THE Department of Finance, Bureau of Internal Revenue (BIR) and the Cooperative Development Authority (CDA) have issued the joint rules and regulations on the tax exemptions granted to cooperatives under Republic Act 9520 (Philippine Cooperative Code of 2008).
The new regulations provide more liberal tax exemptions for cooperatives which only transact with members, as follows:
1. Exemption from all taxes on transactions with insurance companies and banks, including but not limited to the 20 percent final tax on interest on deposits and the 7.5 percent final tax on interest income derived from a depository bank under the expanded foreign currency deposit system;
2. Value-added tax exemption of electric cooperatives with respect to revenues on systems loss and revenues on distribution, supply, metering and lifeline subsidy of electricity to their members.
These new exemptions may also be enjoyed by cooperatives transacting with both members and non-members but with accumulated reserves and undivided net savings of not more than P10 million.
Likewise, members of cooperatives are now exempt from the final taxes on interest income earned from their member’s deposits or fixed deposits as well as on patronage refunds or rebates received from the cooperative.
The Supreme Court recently ruled that the above exemption privileges of members of cooperatives should be effective even under the provisions of the old Cooperative Code by virtue of a previous BIR interpretation in the form of a ruling confirming the exemption. (G.R. 182722 dated Jan. 22, 2010).
The Supreme Court affirmed the interpretation by the BIR that the 20 percent final withholding tax under Section 24(B)(1) and Section 27(D)(1) covers only interest income from currency bank deposits and deposit substitutes.
Since cooperatives are not banks, they are not required to impose the 20 percent final withholding tax on interest paid on the savings and time deposits of their members.
The Supreme Court pointed out that the tax exemption provision has been retained under Article 61 of the amended cooperative code (The Philippine Cooperative Code of 2008), with an expressed clarification that members of cooperatives are not subject to final taxes on their deposits.
To enjoy the tax exemption privileges, cooperatives must secure a certificate of exemption/ruling from the BIR within 60 days from the date of issuance of their certificate of registration from the CDA. (Source: Punongbayan & Araullo)