A call for cooperation from cooperatives

No less than the Constitution has declared that cooperatives are instruments for social justice and economic development. Pursuant to the policy of the state to promote social justice in all phases of national development, Republic Act (RA) No. 9520, otherwise known as the Cooperative Code of the Philippines, was enacted to foster the creation and growth of cooperatives. They are granted tax incentives, some of which are the exemption to pay taxes and fees for transactions with its members.

To avail of such exemptions, a cooperative must apply for a certificate of tax exemption (CTE) following the guidelines for the issuance thereof in Revenue Memorandum Order (RMO) No. 76-10. The same RMO specifically states that a cooperative’s authorized official must prepare a certification under oath of the list of cooperative members with their respective TIN and their capital contributions. For the issuance of the corresponding CTE, the original copy of said certification along with a duly-accomplished BIR Form No. 1945 (Application for Certificate of Tax Exemption for Cooperatives version 2016) and the other documentary requirements must be submitted to the Revenue District Office (RDO) having jurisdiction over the principal place of business of the cooperatives.

Pertinent to the TIN requirement, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 102-16 on Oct. 24 to clarify that a cooperative may choose to submit an original copy of certification under oath of the list of its members with their full name and capital contribution. In doing so, the RDO must issue the CTE despite the non-submission of the TIN of the cooperative’s members. However, the cooperative should submit the required TIN within six months from the issuance of the CTE. Failure to submit the members’ TIN requirement within the six-month period is a ground for revocation of the CTE.

In the absence of the CTE, the cooperative cannot avail of the tax incentives granted by RA No. 9520 as well as other laws and regulations granting them special tax treatment. Now isn’t that such a harsh consequence? Or is the BIR right in imposing such requirement?

As early as 1999, government agencies were directed to incorporate the TIN in issuing all forms, permits, licenses, clearances, official papers and documents. The directive is contained in Executive Order (EO) No. 98, which aims for a more efficient tax monitoring leading to an increased compliance with tax laws. It must also be noted that the TIN requirement has also been previously relaxed by RMC No. 81-10, which allowed the submission of a certified photocopy of the list of cooperative members with their respective capital contribution.

Moreover, the BIR has already reduced the documentary requirements for the application of a TIN through the issuance of RMC No. 93-2016. An applicant only needs to submit a duly filled-out BIR Form No. 1904 (Application for Registration) and any identification issued by an authorized government body ( e.g. birth certificate, passport, driver’s license, CTC) that shows the name, address and birthdate of the applicant.

The BIR must have learned from experience that cooperative members in the marginalized sectors encounter issues in securing a TIN. Hence, RMC No. 102-16 also allows the cooperative to apply for a TIN on behalf of its members. After securing the proper authorization from the members, the cooperative may submit the requirements to the concerned RDO.

From the foregoing, we can surmise the BIR is giving cooperatives some leeway in the submission of the documentary requirements for their application for a CTE. The BIR may be aware that a CTE is a pre-requisite for cooperatives to avail of the tax exemptions provided for by existing laws and regulations. However, cooperatives are still enjoined to comply with the basic documentary requirements for the issuance of a CTE.

Ruth V. Ricardo is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice, Tier 1 leading tax transactional firm and the 2016 National Transfer Pricing Firm of the Year in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@ kpmg.com.