Title
BIR Guidelines on Cooperative Tax Exemption
Law
Bir Revenue Memorandum Order No. 76-2010
Decision Date
Sep 27, 2010
The Implementing Rules and Regulations for Articles 60 and 61 of the Philippine Cooperative Code of 2008 provide guidelines for the taxation and registration of cooperatives, including exemptions and requirements for obtaining a Certificate of Tax Exemption/Ruling from the Bureau of Internal Revenue.
implementing rules
regulations
guidelines

Legal basis and related rules

  • The Order is issued pursuant to Article 144 of Republic Act No. 9520, in relation to Sections 4 and 244 of the National Internal Revenue Code of 1997 (NIRC), as amended.
  • Republic Act No. 9520 extends the preferential tax treatment previously granted to cooperatives under Republic Act No. 6938.
  • Joint Rules and Regulations implementing Articles 60, 61, and 144 of Republic Act No. 9520 were issued by the Department of Finance, Bureau of Internal Revenue, and Cooperative Development Authority, effective June 16, 2010.
  • The Order circularizes the Joint Rules and Regulations through Revenue Memorandum Circular (RMC) No. 012-10 dated February 11, 2010.

Policy and objectives

  • The Order declares a policy to integrate and streamline the requirements for confirming cooperative tax exemptions under Republic Act No. 9520.
  • The BIR adopts simplified and uniform procedures to expedite processing and improve administration of cooperative tax exemptions.
  • The Order requires coordination between Revenue Regions and the National Office for monitoring the revenue impact of exemptions granted to cooperatives.

Coverage and eligibility requirements

  • Cooperatives previously registered with and confirmed by the Cooperative Development Authority (CDA) under Republic Act No. 6938 and Republic Act No. 6939 are deemed registered under Republic Act No. 9520 and must secure a new Certificate of Registration from CDA.
  • A cooperative becomes eligible to apply for a Certificate of Tax Exemption with the BIR only after it secures the new Certificate of Registration issued by CDA.
  • Cooperatives registered with CDA under Republic Act No. 9520 must update their registration information with the BIR.
  • Certificate of Tax Exemption applications are processed by the Revenue District Office (RDO) and Revenue Region having jurisdiction over the cooperative’s principal place of business.
  • A cooperative applying for a Certificate of Tax Exemption must update its BIR registration with the RDO having jurisdiction over its principal place of business.
  • The processing of the cooperative’s registration update application may be done simultaneously with its application for tax exemption.

Documentary requirements and application forms

  • For original issuance, a cooperative must submit a duly accomplished BIR Form No. 1945 for cooperatives.
  • For original issuance, the cooperative must attach certified true copies of:
    • Articles of Cooperation and By-Laws, certified by CDA;
    • The new Certificate of Registration issued by CDA under the new Cooperative Code;
    • The current Certificate of Good Standing issued by CDA effective on the date of application; and
    • The cooperative’s current BIR Certificate of Registration.
  • For original issuance, the cooperative must also submit an original copy of a certification under oath of the List of Cooperative Members, showing each member’s TIN and capital contributions, prepared by an authorized cooperative official.
  • For the initial submission of the member list, members without TIN may temporarily use NSO number, or other government-issued ID number, or a Community Tax Certificate Number; thereafter, members must secure TIN with the BIR for updated submissions together with the annual filing of the cooperative’s annual income tax return.
  • For renewal, a cooperative must submit a duly accomplished BIR Form No. 1945 and attach certified true copies of:
    • Its CDA Certificate of Registration under the new Cooperative Code;
    • The latest Articles of Cooperation and latest By-Laws;
    • The current Certificate of Good Standing from CDA effective on the date of application; no application is processed without a current and effective certificate; and
    • The cooperative’s latest financial statements of the immediately preceding year, duly audited by a BIR accredited independent certified public accountant.

Processing, approval, numbering, release

  • Cooperatives must surrender their Old BIR Certificate of Registration and submit an Application of Update of BIR Registration to the RDO where originally registered.
  • The cooperative must submit its application for Certificate of Tax Exemption via RDO where registered, using BIR Form No. 1945 with complete documentary requirements.
  • The RDO must pre-evaluate the submission using a Pre-evaluation Sheet of Revenue Officer.
  • If submissions comply with the requirements, the Revenue Officer of the Day prepares a Memo Endorsement Form recommending issuance to the Regional Director.
  • The entire docket, with pre-evaluation and endorsement letter report, must be transmitted to the Office of the Regional Director within five (5) working days from filing of the fully accomplished BIR Form No. 1945 with required documents, through the Chief, Legal Division.
  • The Chief, Legal Division reviews the RDO report; if in order, it prepares the appropriate Certificate of Tax Exemption using the applicable format.
  • The Certificate of Tax Exemption is forwarded to the Regional Director for signature, and only applications complying with documentary requirements are approved.
  • Immediately after approval and signature, the certificate is transmitted back to the Legal Division for numbering.
  • Certificate numbering must follow the specified code scheme:
    • The first certificate for the period uses aCOOP No. 00001-10-RR-01-RDO 001a (as an example format),
    • 00001 indicates the first certificate for the period,
    • 10 represents calendar year 2010,
    • RR-01 stands for Revenue Region No. 1, and
    • RDO 001 refers to RDO No. 001 (or the RDO number where the cooperative is registered taxpayer).
  • Certificates are numbered sequentially as issued.
  • The signed and numbered Certificate of Tax Exemption is transmitted back to the RDO for release to the cooperative together with the updated Certificate of Registration, when applicable.
  • The RDO must endeavor to release the Certificate of Tax Exemption within ten (10) working days from submission of complete documents by the cooperative.
  • The RDO must refuse to accept a cooperative’s application when it is not properly supported by the required documents.

Tax exemptions under Republic Act No. 9520

  • Duly registered cooperatives dealing/transacting business with members only are exempt from paying any taxes and fees, including those enumerated in Section 7.
  • For members-only cooperatives, the exemption covers:
    • Income Tax imposed by Title II of the NIRC;
    • Value-Added Tax (VAT) imposed under Title IV of the NIRC;
    • Percentage Tax imposed under Title V of the NIRC;
    • Donor’s Tax on donations to duly accredited charitable research and educational initiatives and reinvestment to socio-economic projects within the cooperative’s area of operation;
    • Excise Tax under Title VI of the NIRC for which the cooperative is directly liable;
    • Documentary Stamp Tax under Title VII of the NIRC, provided the other party to the taxable document/transaction (who is not exempt) is directly liable;
    • Annual Registration Fee of PHP 500.00 under Section 236(B) of the NIRC;
    • Taxes on transactions with insurance companies and banks, including but not limited to 20% final tax on interest deposits and 7.5% final income tax on interest income derived from a depository bank under the expanded foreign currency deposit system;
    • Electric cooperatives duly registered with the Authority that are exempt from VAT on systems loss and on revenues on distribution, supply, metering, and lifeline subsidy of electricity to members.
  • Cooperatives with accumulated reserves and undivided net savings not more than PHP 10,000,000.00 are exempt from the national internal revenue taxes enumerated under Section 7.
  • Cooperatives with accumulated reserves and undivided net savings more than PHP 10,000,000.00 receive different treatment depending on whether transactions are with members or non-members.
  • For such cooperatives, business transactions with members are exempt from the national internal revenue taxes enumerated under Section 7.
  • For such cooperatives, business transactions with non-members must be taxed as follows:

Non-member taxation: income, VAT, percentage

  • For income tax, non-member transactions are taxed on the amount allocated for interest on capitals, with the proviso that the same tax is not imposed on interest individually received by members.
  • The income tax base for cooperatives liable to income tax is the net surplus from business transactions with non-members after deducting statutory reserve funds under the Cooperative Code and other laws.
  • For VAT, cooperatives transacting with non-members pay VAT at the applicable rules, except that specified transactions are exempt from VAT under Section 109 (L), (M), and (N) of the NIRC, as amended by Republic Act No. 9337.
  • VAT-exempt items under Section 109 (L) include specified sales and related transactions of duly registered agricultural cooperatives in good standing, subject to the producer/cooperative-sale requirements and processing-product rules stated in Section 8.
  • VAT-exempt lending receipts under Section 109 (M) include gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with CDA.
  • VAT-exempt transactions under Section 109 (N) include sales by non-agricultural, non-electric, non-credit cooperatives duly registered with CDA, provided each member’s share capital contribution does not exceed PHP 15,000, regardless of aggregate capital and net surplus ratably distributed among members.
  • For percentage tax, all sales of goods and/or services rendered to non-members are subject to applicable percentage taxes under Title V of the NIRC, except sales made by producers, marketing or service cooperatives.
  • For other internal revenue taxes, cooperatives are taxed on all other internal revenue taxes unless another law expressly provides an exemption.

Deductions and insurance/bank tax relief

  • Cooperatives transacting with non-members may be entitled to limited or full deductibility of donations to duly accredited charitable, research and educational institutions and reinvestment to socio-economic projects within the area of operation.
  • Cooperatives transacting with non-members are entitled to an exemption on taxes on transactions with insurance companies and banks, including but not limited to 20% final tax on interest deposits and 7.5% final income tax on interest income from a depository bank under the expanded foreign currency deposit system, pursuant to Article 61(3).

Taxability of unrelated and other taxes

  • All cooperative income not related to the cooperative’s main/principal business/es under its Articles of Cooperation is subject to the appropriate taxes under the NIRC, as amended, even if the cooperative transacts with members only.
  • All cooperatives, regardless of classification, are subject to:
    • Capital Gains Tax on sale of shares of stock or sale/exchange/disposition of real property classified as capital assets;
    • Documentary stamp taxes on transactions of cooperatives dealing with non-members, except transactions with banks and insurance companies; when one party enjoys DST exemption, the other party who is not exempt is directly liable;
    • VAT billed on purchases of goods and services, except VAT on the importation by agricultural cooperatives of direct farm inputs, machineries and equipment, including spare parts, to be used directly and exclusively in production/processing of produce under Section 109(L) of the NIRC; tax-free importations must not be transferred to any person until five (5) years, otherwise the cooperative and transferee/assignee are solidarily liable to pay twice the amount of the tax and/or duties;
    • Withholding tax on compensation/wages, except for employees who are minimum wage earners, and creditable/final withholding taxes if applicable; cooperatives are withholding agents on income payments subject to withholding under Revenue Regulations No. 2-98, as amended; and
    • All other taxes for which cooperatives are directly liable and not expressly exempted by law.

Certificate validity, renewal, and monitoring

  • The Certificate of Tax Exemption is valid for five (5) years from its date of issue or date of effectivity unless sooner revoked or cancelled.
  • Cooperatives must submit annually to the appropriate RDO the required documents and information together with the cooperative’s Annual Information Return (BIR Form 1702) due on or before the 15th day of the fourth month following the close of the calendar year.
  • The annual submission must include:
    • A certified true copy of the current and effective CDA Certificate of Good Standing;
    • An oath certification by the Chairperson/General Manager stating:
      • The type/category of cooperative and principal activities/business transactions,
      • Whether it transacts business with members only or with both members and non-members,
      • Accumulated reserves as of year end,
      • Net surplus for the year, and
      • That at least 25% of net surplus is returned to members as interest on share capital and/or patronage refund;
    • An original copy of the yearly summary of transaction records clearly showing member vs. non-member transactions (including nature/subject matter, parties’ names and addresses, transaction date, and amounts), using a separate filing format to be prescribed in a separate RMO; and
    • An original copy of an oath certification of the list of members showing each member’s TIN and share capital contribution as of year end.
  • RDOs must consolidate and submit copies of the transaction summaries of cooperatives to the Commissioner of Internal Revenue not later than the 15th day of May every year.
  • If a cooperative fails to submit the transaction summary or submits an insufficient one for a particular year, the RDO must require it in writing to submit a complete summary on or before the 15th day of June of that year.
  • Failure to submit a complete transaction summary within the prescribed period is a ground for cancellation/revocation of the Certificate of Tax Exemption.
  • Failure to comply with the annual requirements is a ground for cancellation/revocation of the Certificate of Tax Exemption.
  • Renewal requires filing BIR Form No. 1945 at least two (2) months prior to the Certificate’s expiration date, following the same provisions on documentary requirements and processing.
  • A renewed Certificate of Tax Exemption is valid for another five (5) years, unless sooner revoked for a cause.

Revenue impact monitoring reports

  • Within ten (10) days after filing BIR Form 1702, each RDO must submit to the Regional Director through the Collection Division of the Regional Office a cooperative profile report containing:
    • The list of cooperatives registered with the RDO arranged by type,
    • Details of business operations per cooperative (Gross Sales, Gross Income, Operating Expenses, Net Surplus, Accumulated Reserves and other relevant details) in the format prescribed by the Audit Information, Tax Exemptions and Incentives Division.
  • The Regional Director must submit the reports within ten (10) days from receipt to the Assessment Service for preparation of the summary report for the MANCOM.
  • Each Regional Director must submit on or before the 15th day of the following month a Monthly Summary Report of all Certificate of Tax Exemptions issued by the region, together with copies of said certificates, to the Assistant Commissioner, Legal Service for a centralized database.

Transitory and repealing effect

  • All applications for tax exemption under Republic Act No. 9520 filed with the Law Division before issuance of this Order must be transmitted to the concerned RDO within ten (10) days from the Order’s effectivity for processing.
  • Cooperatives with pending applications must update their BIR Registration as required by this Order.
  • All issuances and/or portions inconsistent with the Order are repealed or amended accordingly.
  • The Order takes effect immediately.

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