Cooperative Tax Compliance

Legal Statutes Affecting Cooperatives

RA NO 10963 (The Tax Reform for Acceleration & Inclusion)

Q: What are the effects on the exempted transactions under NIRC as

Amended by RA 10693;

A: SEC. 109. Exempt Transactions. NIRC as Amended by RA 10693 (TRAIN

LAW)

(1) Subject to the provisions of Subsection (2) hereof, the following

transactions shall be exempt from the value-added tax.

(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;

(M) Gross receipts from lending activities by credit or multi-purpose

cooperatives duly registered with the Cooperative Development Authority;

(N) Sales by non-agricultural, non- electric and non-credit cooperatives

duly registered with the Cooperative Development Authority: Provided,
That the share capital contribution of each member does not exceed
Fifteen thousand pesos (P15, 000) and regardless of the aggregate capital
and net surplus ratably distributed among the members;

Q: What is rule on taxing persons exempt from VAT?

A: SECTION 116. Tax on Persons Exempt from Value added Tax (VAT).

Any person whose sales or receipts are exempt under Section 109 (BB) of this
Code from the payment of value-added tax and who is not a VAT-registered
person shall pay a tax equivalent to three percent (3%) of his gross quarterly
sales or receipts:

"Sec. 116. Tax on Persons Exempt from Value-added Tax (VAT). - Any person
whose sales or receipts are exempt under Section 109(BB) of this Code from the
payment of value-added tax and who is not a VAT-registered person shall pay a

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tax equivalent to three percent (3%) of his gross quarterly sales or
receipts: Provided, That cooperatives, and beginning January 1, 2019, self-
employed and professionals with total annual gross sales and/or gross receipts
not exceeding Five hundred thousand pesos (₱500,000) shall be exempt from
the three percent (3%) gross receipts tax herein imposed."

Bureau of Internal Revenue Circular 12-2010 Joint Revenue Regulation

for Articles 60, 61 and 144 of RA 9520

Summary:

Kinds of Cooperatives under Articles 60 & 61 RA 9520

1. Those transacting with members only

2. Those transacting with members and of non-members whose

Accumulated Reserves and Undivided Net Savings not more than
(₱10,000.00) Ten Million Pesos Exempt from all national internal
revenue taxes as Cooperatives in Art 60 of RA 9520.

3. Those transacting with members and non-members whose

Accumulated Reserves and Undivided Net Savings are more than
(₱10,000.00) Ten Million Pesos Exempt from all national internal
revenue taxes in Art.60 of RA 9520 with respect to transactions with
Members but subject to NIRC Taxes with respect to transactions with
non-members

Section 7 of RMC 12-10

Exemption of Cooperatives under Art 60 Tax Exemptions of Duly Registered

Cooperatives which transact business with members only. Duly registered
cooperatives dealing/transacting business with members only shall be exempt
from paying any taxes and fees including but not limited to;
1. Income tax
2. VAT
3. Percentage Tax
4. Donor’s Tax on donations to duly accredited charitable, research and
educational institutions re-investment to socio-economic projects within the
area of operation of the Cooperative
5. Excise tax for which it is directly liable
6. Documentary Stamp Tax (DST) provided the other party who is not exempt
shall be the one directly liable
7. Annual Registration fee of P500.00

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8. All 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 (EFCDS)

Section 8. Taxability/Exemptions of Duly Registered Cooperatives which

transact business with members and non-members.

a.) Cooperatives with Accumulated Reserves and Undivided Net Savings

(ARUNS) of not more than Ten Million – Exemption from all national
internal revenue taxes
b.) Cooperatives with Accumulated Reserves and Undivided Net Savings for
more than Ten Million
b.1.) Business Transactions with members – Business Activities engaged
in by such cooperatives with its members where the said cooperative
generates revenues shall be exempt form all national revenue taxes.

Section 9 Taxability on non-related income

All income of cooperatives not related to the main or principal business of the
cooperative under its ACBL shall be subject to all appropriate taxes under the
NIRC.

Taxability of all Cooperatives, regardless of classification

1.CAPITAL GAINS from sale of shares of stocks and other disposition of real
property classified as capital assets;
2. DOCUMENTARY STAMP TAXES on transactions of coops dealing with
non-members, except transactions with banks and insurance companies,
Provided that whenever one party to the taxable document enjoys the exemption
from Documentary Stamp Taxes, the other party who is not exempt shall be the
one directly liable for Documentary Stamp Taxes;
3. VAT billed on purchases of goods and services, except VAT on the
importation of agricultural coops of direct farm inputs, machineries and
equipment’s, including spare parts thereof, to be used exclusively and directly in
the production of their produce under Sec 109(L) NIRC;
4. Withholding tax on compensation of employees;
5. Income and business taxes on unrelated income to the main/principal
business under its Articles of Cooperation;
6. All other taxes for which coops are directly liable and not otherwise exempted
by any law.

Section 11 Taxability of members/share holders of the cooperative. All

members of coops shall be liable to pay NIRC Taxes EXCEPT FOR THE
FOLLOWING;
a.) Share Capital
b.) Patronage Refund
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 RMC 54-2016
CDA Certificate of Compliance

Circularizing the Guidelines Governing the Issuance of Certificate of Compliance,

in lieu of Certificate of Good Standing, Pursuant to Cooperative Development
Authority (CDA) Memorandum Circular (MC) No. 2015- 08 Series of 2015.

Per CDA Memo No. 2015- 08Certificate of Compliance refers to the certificate, in
lieu of the then Certificate of Good Standing, issued to all types of cooperatives
after compliance with the rules of the Authority.

A COC shall be issued once a year for following purposes:

1. To affirm the cooperative's compliance with the CAPR and its attachments as
prescribed by RA 9520, its Revised IRR, and other related issuances;
2. To avail of the incentives and privileges set forth by the CDA-BIR Joint RR
Implementing Articles 60 and 61 of RA 9520 in relation to RA 8424;
3. To secure permits and licenses prescribed under the provisions of the Local
Government Code of 1991;
4. To comply with the documentary requirements prescribed by the financial
institution in availing financial Assistance.

RMC 102-2016
On TIN Requirement

Clarification on the Requirement of Taxpayer Identification Number (TIN) for

Members of Cooperatives Applying for Certificate of Tax Exemption (CTE) under
Revenue Memorandum Order (RMO) No. 76-2010 and Revenue Memorandum
Circular (RMC) No. 81-2010

RMO 076-2010 requires, for the issuance of the CTE, that cooperatives submit,
among others, an Original Copy of Certification under Oath of the List of
Cooperative Members with their respective TIN and their capital contributions,
prepared by authorized official of the Cooperative.

The above requirement has been relaxed by RMC No. 81-2010 which allowed, in
lieu thereof, the submission of Certified Photocopy of the List of Cooperative
Members with their Respective Capital Contributions.

Processing and Issuance of CTE

The concerned (RDOs shall allow the processing and issuance/revalidation of
CTEs of qualified cooperatives which do not have yet the TIN of members,
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provided that they submit, in lieu thereof, an original copy of Certification under
oath of the list of cooperative members, with their full name and capital
contribution
.
Cooperatives shall file the application for CTE using the duly accomplished BIR
Form 1945 (revised Oct 2016 attached hereto as Annex "A", and submit other
documentary requirements set forth under Section 5 (A) or (B) of RMO No. 76-
2010, as the case may be

The concerned RDOs shall not deny or put on hold the processing and issuance
of the CTE solely on the basis of the non-submission of the TIN of the cooperative
members. It is clarified, however, that cooperatives, which have been granted
with CTE under the preceding paragraph, are still required to complete and
submit to the concerned RDO the required TINs of their members within six (6)
months from the issuance of the CTE.

Processing and Issuance of TIN

The documentary requirements for the application of TIN have already been
reduced under RMC No. 93-2016 in order to facilitate the issuance of TIN to those
in marginalized sectors, including members of cooperatives. A person who is not
employed or engaged in business or practice of profession, may apply for a TIN
by filing the duly accomplished BIR Form 1904 (Annex "B"), together with a
photocopy of any identification issued by an authorized government body
which shows the name, address and birthdate of the person.

In order to assist its members in securing TIN, the cooperative, with proper
authorization from the members, may apply for the issuance of TIN in behalf of
its members, by collating the duly accomplished BIR Form 1904 of the
members and valid identifications in support thereof, which shall be submitted
to the concerned RDO for the processing and issuance of the TIN.

Revocation of CTE

The non-submission by the cooperatives of the members' TIN requirement within

six (6) months from the issuance of the CTE shall be a ground for the revocation
of the CTE, in addition to those set forth
under Section 8 of RMO No. 76-2010.

Past issues and developments revolving the issuance of CTES

RMC 18-2017
On Service Cooperatives

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For the information and guidance of all internal revenue officials, employees and
others concerned, attached as Annex "A" hereof is the copy of Memorandum No.
008- 2017 dated February 24, 2017 regarding the issuance of
Certificate of Tax Exemption (CTE) to Service Cooperatives.

BIR Memo 8-2017

This has reference to the Memorandum dated Feb 24, 2015 by CIR Kim S.
Jacinto-Henares directing all RD, Regional Legal Divisions, RDOs and other
Revenue Officials, Employees and others concerned to refrain
from issuing CTE to cooperatives not specifically identified under RA No. 9520
such as labor contracting, professionals, construction, mining and other
cooperatives similarly created.

The Bureau also issued RMC No. 12-2012 which circularized the instruction of
the CDA to its Regional Directors to refrain from registering the cooperatives (i.e.,
as labor contracting, professional, construction,
mining and other cooperatives similarly created) and conduct
inspection/examination and/or investigation and to verify complaints that the
cooperatives previously
registered were used as tax shield which could be considered as fraudulently
registered, one of the grounds for cancellation and revocation of Certificate of
Registration.

The affected cooperatives, however, posit that Article 23 of RA No. 9520,

specifically includes a definition of service cooperative as follows: "Art. 23. Type
and Categories of Cooperatives. —
Types of Cooperatives — Cooperatives may fall under any of the following types:
(a) x x x
xxx xxx xxx
(e) Service Cooperative is one which engages in medical and dental care,
hospitalization, transportation, insurance, housing, labor, electric light and
power, communication, professional and other services;

Aside from the service cooperatives, other cooperatives not specifically defined
under the afore-quoted provision may also be registered as determined by the
CDA. Moreover, RA 9520 expressly provides that any doubt in
the interpretation and construction of said law should be resolved liberally in
favor of the cooperatives, thus:

"ART. 142. Interpretation and Construction. — In case of doubt as to the meaning

of any provision of his Code or the regulations issued in pursuance thereof, the
same shall be resolved liberally in favor of the cooperatives
and their members."

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It is our position that service cooperatives must not be totally prohibited from
availing of the tax incentives provided under RA 9520 provided that they are duly
registered with the CDA and have been issued Certificates of Good Standing to
show that they are bona fide cooperatives falling under RA 9520. Provided,
however, that these cooperatives will be subject to post audit verification to check
on whether they are just being used as a tax shield to avoid or evade payment of
taxes.

Accordingly, service cooperatives that fully comply with the guidelines of the CDA
may be given tax exemption certificates provided that they also submit the
documents required by the BIR under Revenue Memorandum Order (RMO) No.
76-2010 (Prescribing the Policies and Guidelines in the Issuance of Certificate
of Tax Exemption of Cooperatives and the Monitoring Thereof) dated September
27, 2010.

CDA Memorandum Circular 2019-06 Procedures in submission of Annual

Tax Incentive Report, in furtherance with Section 3 (b) of RA 10963 (Train
Law)`

Section 3. Section 5 of the National Internal Revenue Code of 1997 (NIRC), as

amended, is hereby further amended to read as follows:

"Sec. 5. Power of the Commissioner to Obtain Information, and to Summon,

Examine, and Take Testimony of Persons. - In ascertaining the correctness of
any return, or in making a return when none has been made, or in determining
the liability of any person for any internal revenue tax, or in collecting any such
liability, or in evaluating tax compliance, the Commissioner is authorized:

"(A) x x x
"(B) To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-owned or -
controlled corporations, any information such as, but not limited to,
costs and volume of production, receipts or sales and gross incomes
of taxpayers, and the names, addresses, and financial statements of
corporations, mutual fund companies, insurance companies,
regional operating headquarters of multinational companies, joint
accounts, associations, joint ventures or consortia and registered
partnerships, and their members: Provided, That the Cooperative
Development Authority shall submit to the Bureau a tax incentive
report, which shall include information on the income tax, value-

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 added tax, and other tax incentives availed of by cooperatives
registered and enjoying incentives under Republic Act No. 6938, as
amended: Provided, further, That the information submitted by the
Cooperative Development Authority to the Bureau shall be
submitted to the Department of Finance and shall be included in
the database created under Republic Act No. 10708, otherwise
known as ‘The Tax Incentives Management and Transparency Act
(TIMTA)’.

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