Philippine Cooperative Code of 2000 February 11, 2010 Joint Rules and Regulations Implementing Articles 60, 62 and 144 of R.A. 9520

This presentation covers 1. Supreme Court Decision No on 20% Final Tax on interest on savings and time deposits of Coop members 2. Significant Provisions of the Joint RR implementing RA No. 9520

Supreme Court Decision: G.R. No , January 22, 2010 “ x x x “All told, we hold that petitioner is not liable to pay the assessed deficiency withholding taxes on I nterest from the savings and time deposits of its members, as well as the delinquency interest of 20% per annum.”

CTA Decision that was reversed: CTA First Division, Feb 6, 2007 “Accordingly, petitioner is ORDERED TO PAY the respondent the respective amounts of P1,280, and P1,357, representing deficiency withholding taxes on interests from savings and time deposits of its members for the taxable years 1999 and In addition, petitioner is ordered to pay the 20% delinquency interest from May 26, 2003 until the amount of deficiency withholding taxes are fully paid pursuant to Section 249 (C) of the Tax Code.”

CTA Decision that was reversed: CTA En Banc, May 29, 2007 “ x x x “Petitioner’s business falls under the phrase “similar arrangements;” as such, it should have withheld the corresponding 20% final tax on the interest from the deposits of its members.”

Rulings Cited by SC: Ruling issued by Cir Bienvenido Tan Ruling issued by ACIR James Roldan

Ruling of CIR B. Tan: BIR Ruling No dated Nov 16, 1988 “ Furthermore... x x x Such being the case, and since interest from any Philippine currency bank deposit and yield or any other monetary benefit from deposit substitutes are paid by banks, you are not the party required to withhold the corresponding tax on the aforesaid savings account and time deposits of your members. (Underscoring ours) :

Ruling of CIR J. Roldan: BIR Ruling DA dated Oct 5, 2006 “The members’ deposits with the cooperatives are not currency bank deposits nor deposit substitutes. Hence the tax imposed under Sec 24(B)(1) of the 1977 Tax Code, as amended, does not apply to the interest income derived by the members of the cooperative. However, the said interest income shall form part of the gross income of the individual member subject to the tax imposed under Sec 24(A) of the Tax Code. x x x “

Part of the query cited by the SC : “ 3.Exemption of interest income on members’ deposit (over and above the share capital holdings) from the 20% Final Withholding Tax. The NIRC states that a “final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest on currency bank deposit and yield or any other monetary benefit from the deposit substitutes and from trust funds and similar arrangement x x x” for individuals under Section 24(B)(1) and for domestic corporations under Section 27(D)(1).

Part of the query cited by the SC : Cont’d “Considering the members’ deposits with the cooperatives are not currency bank deposits nor deposit substitutes, Section 24(B)(1) and Section 27(D)(1), therefore, do not apply to members of cooperatives and to deposits of primaries with federations, respectively.” Note: What should have been cited is not the above but the ruling of ACIR James Roldan in the previous slide.

Republic Act No Significant Provisions of the Joint CDA-BIR RR

Coops dealing with members only Exempt from paying any taxes and fees including but not limited to: 1. Income Tax 2. VAT 3. Percentage Taxes 4. Donor’s tax on donations to duly accredited charitable, research and educational institutions and reinvestment to socio-economic projects within the area of operation of the Coops 5. Excise tax, for which it is directly liable

Coops dealing with members only 6. DST provided the other party to the taxable document/transaction who is not exempt shall be the one directly liable for it 7. Annual Registration Fee 8. All taxes on transactions with insurance companies and banks, including but not limited to 20% and 7.5% final tax on interests 9. Electric coops from VAT on revenues on systems. loss and VAT on revenues on distribution, metering and lifeline subsidy of electricity to their members.

Coops dealing with non-members If Coop is with accumulated reserves and undivided net savings of not more than P10M. Exempt as the Coops dealing with members only under Section 7 of the Joint RR.

Coops dealing with non-members If Coop is with accumulated reserves and undivided net savings of more than P10M. On business transactions with non-members- Exempt as the Coops dealing with members only under Section 7 of the Joint RR.

Coops dealing with non-members If Coop is with accumulated reserves and undivided net savings of more than P10M. On business transactions with non-members- Pay the following at the full rate: 1. Income Tax 2. Value Added Tax 3. Percentage Tax 4. All other Internal Revenue Taxes unless otherwise provided by the law

On Income Tax (Sec 8.b.2.1.1) Tax base: The net surplus arising from the business transactions with non-members after deducting the amounts for the statutory reserve funds

On VAT (Sec 8.b.2.2.1) VAT is imposed on transactions with non- members, except the ff: 1. Sales by agricultural coops, whether in its original state or processed form, 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.

On VAT (Sec 8.b.2.2.1) VAT is imposed on transactions with non- members, except the ff: 1. Sales by agricultural coops, whether in its original state or processed form, 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.

On VAT (Sec 8.b.2.2.1) VAT is imposed on transactions with non- members, except the ff: 1. Sales by agricultural coops, whether in its original state or processed form, 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. Provided that:

On VAT (Sec 8.b.2.2.1) Provided that: any processed product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed the product of the cooperative.

On VAT (Sec 8.b.2.2.1) Sale or importation by agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer thereof. Sale of agricultural non-food products to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. If the cooperative is a mere trader, only sales to its members shall be exempt.

On VAT (Sec 8.b.2.2.1) VAT is imposed on transactions with non- members, except the ff: 2. gross receipts from lending activities by credit or multi-purpose cooperatives 3. sales by non-agri, non-elec, non-credit cooperatives, provided the share capital contribution of each member does not exceed P15,000, regardless of the aggregate capital and net surplus ratably distributed among members.

On VAT (Sec 8.b.2.2.1) VAT is imposed on transactions with non- members, except the ff: 4. Transactions of cooperatives as may be deemed VAT-exempt under the NIRC.

Unrelated Income of Cooperative All income not related to the main/principal business under its Article of Cooperation shall be subject to all the appropriate taxes under the NIRC. Applicable to all types of cooperatives whether dealing with members or both members and non- members

Cooperatives are subject to: 1. Capital Gains Tax on sale of Shares of stocks and real property classified as capital assets. 2. DST on transactions of cooperatives dealing with non-members (except transactions with banks and insurance companies) 3. VAT billed on purchases of goods and services except VAT on the importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production of their produce.

Cooperatives are subject to: 4. Withholding tax on compensation/wages, except in the case where an em0ployee is a minimum wage earner; and creditable and final withholding taxes, if applicable 5. All other taxes for which cooperatives are directly liable and not otherwise expressly exempted by any law.

Certificate of Tax Exemption: On Procedures and Requirements, refer to Section 12 CTE/Ruling Section 13 Requirements Section 14 Validity Section 15 Renewal

Examination of Books of Accounts: Letter of Authority can be effected only after previous authorization by the CDA, which shall be released by the CDA withi8n 20 days from receipt of request from BIR.

Compromise Settlement: 20% of the basic tax assessed on all unpaid/ unsettled assessment as of effectivity of RA % of basic tax assessed under Section 204(A )(2) due to financial incapacity

Financial Capacity: Financial position shall be determined after having deducted all statutory funds required under RA 9520 (such as Reserve Fund, Educational Fund, Community Development Fund and Optional Fund)

Interest on Savings/Time Deposits: Of members of the Cooperatives: EXEMPT from 20% final tax on interest on savings deposits.

End of Presentation Merth Quantum Consultancy, Inc Cel No Tel No