Professional Documents
Culture Documents
SUBJECT :
SECTION 1.
Scope. Some of our revenue officers have verbally
consulted the undersigned whether or not a "condominium corporation" may be
treated exempt from corporate income tax under Section 30, NIRC of 1997 and, also,
whether its sale of service is subject to the value added tax under Section 108 of the
said Code.
SECTION 2.
A Condominium Corporation is Not a Civic League for the
Promotion of Social Welfare; Not Exempt from Corporate Income Tax. For the
information and guidance of all concerned, a condominium corporation has been held
not entitled to exemption from corporate income tax. Its claim for exemption from
corporate income tax, allegedly as a "Civic league or organization not organized for
profit but operated exclusively for the promotion of social welfare," even if it is
organized as a non-stock, non-profit entity pursuant to R.A. No. 4726, otherwise
known as the Condominium Act, has been denied in the unnumbered BIR RULING,
dated November 22, 1978, issued by Justice Efren I. Plana, in his capacity as former
Commissioner of Internal Revenue, the dispositive portion of which reads:
"From the foregoing powers and purposes for which the Corporation
was organized, it is obvious that the services rendered by the Corporation
benefit only the common areas of the condominium project as well as the
members thereof who are the owners of the condominium units. Said services
do not benefit the community as a whole, and therefore, it cannot be
considered a civic league or organization operated exclusively for the
promotion of social welfare, for the promotion of social welfare covers
activities that advance the common good and general welfare of the people of
the community [34 Am Jur. 2d., 1976 Ed., p. 689] and since the activities of
the corporation are for the benefit of the unit owners of the condominium it
cannot be considered a civic league or social welfare organization. It has been
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That, a condominium corporation is not exempt from corporate income tax has
been consistently reiterated in the following cases, as follows:
BIR RULING No. 277-86, Dec. 18, 1986
"Documentary evidence submitted shows that the Corporation is duly
registered with the Securities and Exchange Commission; that it is organized
under the provisions of the Condominium Act of the Philippines (R.A. No.
4726); and that the purposes for which that Corporation is formed are to hold
title to the common areas in the condominium project known and identified as
'ODC International Plaza.'
"It should be noted that as gleaned in your articles of incorporation, the
services to be rendered by your condominium corporation benefit only the
common areas of the condominium project as well as the members thereof
who are the owners of the condominium units; and that the services to be
rendered do not benefit the community as a whole.
"In view of the foregoing, and since the activities of the ODC
International Plaza Condominium Corporation benefit only the unit owners of
the corporation, it cannot be considered a civic league organization operated
exclusively for the promotion of social welfare as contemplated under Section
27(g) of the Tax Code, for the promotion of social welfare covers activities
that advance the common good and general welfare of the people of the
community (34 Am. Jur. 2d, 1976 Ed. p. 586). Moreover, an association
formed by the unit owners of a condominium project to provide for the
management, maintenance and care of all areas and elements in their
condominium was denied exemption as a social welfare organization (34 Am.
Jur. 2d., 1976 Ed., p. 690). Consequently, that corporation should file an
income tax return and pay income tax on its net income."
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Taxation 2010
SECTION 3.
Sale of Service, Even if Made by a Non-Stock, Non-Profit
Organization, Regardless of Whether Made with a View to Profit, is Subject to the
10% VAT.
The pertinent portion of the Supreme Court decision in the case of
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF
APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents. [G.R. No. 125355. March 30, 2000.], where it was
held that, upon effectivity of the Expanded VAT Law under R.A. No. 7716, (i.e.,
implemented beginning January 1, 1996, pursuant to Revenue Regulations No. 6-95)
sale of service is subject to VAT, regardless of whether or not the same is made by a
non-stock, non-profit entity and regardless of whether or not made with a view to
profit, is hereby disseminated for the proper guidance of all concerned, this being
relevant to the issue in the case of condominium corporations.
HDacIT
"Commonwealth
Management
and
Services
Corporation
(COMASERCO, for brevity), is a corporation duly organized and existing
under the laws of the Philippines. It is an affiliate of Philippine American Life
Insurance Co. (Philamlife), organized by the latter to perform collection,
consultative and other technical services, including functioning as an internal
auditor, of Philamlife and its other affiliates.
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xxx
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the phrase 'sale of services' as the 'performance of all kinds of services for
others for a fee, remuneration or consideration.' It includes 'the supply of
technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial
undertaking or project.'
"On February 5, 1998, the Commissioner of Internal Revenue issued
BIR Ruling No. 010-98 emphasizing that a domestic corporation that provided
technical, research, management and technical assistance to its affiliated
companies and received payments on a reimbursement-of-cost basis, without
any intention of realizing profit, was subject to VAT on services rendered. In
fact, even if such corporation was organized without any intention of realizing
profit, any income or profit generated by the entity in the conduct of its
activities was subject to income tax.
"Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates on a
reimbursement-of-cost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT.
"At any rate, it is a rule that because taxes are the lifeblood of the
nation, statutes that allow exemptions are construed strictly against the grantee
and liberally in favor of the government. Otherwise stated, any exemption
from the payment of a tax must be clearly stated in the language of the law; it
cannot be merely implied therefrom. In the case of VAT, Section 109,
Republic Act 8424 clearly enumerates the transactions exempted from VAT.
The services rendered by COMASERCO do not fall within the exemptions.
"Both the Commissioner of Internal Revenue and the Court of Tax
Appeals correctly ruled that the services rendered by COMASERCO to
Philamlife and its affiliates are subject to VAT. As pointed out by the
Commissioner, the performance of all kinds of services for others for a fee,
remuneration or consideration is considered as sale of services subject to
VAT. As the government agency charged with the enforcement of the law, the
opinion of the Commissioner of Internal Revenue, in the absence of any
showing that it is plainly wrong, is entitled to great weight. Also, it has been
the long standing policy and practice of this Court to respect the conclusions
of quasi-judicial agencies, such as the Court of Tax Appeals which, by the
nature of its functions, is dedicated exclusively to the study and consideration
of tax cases and has necessarily developed an expertise on the subject, unless
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DHSaCA
SECTION 4.
Revenue Procedures. All Revenue District Officers are
hereby instructed to immediately undertake the following measures in order to
enhance our revenue generation effort and thus attain our awesome tax collection
target for the year 2002:
1.
2.
3.
4.
Submit a report thereon, to this Office, within fifteen (15) days from
receipt of this RRMC.
SECTION 5.
RRMC 02-2002 is deemed void under BIR Ruling No. 18-2005 (September 16, 2005)
for having been issued ultra vires.
Now Sec. 30 (G), NIRC, as renumbered by R.A. No. 8424.
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Endnotes
1 (Popup - Popup)
*
RRMC 02-2002 is deemed void under BIR Ruling No. 18-2005 (September 16, 2005)
for having been issued ultra vires.
2 (Popup - Popup)
1.
3 (Popup - Popup)
*
Note from the Publisher: Copied verbatim from the official copy. Duplication of
Section 2.
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Taxation 2010