sales related to the generation and distribution of electricity and to importation of machinery/equipment (including spare parts) directly used in generation and distribution. The cited statutory basis is Sec. 109(s) of the 1997 Tax Code.